Pensioners should have 100% equities - side issues

Brendan Burgess

Brendan Burgess

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These are the non-core issues moved from this thread

Pensioners should have 100% of their retirement funds in equities

Marc has raised the question here: https://www.askaboutmoney.com/threads/should-retirees-be-100-invested-in-equities.238746/ A few people have told me that they could not follow the thread so... 1) I will summarise the arguments from that thread 2) Explain why I believe that investing 100%...
www.askaboutmoney.com

Most threads go off down rabbit holes to such an extent that the ordinary reader trying to understand the issue gets alienated.

I have moved posts on
1) How the €17k OAP was calculated
2) Whether going to a financial advisor is risky
3) Prospect theory
4) personal attacks
5) Accusations of bias
6) Advertising
7) The availability of HELOC in Ireland.
 
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Hi Brendan,

For the avoidance of doubt, I'm not an all-in equity man in the context I described earlier! I share your view that stock picking is really not a smart idea. At least that one is put to bed or, at least, ought to be.

I also have a few questions.....

1. Do you agree that investment strategy should be aligned to one's investment objectives? (It's pretty much a yes/no question)
2. Do you think it is possible for someone to prefer a less volatile income stream over maximising income? (again pretty much yes/no)

If the answer to these questions is yes, then hard to see your all equity logic. If the answer to either is no, hard to see your logic at all.:)
 

Should retirees be 100% invested in equities?

Also, there’s really no reason to expect a portfolio that glides from 30/70 to 90/10 to outperform a portfolio with a fixed 60/40 portfolio, on average. Would you mind explaining what these numbers refer to please? I’m guessing equities versus bonds but I don’t know which is which.
www.askaboutmoney.com
 
Roro999 said:
Hi Brendan,
Post 5 case 1 query.
66 year old gets OAP of about 17k.
Is it not nearer 15.5k ?
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Probably based on the 2025 full weekly rate of €290 plus the Living Alone Increase of €22 (plus other increases and maybe annual double/bonus payments?) which is about €16-17K p.a.?
 
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ClubMan said:
Analysis of spending patterns shouldn't be left to the early years of retirement. Ideally this is an exercise that everybody should be doing on a regular basis in order to understand their budgetary needs, identify where savings can be made, and to help to use any discretionary funds prudently. (I understand that life has a habit of getting in the way and this isn't everybody's idea of fun, especially if they happen to be living beyond their means *, so it maybe doesn't happen as often as it probably should). With more and more of our expenditure done electronically it's easier than ever to do this. E.g. download a year's worth of debit and credit card statements, plug them into a spreadsheet, and categorise them to identify the annual and monthly totals for all relevant essential and non-essential categories of expenditure.

* And, of course, the state itself living so far beyond its means doesn't exactly set a good example for its citizens... :confused:
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Agree. Maybe I should have said a review of spending against plan.
 
Roro999 said:
66 year old gets OAP of about 17k.
Is it not nearer 15.5k ?
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Hi Roro

We are talking about a general issue of where it's best to invest. Many of the projections are imprecise. So getting the exactly right figure for the OAP doesn't change the overall point.

Here are my calculations. Are they incorrect?

Social welfare rates announced in Budget 2025

A list of social welfare rate increases announced in Budget 2025. These rate increases require legislation to bring them into effect.
www.citizensinformation.ie www.citizensinformation.ie

Weekly rate €289.30
Living alone allowance: €22
Total €311.30
x 55 ( to include double payments)
= €17,121
 
JimmyB99 said:
Hi Brendan,

For the avoidance of doubt, I'm not an all-in equity man in the context I described earlier! I share your view that stock picking is really not a smart idea. At least that one is put to bed or, at least, ought to be.

I also have a few questions.....

1. Do you agree that investment strategy should be aligned to one's investment objectives? (It's pretty much a yes/no question)
2. Do you think it is possible for someone to prefer a less volatile income stream over maximising income? (again pretty much yes/no)

If the answer to these questions is yes, then hard to see your all equity logic. If the answer to either is no, hard to see your logic at all.:)
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You need to read the whole thread and point out where my reasoning is wrong. Believe me, if I am wrong, I want it pointed out and explained why.

I don't want to be queuing up at a food bank when I am 90 because of some flaw in my logic - even if it is with a much younger wife.

Brendan
 
Brendan Burgess said:
You need to read the whole thread and point out where my reasoning is wrong. Believe me, if I am wrong, I want it pointed out and explained why.

I don't want to be queuing up at a food bank when I am 90 because of some flaw in my logic - even if it is with a much younger wife.

Brendan
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You invited questions. Having read the thread, I asked two specific questions - simply requiring a yes/no answer. I promise if you answer these simple questions, I'll elaborate on where I think you've going wrong. According to Colm, you wanted this debate - why are now you unprepared to answer two considered and targeted questions? Seems most strange.
 
Jimmy

There is a whole thread with abstract arguments. In fact, I split it off a longer thread in an effort to make it readable.

This thread is not a continuation of that thread.

It is aimed at people who could not follow that thread.

Don't derail this one.

If you have a Case Study where it is better for someone to have their retirement funds 100% invested in equities, please let us have it.

If my Case Studies are wrong, please point out the errors and I will correct them.

Brendan
 
A problem with these arguments is that they don't take into account prospect theory. A hypothetical agent that loses 50% in a market drawdown may technically end up in the same position (or even better off) in terms of net wealth as someone who only invested in the run up to the dot com crash in bonds, but they won't have the same 'utility'. The average person will be averse to the losses and feel miserable. There has been a lot of research into this using real people.

I'm not convinced that anyone posting here about 100% equities wouldn't be miserable either with a 50% drawdown late in life, if they were bumped down to relying heavily on the COAP. But if they weren't, I think they are definitely in outlier areas of the population distribution in terms of preferences.

For there to be a big market for 100% equity pension funds they would have to come with a course of brain washing to change most people's wiring around loss aversion (if that's even possible). I think risk preference questionnaires are generally intended to be passive, rather than re-programming people's attitude to risk.
 
RonnieShinbal88 said:
For there to be a big market for 100% equity pension funds they would have to come with a course of brain washing
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Your point is well made. Most people will not invest in equities. They are frightened by all the talk of destitution and food banks.

It's much more comforting to have your money in the Post Office or in a buy to let as it doesn't go up and down in value every day.

But that does not mean that 100% equities is not right. The correct financial strategy for someone who owns their own home and who gets the COAP is to invest 100% of one's retirement funds in equities.
 
RonnieShinbal88 said:
A problem with these arguments is that they don't take into account prospect theory. A hypothetical agent that loses 50% in a market drawdown may technically end up in the same position (or even better off) in terms of net wealth as someone who only invested in the run up to the dot com crash in bonds, but they won't have the same 'utility'. The average person will be averse to the losses and feel miserable. There has been a lot of research into this using real people.

I'm not convinced that anyone posting here about 100% equities wouldn't be miserable either with a 50% drawdown late in life, if they were bumped down to relying heavily on the COAP. But if they weren't, I think they are definitely in outlier areas of the population distribution in terms of preferences.

For there to be a big market for 100% equity pension funds they would have to come with a course of brain washing to change most people's wiring around loss aversion (if that's even possible). I think risk preference questionnaires are generally intended to be passive, rather than re-programming people's attitude to risk.
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Well yeah. The tendency of people to be bad at decision making in general and long term planning in particular has produced many PhDs in psychology over the decades.
 
Brendan Burgess said:
They are frightened by all the talk of destitution and food banks.
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It's not just the worst case scenario, it's also the uncertainty of income that many people do not like.
Preferences are just that, preferences, it's impossible to say that some are correct or incorrect.
Would you prefer a 20% chance to win 10 million, or 1 million with certainty. What is the 'right' investment?
You can say some lead to lower expected net worth but the majority of people aren't targeting that in isolation.
 
Duke of Marmalade said:
Telling the lady on the 46a that if her pension fund falls in value but she needs cash, she should take an expensively geared position rather than cash in some equities doesn't do it for me. :confused:
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Is she sitting on the decommissioned 46A in the Broadstone because she's homeless?
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SquirrelChaser said:
I'm not following the logic here.
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My logic is quite simple.......I'm advocating for selling high and buying low.....whereas a static ARF withdrawal plan (irrespective of market performance) can, in a bad year, be a sell low strategy....a 60/40 portfolio is also a way of not selling low.....but its also a good way of reducing absolute returns.

In this strategy I laid out you'd pivot to an equity release mortgage only in years of exceptionally poor market performance (think 20-25% of all time highs).....a retiree that is retired for 20yrs might only come across the need for this home equity pivot two to three times in that twenty year period......at each juncture and after a full market recovery they could pay down the mortgage debt to zero again.
 
Brendan Burgess said:
Correct.

But so what?

A person who has their own home and the OAP can withstand their equity portfolio bombing out.
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Just to add to this, I know a few people who lost their pensions in the Customs House Capital debacle. Yes it was quite a gunk for them, but it didn't ultimately seem to affect their standard of living in retirement.
 
T McGibney said:
Just to add to this, I know a few people who lost their pensions in the Customs House Capital debacle. Yes it was quite a gunk for them, but it didn't ultimately seem to affect their standard of living in retirement.
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Are we now arguing that we do away with The Central Bank as regulation seems an unnecessary expense altogether.

I mean if everyone has the risk capacity for 100% equities for their retirement and a massive pension fraud is a moderate inconvenience
 
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