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Ideal asset allocation

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
PinkDalek
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Re: Ideal asset allocation

#136428

Postby PinkDalek » May 2nd, 2018, 7:30 pm

tjh290633 wrote:
PinkDalek wrote:I had no idea you retired last year, Terry, but, not being in paid employment myself, I've never been so busy.

It wasn't last year, PD, but I soon learnt that being retired is a full-time job.

TJH


Yes, agreed on the latter, and I knew it wasn't last year. Merely my childish humour getting the better of me.

bluedonkey
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Re: Ideal asset allocation

#136518

Postby bluedonkey » May 3rd, 2018, 10:02 am

PD,

Yes, in future if you wish to make a jokey comment, please add a footnote explaining the jocular reference.

BD

CryptoPlankton
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Re: Ideal asset allocation

#136530

Postby CryptoPlankton » May 3rd, 2018, 10:52 am

bluedonkey wrote:PD,

Yes, in future if you wish to make a jokey comment, please add a footnote explaining the jocular reference.

BD

Because you will have your BD eye on him?*


*This was a jokey comment playing on the pronunciation of the initials "BD" - HTH :)

Bubblesofearth
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Re: Ideal asset allocation

#136775

Postby Bubblesofearth » May 4th, 2018, 10:03 am

Cookie wrote:
I was wondering what is the ideal asset allocation people are aiming for and what types of assets? Feel free to drill down to detail the assets classes, include your home if that's what you do.

If you can state why you choose those assets, if there has been any major changes and why and where you are in your life that may effect your choice

If you can give any idea on the levels of return or what you feel have been your best and worst choices, that would be appreciated


Our breakdown is;

DB Pension 37%
Property (own home) 30%
Equities 26%
Cash 7%

We are still 3 years from taking the pension but it seems sensible to include the (approx) capital value of it.

Over the years real returns from property and equities about equal. I've made more money on owning a house simply because of leverage (mortgage). Cash has never given more than about inflation.

Current cash is in the old NS&I linkers which preserve purchasing power, give diversification and is hidden from the tax-man.

Equities are a portfolio of UK listed shares roughly equal-weighted on purchase. Contrary to popular financial mythology I do not believe CAPM works for the stock market because diversification benefit is not reflected in share prices. I appreciate this is a controversial point but all my experience suggests that equal-weighting on purchase followed by long-term buy and hold beats the appropriate tracker.

Owning your own home in the UK has been kind of a no-brainer given tax treatment and lending rates.

BoE

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Re: Ideal asset allocation

#136818

Postby JNC3 » May 4th, 2018, 11:54 am

Bubblesofearth wrote:Our breakdown is;

DB Pension 37%
Property (own home) 30%
Equities 26%
Cash 7%

We are still 3 years from taking the pension but it seems sensible to include the (approx) capital value of it.

Over the years real returns from property and equities about equal. I've made more money on owning a house simply because of leverage (mortgage). Cash has never given more than about inflation.

Current cash is in the old NS&I linkers which preserve purchasing power, give diversification and is hidden from the tax-man.

Equities are a portfolio of UK listed shares roughly equal-weighted on purchase. Contrary to popular financial mythology I do not believe CAPM works for the stock market because diversification benefit is not reflected in share prices. I appreciate this is a controversial point but all my experience suggests that equal-weighting on purchase followed by long-term buy and hold beats the appropriate tracker.

Owning your own home in the UK has been kind of a no-brainer given tax treatment and lending rates.

BoE


Similar asset allocation to myself. - I see like me you are holding no (or few Bonds). I consider that my DB pension is acting like a safe Government Bond so I see no need. Is you UK equity portfolio an income (HY) type portfolio ?

StepOne
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Re: Ideal asset allocation

#136825

Postby StepOne » May 4th, 2018, 12:11 pm

What multiplier are people using to calculate the capital value of a DB pension?

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Re: Ideal asset allocation

#136828

Postby JNC3 » May 4th, 2018, 12:17 pm

1nv35t wrote:UK larger cap tend be to more 'global' and somewhat acceptable, however that is still UK concentration risk, but otherwise quite Talmud (third each in land, commerce and reserves). Personally we target more a third each £,$,global currency i.e. UK home, US stocks, gold. Broadly liquid asset wealth 50/50 US stocks/gold. Whilst many dislike gold typically each year it will be either stocks or gold that put food on the table for the coming year i.e. had a good year enabling profit taking. On average when stocks are the better performing for the year they'll buy 20% more gold than a year earlier and ditto when gold is the better performing (buys 20% more stock than a year earlier). Whilst on the 'rent' side of things ... that's all liability matched - in effect both the landlord and renter, so it matters not if the landlord raises the rent excessively.


Did you mean you target the following allocation:--

33% land (UK Home)
33 % US Shares
33% Gold

I believe a DB pension performs the function and is better than Gold as it is guaranteed to put food on the table even if shares totally crash
Why only US Shares ? - The US is more diversified than the UK but are not Global shares or Global trackers or ITs more diversified

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Re: Ideal asset allocation

#136830

Postby GeoffF100 » May 4th, 2018, 12:21 pm

StepOne wrote:What multiplier are people using to calculate the capital value of a DB pension?

Estimated years of remaining life * annual payment

This assumes that the discount rate is the same as the rate of inflation.

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Re: Ideal asset allocation

#136832

Postby JNC3 » May 4th, 2018, 12:28 pm

StepOne wrote:What multiplier are people using to calculate the capital value of a DB pension?


I have used 20 x which undervalues my DB pension (my age is 64 & wife age 57 ....DB pension index linked + widows pension)
I think if I had to buy an annuity to provide the same benefits I think 30 x the annual pension payment is a more realistic multiplier.
Last edited by JNC3 on May 4th, 2018, 12:38 pm, edited 1 time in total.

Bubblesofearth
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Re: Ideal asset allocation

#137211

Postby Bubblesofearth » May 6th, 2018, 7:32 am

JNC3 wrote:
Similar asset allocation to myself. - I see like me you are holding no (or few Bonds). I consider that my DB pension is acting like a safe Government Bond so I see no need. Is you UK equity portfolio an income (HY) type portfolio ?


NS&I linkers and DB pension are, IMO, better than bonds or gold because there is zero volatility but similar long-term returns. Unless you catch the bond or gold market at the beginning of a long bull run but I don't think we're at that point currently, probably the opposite.

Equity priorities are in the following order;

1. Diversification, including sector diversification.
2. Equal weight on purchase
3. Long=term buy and hod
4. Selection from FTSE 350
5. Dividends

So not strictly HYP, as divis are down at no.5, but a lot of similarities. I do hold a few low yielders.

A quick word on valuing DB pensions. This will depend on several factors, including any index linking and age of recipient, but is probably higher than most realise. At age 60 and with rpi linking I would suggest value is 39x annual payment. This is from looking at best buy annuity tables.

BoE


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