Exactly - as I suggested earlier but it was effectively dismissed as irrelevant or off topic. And if they have a state pension then that's even more hedging against possible high/all equity ARF volatility. But if all real life buffers against such volatility are dismissed as irrelevant/off topic then it certainly does become easier to assert that a high/all equity ARF is a bad idea...But, sure, if a lump sum is retained and kept on deposit then a more aggressive allocation within the ARF would certainly be appropriate. Obviously you have to look at the overall financial position of any retiree rather than focusing on any account in isolation.
I think that's partly because some so-called experts don't have a clue what investing is really about. The classic is the following:
@Marc defines my practice of buying shares.......
Well, I was trying to keep the thread on topic - “Should retirees be 100% invested in equities”.Exactly - as I suggested earlier but it was effectively dismissed as irrelevant or off topic.
Good question. The answer is on my website colmfagan.ie, where I explain that one of the website’s purposes is:What I'm trying to understand is what is the purpose of your posts?
Well it's a social insurance policy that provides a baseline level of income so is very relevant in the real world of many/most retirees if not in the rarefied world of hypothetical test cases.A State pension is not really an investment and it doesn’t diversify an equity portfolio.
Sure, I’m not trying to downplay the importance of the State pension to most retirees.Well it's a social insurance policy that provides a baseline level of income so is very relevant in the real world of many/most retirees if not in the rarefied world of hypothetical test cases.
Maybe a better way of asking the question is what asset allocation gives a retiree the best possible chance that their portfolio will survive a given level of drawdown over a given timeframe?
Yeah, I’m a bit sceptical about the whole concept of a so-called “bond tent” TBH.From what I’ve read, the answer to that question is an equity glidepath. Diversify for the early years of retirement and basically DCA back into equities over a 10 year period to ensure the portfolio has sufficient growth potential for the latter years.
Which reminds me, I recently read a quite thought provoking post on LinkedIn which argues that with passive investing now overtaking active investing in the US, this poses some serious threats to the price discovery mechanism. Maybe one for another thread.
I think we’ve jumped the shark when we’re consoling retirees who’ve lost all their money that “at least there’s free food available in soup kitchens and the like for the destitute”.That's a bit over dramatic. This is Ireland not a third world country- there's plenty of free food available to people who need it. And it's even available to people who don't need it but like free stuff. Just because I don't go around the houses taking the free food doesn't mean i can't. There's never any questions asked.
For the vast majority of retirees the state pension (whether contributory or not) provides a floor on their retirement income. Very few are reliant on their pension fund for the bare necessities, it's to get them a level of comfort above subsistence.
So we come back to risk appetite- do i risk hitting the floor for the chance of a significantly more comfortable retirement, or do i put my fund into raising the floor by sacrificing that chance.
I think some of the comments directed at Sarenco are very harsh. Sarenco’s point is reasonable. There are conceivable scenarios in which (and people for whom) a 100% equity allocation in their ARF would be catastrophic. And there are people for whom the loss of their ARF and reliance on the State Pension just wouldn’t be manageable. It’s why I always look at my overall asset allocation. For example, having all of my ARF in equities is grand if I’ve a load in a money market fund or some May 2027 Irish bonds that’ll redeem tax-free.
Some poor former ARF-holder queuing-up for soup at the Salvation Army wearing a t-shirt saying “Wow, The S&P Was Indeed Overvalued”.I think we’ve jumped the shark when we’re consoling retirees who’ve lost all their money that “at least there’s free food available in soup kitchens and the like for the destitute”.
The shark was jumped several pages back when people started talking like your pension fund running out at age 84 meant you would either starve to freeze to death before your 85th birthday.I think we’ve jumped the shark when we’re consoling retirees who’ve lost all their money that “at least there’s free food available in soup kitchens and the like for the destitute”.
| Year-end | Annual return | Fee | Net return | €/$ | Euro HICP | Drawdown (€) adjusted for inflation | Drawdown ($) | Fund ($) |
1999 | | 74.2 | | 990,000 | ||||
2000 | -12.9 | 1.0 | -13.9 | 0.92 | 77.4 | 40,000 | 36,800 | 815,392 |
2001 | -16.5 | 1.0 | -17.5 | 0.9 | 79.2 | 40,941 | 36,847 | 635,688 |
2002 | -19.5 | 1.0 | -20.5 | 0.95 | 81.0 | 41,882 | 39,788 | 465,394 |
2003 | 29.8 | 1.0 | 28.8 | 1.13 | 82.3 | 42,569 | 48,104 | 551,091 |
2004 | 14.6 | 1.0 | 13.6 | 1.24 | 84.0 | 43,443 | 53,870 | 572,280 |
2005 | 9.2 | 1.0 | 8.2 | 1.24 | 86.2 | 44,550 | 55,241 | 564,195 |
2006 | 20.3 | 1.0 | 19.3 | 1.26 | 88.2 | 45,604 | 57,461 | 615,341 |
2007 | 10.8 | 1.0 | 9.8 | 1.37 | 90.3 | 46,690 | 63,965 | 611,679 |
2008 | -40.7 | 1.0 | -41.7 | 1.47 | 93.0 | 48,086 | 70,686 | 285,861 |
2009 | 30.8 | 1.0 | 29.8 | 1.39 | 92.3 | 47,703 | 66,308 | 304,712 |
2010 | 12.3 | 1.0 | 11.3 | 1.33 | 94.6 | 48,923 | 65,068 | 274,198 |
2011 | -5.0 | 1.0 | -6.0 | 1.39 | 100.0 | 51,700 | 71,862 | 185,829 |
2012 | 16.5 | 1.0 | 15.5 | 1.28 | 102.7 | 53,080 | 67,942 | 146,765 |
2013 | 27.4 | 1.0 | 26.4 | 1.33 | 103.7 | 53,623 | 71,318 | 114,148 |
2014 | 5.5 | 1.0 | 4.5 | 1.33 | 104.3 | 53,918 | 71,710 | 47,574 |
2015 | -0.3 | 1.0 | -1.3 | 1.11 | 105.0 | 54,285 | 60,256 | -13,310 |
2016 | 8.2 | 1.0 | 7.2 | 1.11 | 104.3 | 53,897 | 59,826 | -74,087 |
2017 | 23.1 | 1.0 | 22.1 | 1.13 | 105.8 | 54,678 | 61,786 | -152,223 |
2018 | -8.2 | 1.0 | -9.2 | 1.18 | 108.4 | 56,022 | 66,106 | -204,324 |
2019 | 28.4 | 1.0 | 27.4 | 1.12 | 109.8 | 56,756 | 63,567 | -323,876 |
2020 | 16.5 | 1.0 | 15.5 | 1.14 | 109.6 | 56,678 | 64,613 | -438,690 |
My joint life (ages 59 and 55) non escalating 10 year guarantee annuity at 4.86% bought this time last year with €420,000 looks good value against this model. I have accepted I’ll not inflation proof the income but it won’t run out either.. and it takes up none of my time.So I did the same exercise for the MSCI all worldon a euro basis starting on 1 January 2000 when €1m would have purchased $990k.
Hypothetical retiree would have run out of money a lot sooner, by 2015 in fact. A bad sequence of early returns combined with an appreciation of the euro by 2003 meant that the fund in dollar terms would have more than halved in just three years. After that recovery would have been very different.
Year-end Annual return Fee Net return €/$ Euro HICP Drawdown (€) adjusted for inflation Drawdown ($) Fund ($) 74.2 990,000
A State pension is not really an investment and it doesn’t diversify an equity portfolio.
My objective is to maximise the probability that my portfolio will produce sufficient returns to allow me to continue living my desired lifestyle throughout retirement. The terminal value is of no real consequence to me.
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?
We use cookies and similar technologies for the following purposes:
Do you accept cookies and these technologies?