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Decumulation: No Cat Food retirement portfolio – Year 3 halfway point [Members]
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Guys, can’t believe the lack of comments on this post! 🙂
We have more Mavens than ever but you’re growing less chatty… @TA is going to be crying into his spreadsheets 😉
I think I’ll share the top-level performance of the NCF portfolio in Weekend Reading on Saturday. Personally I think it’s pretty interesting, albeit a ‘lucky’ result (in that other things could have happened in other universes).
Anyway if anyone is reading this and wanted to comment but is struggling to for some technical reason, please drop me a line either through the contact form or by replying to a recent member email.
I know logging in (and staying logged in) presents some challenge on all sites, like most member/gated communities. (Enabling/clearing cookies usually does the trick, and/or whitelisting Monevator in ad blockers — members read ad-free anyway remember!)
Thanks!
@TI
Well, I’m 74 and subscribe as a ‘Maven’. I don’t have anything remotely near the assets mentioned in the NoCatFood portfolio. In general, however, I did wonder if ‘Maven’ subscribers tended to be of a younger age range than the NCF is aimed at ?
@Trufflehunt — Thanks for the thoughts! From our point of view, I’d say the NCF is meant as an example of a SWR drawdown de-accumulation strategy in action. So many people say there’s lots of info out there on accumulation but very little on drawdown, so we’re looking to help plug the gap with a real-time model in action over many years.
However I suppose by 74 you might be in the swing of things! 😉 I’d still have thought some of the commentary (e.g. the strength of gold) might be a discussion point.
I’m noticing across the blogs I track for Weekend Reading that comments are greatly in decline. Some get basically no comments now that had 10-20 on each post 3-4 years ago. I suppose another victim of AI and video etc.
Anyway, thanks so much for becoming a member if I’ve not said so before! It’s very helpful and much appreciated. 🙂
So, I am just getting to the decumulation stage now and having tested good old NCF on portfoliocharts I am highly likely to adopt it, albeit with a couple of minor tweaks, which I summarise below…
1. I will replace the 30% ACWI allocation with a combo of 20% XDUS and 10% VXUS. This should provide very similar coverage to ACWI, and I am thinking of it purely so I can “compartmentalise” the USA exposure. So if the dreaded AI bubble bursts, I can leave it alone until (one day, hopefully…) it recovers, whilst drawing from elsewhere in the interim.
2. I will drop the 15% IWFM. When I look at the underlying companies IWFM holds, it seems to me to be a disguised AI / AI roll-out bet (which I am trying avoid if I can)! Instead I shall extend AVSG to 30% (so AVSG moves from 15% to 30%)
3. I intend to replace UC15 with XCMC (which tracks Bloomberg Commodity 3 month futures as per CMFP), but XCMC only has a 0.12 TER.
Talking of TER, with the funds I am picking, the “blended TER” works out as 0.16% across the portfolio.
Also, I am thinking of using the linker as a 3 year “liability match” – so each year living expenses from the matured linker, and then rebalance (across everything) whilst buying the next rung. Unless, everything is terrible, then I have a 3 year buffer to wait for something (anything!) to recover.
Those are my thoughts, please let me know which seem reasonable, and which are completely bonkers!
My first post, so be kind! lol
Well I’d like to chip in and say that this series is greatly appreciated by me as I move into deaccumulation.
Having said that I stopped employment 3 years ago and thanks to my wife’s pt work and my small self employed earnings I haven’t actually needed to withdraw anything yet. But I plan to start this year.
The performance has been notable considering everything that’s going on. I notice the gold value has dropped to quite a small percentage of assets, I think some was sold if I recall, is it the intention to get back to the original allocation?
Always enjoy these articles and learn a lot but for me now far down the deaccumulation road-so far is so good but…….
I have a very simple 3 fund portfolio which runs at a variable 3.4%- 3.8% withdrawal rate which does me
It’s all very personal-possibly I have saved more than enough
Relatively complex portfolios and the costs and the work associated with managing them were always too much for me and now ( aged 80) -keeping it very simple works especially with my very amateur investing abilities
xxd09
@Roy B – nice comment and your plan looks eminently sensible to me 🙂
[Reminder: We cannot give personal financial advice, this should only be taken as a general comment about that sort of strategy from a theoretical perspective. See my comment further down the thread — The Investor]
I suppose my gentle pushback would be:
1. You’re betting against the market with only 1/3 of your World allocation in the US. That’s fine of course as long as you’re prepared to live with the regret if you’re wrong.
2. IWFM is a bet on the momentum factor. The momentum factor may be dominated by AI-related stocks right now, but again that’s the market’s verdict, not an intrinsic feature of the ETF or the factor. Momentum is in the portfolio because it has a low correlation with small value. The two complement each other.
When I sum this up, I think the weakest part of your thesis is that you seem to be heavily influenced by the “AI is a bubble” narrative. Maybe it is. But the honest answer is nobody knows, soooo…
3. I like XCMC too.
@Larsen – Cheers! Same as you, we haven’t had to take anything yet. Delaying decumulation has done the portfolio the world of good.
Re: gold. My original plan was to use gold as a one-shot weapon. Don’t rebalance into it, let it run dry because not a productive asset.
But I’ve done quite a bit more work on gold since, and I think its real value is as a highly volatile non-correlated asset i.e. there’s a healthy rebalancing bonus available if I have the guts to buy gold when it looks untouchable.
So now, even though unproductive asset, I think that’s okay because gold offers something that’s hard to get anywhere else. Plus relatively small percentage of portfolio.
On those grounds, I think I will rebalance into gold when the trigger is next activated. Not until next March by my chosen portfolio rules.
@Nobody in particular – Months ago I was meant to help a friend derisk her portfolio. She was overweight equities given her hoped-for retirement age so my task was to help her move stocks into a stronger defensive allocation.
Obviously I was gonna encourage her to hold more in bonds and a wee sprinkle in gold and maybe commodities.
But then she lost her job and wanted to hold off until back on her feet.
Well, thank heavens for that! Her portfolio has continued to grow apace while bonds and gold have not had a fun time since.
OTOH, what if the market had crashed three months ago?
It’s such a frickin’ crapshoot.
I have found the No Cat Food articles particularly interesting- I am likely to access my SIPP during the next 12 months, and I have been tweaking holdings over the last few years along No Cat Food lines. I’m particularly thankful for the Commodities tip- thank you TA!
About half my income will be covered by a Teachers Pension, so I have less exposure to bonds. I am considering holding a ladder of individual index linked gilts (held to maturity) for the next 4/5 years outside of a SIPP/ISA (as they are full) for remaining living expenses. I think I will sneak into the starting rate for savings rate if I delay taking my SIPP. My thinking here is the continuing Trump/ Iran/ El Ninio (inflation- particularly food/ energy) impact. Does this sound a reasonable plan?
Without Monevator (who inspired me to start my investing journey round 8 years ago by moving a stakeholder pension to a self-managed SIPP), I would not have had the confidence to invest, and I would not be in the position to retire early.
This blog really is life changing.
@TheAccumulator – thank you, really enjoying this series.
Re your comments on gold “I think its real value is as a highly volatile non-correlated asset’ – agreed, this is often missed by the ‘it pays no income, I can’t value it’ crowd. Even an asset with a *negative* expected return can improve a portfolio, provided it’s relatively uncorrelated and volatile enough to pick up a decent rebalancing bonus (though obviously there’s a limit to how negative the expected return can be before it starts being a detractor).
“OTOH, what if the market had crashed three months ago?” – this is a tough one, even though it worked out well it could objectively still be the wrong decision. Markets generally go up – so de-risking absent of a big market crash straight after will normally look a bit silly, but risk is only meaningful relative to liabilities, and a job loss (and impending retirement) increases the risk of holding a given portfolio even though the portfolio’s own properties haven’t changed. Judging the decision by whether markets happened to crash afterward is outcome bias – the decision should be evaluated against the information and liability position at the time, not the outcome after the fact. On the other hand – being friends with the person makes this all a bit more complicated!
@TA – thanks for your feedback, much appreciated… I just want to check one thing if I may? In your comment you say
“1. You’re betting against the market with only 1/3 of your World allocation in the US. That’s fine of course as long as you’re prepared to live with the regret if you’re wrong.”.
This is not my intention, and perhaps I have done it wrong… What I am trying to achieve with my fund selection of 20% XDUS (Xtrackers MSCI USA UCITS ETF) and 10% VXUS (Vanguard FTSE All-World Ex-U.S), is 2/3 (66.3%) “USA exposure” and 1/3 (33.3%) “Whole World Excl. USA exposure”. My understanding is that those proportions roughly match the USA vs Rest of World allocations found in ACWI (which is around 62% USA vs 38% RoW). So my intention is NOT to “bet against the USA” in my global allocation, it is to keep proportions close to what is found in ACWI – whilst at the same time allowing me to keep the USA in a separate fund in case of a bubble… If I have this wrong and somehow I am ending up with only 33.3% of my global allocation in the USA, please do say… as I dont want to make a complete Horlix of it at the first hurdle!
Re “2. IWFM is a bet on the momentum factor.” – totally understood, the current momentum link to “AI” is “the current market verdict on what is in momentum”, I 100% get that. I think this is an area I am choosing to make an active tilt away from AI… Who knows what will happen with it – but with a large allocation to AI in my global slice, I am not keen to hold more of it at the moment (but not entirely sure adding more to SCV is the answer either – could be overweight in that). When the whole AI thing cools down, I will likely copy you here, and move to 15% SCV and 15% Momentum.
This is my current plan (if easier to see all together):
Asset Ticker Allocation
USA “XDUS” 20%
World ex-USA incl EM “VXUS” 10%
Small Cap Value “AVSG” 30%
Gold “SGLN” 5%
Commodities “XCMC” 10%
Short-term gilts “IGL5” 5%
Intermediate gilts “VGVA” 10%
Linkers “Various” 10%
@Roy — I’ll let @TA get back to your with more thoughts, but just a reminder that any comments from him (or me!) or the articles are not personal financial advice, which we are not qualified to give you.
We are just offering our general opinions about ETFs and strategies etc. But we clearly do not know anyone’s full financial picture or even a portion of it, and besides the legality/regulatory aspects which mean we must stress we can’t give advice, what looks sensible from here might not be when other factors are taken into account.
So understand @TA as speaking generally. Hopefully his thoughts are helpful from an education perspective, but you will have to do your own research and seek professional advice if you need it.
Apologies if this is coming across a bit heavy but the regulators are pretty strict and given you’re apparently talking about your specific portfolio I do have to stress this.
Cheers!
Accumulator-giving financial advice to close friends and relatives is a fraught and dangerous game -win you are a hero-lose you are consigned to the outer darkness
The doctors rule of not treating close relatives comes to mind
Of course in the real world it’s not that simple but it looks like you dodged a bullet here
What are you going to say when she comes back to you for further financial advice?
xxd09
Hi, I struggle with understanding the benefit of gold! Fundamentally it creates no value and as such relies on speculation for it to increase in value? Yes it can go up in value during times of political and economic strife, but will go down when the causes of the strife are removed. I certainly wouldn’t want to buy gold at the present time. To me, Index Linked Gilts are the only sensible investment for the safe (defensive) part of a portfolio.
@chav – yes but that’s the point, you sell it when it’s up to buy what’s down, and buy it when it’s down with what’s gone up. The whole purpose is an uncorrected source to rebalance from / to.
I very much appreciate the No Cat Food series, as we (my partner and me) are approaching FIRE in the next 3-4 years. Will both be 54ish, so not terribly early but still a gap to normal retirement age for the defined benefit pension one of us has and to state pension age, that our (relatively meagre compared to many here) SIPP and ISA savings will need to cover.
I have in recent months shifted some of my stocks around to balance away from U.S. as it was skewing up to 67-69% of my 80% stocks portfolio. Now at a more sane level which means I may well lose out on some growth, but I think I can stand that better than a massive drawdown if/when the AI thing goes into reverse.
I have also dipped my toe further into the defensive waters with a small slug of commodities and short duration linker ETF, but I haven’t been able to force myself to buy gold yet having missed out on the big run up. Perhaps I will manage to buy into a small stake if it drops a bit further.
@The Investor,
Thanks for your message. Apologies if it come across as “asking for advice”, as that was not my intention (perhaps my wording was not ideal / sufficiently precise). To be crystal, I have already made my own decisions on what funds I was investing in – and had shared them really just for general interest / discussion, and to share some views on how I was tilting away from the (potential) AI bubble (which I thought others may find interesting) and finally, some similar fund options I had found with a lower TER (which again, I thought others may find interesting).
But, point taken… I appreciate everything you guys do, and what the limits are in terms of what you can (and more importantly cant) do…. I shall be a little more careful in my wording of any future questions.
@Roy — Need to apologise, though I appreciate the sentiment thanks. 🙂
Many readers would be surprised perhaps by the UK regulations, and we strive to stay on the right side of them — as well as for wider good reasons such as we do not know you precise circumstances and absolutely are not professional financial advisors, rather very keen DIY investors and FIRE-ees.
Everything on Monevator (and to be honest other sites and resources I’d say) should be seen through that lens: “here’s something to think about” not “here’s something *you* should do.”
@Chav – Check out the Shannon’s Demon section of this piece for the potential of volatile non-correlated asset: https://monevator.com/60-40-dilemma/
Gold is about 19% off the top. Could be the perfect buying opportunity! Could be just the beginning of a multi-year bear…
@Skinny, @TA, I’m still not convinced that Gold is a sensible asset. My investment strategy is to use Equities for the heavy lifting (they are the significant wealth generators) and Index Linked Gilts for future liabilities. Long term index linked gilts are currently paying inflation +2.5% – to me that’s excellent value, which Gold will never match.
@Chav – the real yield to maturity only protects you against inflation risk, not against duration risk, which long term index linked gilts have in spades. Look at 2022 as an example of why you wouldn’t just hold equities and long dated index linked gilts as your entire portfolio – they both get crushed by the same thing, rising interest rates. Gold on the other hand has the potential to do something different. As I mentioned an asset doesn’t even need a positive expected return to improve your portfolio, that’s just how the maths works.
Just commenting to say I appreciate both of the model portfolio series – neither one is a perfect match for me personally (mid-late accumulation), and I certainly continue to be interested in managing the transition between accumulation and decumulation – when to start de-risking vs diversifying. I’m 10-15 years out, but most of that is due to needing to pay school fees for the next 10 years – without that, I’d be very close to retirement-ready now (financially). Started adding nominal bonds a few years ago, now just starting to dip into gold, commodities, and maybe index-linked bonds.
Not looking for a detailed answer here, just to say I appreciate the series, and maybe an idea for another article or two.
@Chav – The index-linked gilt maturing in 2027 isn’t paying 2.5% and neither was any index-linked gilt a few years ago. But at the moment, they do look good. It’s a great time to buy an annuity that’s for sure.
I’m fundamentally against banking on any single asset class including one as good as index-linked gilts. But I respect your views, Chav, gold is a massive punt, so I understand your scepticism – notwithstanding Skinny’s excellent point about the Shannon Demon maths. (The issue with that, I think, is whether an investor has the courage to execute the strategy in the worst of times.)
@Tubaleiter – thank you very much for the comment. Much appreciated. There is a danger that the TI and I interpret a complete wall of silence as rejection of the content and end up cancelling the series. So it’s good to know it’s useful or semi-enjoyable or something 🙂 I hear what you’re saying about how applicable it is to your personal sitch.
@Chav again – re: gold being a massive punt. This is why I keep it at 5% of the portfolio and don’t go up to 20 or 25% of the portfolio. If I dialled up a portfolio on Portfolio Charts then a naive investor would wonder why we aren’t all going massive on gold.
NCF is a great portfolio to follow as indeed is the whole Monevator site. I’ve recommended it to several friends although I sense it’s perhaps overly geeky for them.
I don’t tend to comment by rote but generally when I have something to say, as I’m sure a sizeable chunk of your audience do; so don’t get too hung up about volume of comments. I do however, recognise the mild fear of talking into the wind and the affirming value of getting feedback.
I’m now in retirement drawdown (~2 years FIRE) One thing I’ve increasingly noticed is the value of a simple portfolio that meets my needs rather than one being totally optimised (if such a thing exists) Gold and commodities are, for me, just a layer of worry and complexity I happily forego.
However and perhaps conversely, the excellent articles by @TA on ILG’s made these esoteric products much easier to understand & I’ve initiated a ladder of ILG’s that will fund spending as they mature over the next few years. In theory that’ll deplete much of my defensive assets giving me ~80% equities when SP & DB pensions kick in. I wonder whether I’ll be so sanguine when I get to that stage…..
Unfortunately I am another of the accursed ones (somewhat like @Tubalaiter I think): British born, bred, and dwelling, but with a US passport. That makes articles like this interesting but also quite painful as I can’t hold any UK ETFs (outside of a UK pension), can only hold US ETFs that HMRC recognises, and with sizeable capital gains in my US GIA, can’t easily rebalance without taking a beating. So even though I am by nature and assets ‘a buy and hold broad-based index tracker’ fellow, I find myself with no choice but to buy individual UK stocks if I want some FX balance. As someone who recently retired, more of the cat food insights please! — even if I can’t action a lot of them.
That’s very interesting, and I wanted it to be informative to my current position, which it is.
For context:
I am in an aggressive drawdown phase (+10%) for the next 3.5yrs (IHT considerations), and thereafter 6%.
For info, my portfolio is currently:
VALL 30% / VXUS 15% / MVOL 20% / DFNG 5% / CGT 10% / DBMG 5% / CSH2 5% / SGLN 5% / Cash 5%.
I think we have some commonality between the two.
Hi @TI and @TA
I continue to read these with interest, thanks for another update.
Still grappling with my own portfolio – do I de-risk further or stay with what I have done so far? I think I’m around 70/30 right now, the 30 being cash/bonds/money markets, with a bit of gold. I’m not sure if I should go 60/40 – not specifically planning to, but it crosses my mind occasionally. I still have some chunks in VWRL/VWRP but vastly reduced from when it was the biggest holding in my portfolio. Would I reduce to zero and purchase ex-US global instead? Not sure.
@weenie — The way your Freedom Fund has been performing over the past couple of years, you should be writing big articles on what we should do 😉