The beginning of the year has not been awful. Which is all I ask, really.
You’ll recall that last quarter capped off the worst year ever for the Slow and Steady passive portfolio: a -13% loss. Pretty painful, if really nowt but a light slap on the list of all-time market drawdowns.
The good news today is every asset class bar commercial property has regained ground since then. That’s despite bank runs triggering flashbacks to the Financial Crisis, Britain flirting with recession harder than a couple of Love Island playas, and all of us being afraid of our heating bills.
True, recovering a few per cent under these circumstances feels about as triumphant as winning back 20 yards of No Man’s Land after months of trench warfare. It’s hardly the stuff of overnight victories, but we’ll take what we can get.
Here are the latest results from the Slow and Steady portfolio brought to you by HalfGlassEmpty-O-Vision™:
The Slow & Steady portfolio is Monevator’s model passive investing portfolio. It was set up at the start of 2011 with £3,000. An extra £1,200 is invested every quarter into a diversified set of index funds, tilted towards equities. You can read the origin story and find all the previous passive portfolio posts tucked away in the Monevator vaults.
The wider economic tumult has put me in a disheartened mood. I think it’s because, for me, my own portfolio first and foremost represented a hedge against being crushed by the grinding wheels of capitalism.
Regardless of demand for my particular skills, through focused saving and investing I was able to construct a fast-moving skiff of securities that skimmed over the turmoil and finally beached me in the sunnier climes of FIRE1 island.
But I now worry the opportunity may be lost for the younger generation battling rising taxes, rising inflation, a rising cost of living, and fears of a rising China.
How can you invest if you can’t spare the change?
And why would you believe in it anyway if the market drifts sideways for years?
The generation game
For all we talk about it being a long-term game, I’m painfully aware that passive investing was an easy sell when returns were advancing at a heady rate, post-Financial Crisis.
But how many would jump onboard or keep the faith during a lost decade? Even if that churn created the conditions for higher expected returns in the future?
Who would buy into that?
It’s not a personal thing. I’m happy and remain optimistic about my own future.
But I was moved by Mrs Accumulator telling me that her young pupils feel terrified of, and despondent about, the climate crisis.
I don’t blame them. Too many of their elders seem to be calculating it’s okay to drive SUVs because they’re not going to be around to deal with the consequences.
So colour me concerned that there aren’t enough reasons to be hopeful about the future right now. It feels like the tube is squeezed from both ends – from a UK and from a global perspective.
My portfolio has helped insulate me to some extent. I just don’t want those who come after me to conclude that even the financial independence escape route has been closed.
Slow & Steady: the sequel
Changing the subject, I’d like to ask your opinion about some ideas The Investor and I have been kicking around.
We’ve been thinking about introducing two new Monevator portfolios to the site. They’d be long-running series, in a similar vein to the Slow & Steady portfolio.
One would be aimed at absolute beginners and the other would plot a course for Planet Decumulation.
It’s crazy but true that the Slow & Steady portfolio is in its 13th year now. This means there are only seven years left on the clock before we hit the model portfolio’s self-imposed 20-year lifespan!
So the question we’ve been asking ourselves is: what would a passive portfolio look like if we were starting from scratch today?
Our model portfolio is meant as an educational exercise, rather than as a default recommendation. And my reading of the feedback is that everybody gets the global equities side of the equation.
All the angst lies on the defensive side:
“Why bother with bonds?”
“Why are my index-linked gilts getting crushed?”
“What about ‘alternatives’?”
“I’ll stay in cash thanks.”
I think a new starter portfolio should work harder to explain its defensive picks. I also believe the Slow & Steady probably isn’t diversified enough to deal with an uncertain world.
I’ve talked before about the all-weather portfolio concept. Harry Browne’s Permanent Portfolio and Ray Dalio’s All-Weather strategy are famed examples.
These frameworks focus first on the principles of diversification, while being built upon solid investing foundations that remain simple and effective.
Model behaviour
The value of a model portfolio lies in its ability to confirm or to challenge our preconceptions.
I’d rather the Slow & Steady’s successor tilts more towards the latter, by exploring what happens when we add more volatile but less correlated assets to the mix.
Something like:
- Global equities
- Gold
- Broad commodities
- A bond barbell (long bonds and an ultra-short or cash component)
That’s a portfolio which will almost always have a hero and a zero on its books. The contrasting fortunes of those asset classes should provide plenty of food for thought.
To keep it simple, I’m thinking of leaving out some of the elements the Slow and Steady portfolio already deals with. For example, UK home bias, global REITS, and emerging markets.
Index-linked bonds would also stay on the shelf. I think young investors can do without them.
Should the equity allocation be invested in ESG funds? Because my hunch is that more young investors are putting their faith in that label even though I’m wary of the potential for greenwashing.
And should there be a 5% fun money element? Perhaps a naughty punt on tech, a macroeconomic theme, private equity, or some other alternative bet?
Let me know what you think.
Destination decumulation
The decumulator’s portfolio would be more about the moving parts than the asset price soap opera.
All the action happens when you withdraw cash. Perhaps there’d be two check-ins a year to simulate that. Maybe I’d run two different withdrawal methodologies in parallel to see how each plays out.
Then I’ll try to tease apart the complex interactions of portfolio returns, inflation-adjusted income, tax consequences, dynamic withdrawals, SWRs, and life expectancy.
Rock. And roll.
Along the way, I’d like to look at how to handle unexpected cash demands, equity release, annuities, sustainable withdrawal rate guardrails, and the psychological hurdles of living off a diminishing pot of wealth.
It all sounds pretty ripping, I’m sure you’ll agree!
Anyway, we’ve been musing about it for ages so it’s about time we did something.
Please let me know your thoughts, ideas, and requests in the comments below.
New transactions
Every quarter we pipette £1,200 into the global market petri dish. Our financial seed culture is split between seven funds according to our predetermined asset allocation. The trades play out like this:
UK equity
Vanguard FTSE UK All-Share Index Trust – OCF 0.06%
Fund identifier: GB00B3X7QG63
New purchase: £60
Buy 0.247 units @ £242.69
Target allocation: 5%
Developed world ex-UK equities
Vanguard FTSE Developed World ex-UK Equity Index Fund – OCF 0.14%
Fund identifier: GB00B59G4Q73
New purchase: £444
Buy 0.842 units @ £527.11
Target allocation: 37%
Global small cap equities
Vanguard Global Small-Cap Index Fund – OCF 0.29%
Fund identifier: IE00B3X1NT05
New purchase: £60
Buy 0.159 units @ £378.28
Target allocation: 5%
Emerging market equities
iShares Emerging Markets Equity Index Fund D – OCF 0.21%
Fund identifier: GB00B84DY642
New purchase: £96
Buy 53.402 units @ £1.80
Target allocation: 8%
Global property
iShares Environment & Low Carbon Tilt Real Estate Index Fund – OCF 0.17%
Fund identifier: GB00B5BFJG71
New purchase: £60
Buy 28.207 units @ £2.13
Target allocation: 5%
UK gilts
Vanguard UK Government Bond Index – OCF 0.12%
Fund identifier: IE00B1S75374
New purchase: £324
Buy 135.381 units @ £135.38
Target allocation: 27%
Royal London Short Duration Global Index-Linked Fund – OCF 0.27%
Fund identifier: GB00BD050F05
New purchase: £156
Buy 146.893 units @ £1.06
Target allocation: 13%
New investment contribution = £1,200
Trading cost = £0
Take a look at our broker comparison table for your best investment account options. InvestEngine is currently cheapest if you’re happy to invest only in ETFs. Or learn more about choosing the cheapest stocks and shares ISA for your circumstances.
Average portfolio OCF = 0.16%
If this all seems too complicated check out our best multi-asset fund picks. These include all-in-one diversified portfolios, such as the Vanguard LifeStrategy funds.
Interested in tracking your own portfolio or using the Slow & Steady investment tracking spreadsheet? Our piece on portfolio tracking shows you how.
Finally, learn more about why we think most people are better off choosing passive vs active investing.
Take it steady,
The Accumulator
- Financial Independence Retire Early [↩]
I would be very interested in the decumulator portfolio and associated articles
The beginner portfolio would be of interest to me. I have dabbled with the Vanguard lifestrategy products but would be interesting to learn more of an independent approach.
There is a danger of succumbing to pessimism and making a tricky situation worse. As you allude to, some young people might conclude: why bother investing at all when the world might have ended?
Some of my peers think like that, and even opt out of their pensions to make ends meet.
But it only emphasises to me, as a young-ish accumulator, how important it is to plan for our financial future. We have less room for error. I’m thinking more carefully about it than my parents (perfectly sensible, well-educated people) ever have (or had to)!
As for the meat of the post: what I have found most helpful from Monevator are its clear, digestible and practical guides. There is a risk of overwhelming newbies by adding complexity to the Slow & Steady model IMV. While I’d find it interesting as an amateur enthusiast, I would advise most young investors to make a cheap one or two fund portfolio that they can stick to!
As someone who is ‘enjoyably unoccupied’, I’d be interested in a Decumulation series.
I am in the middle of dividing my growth portfolio into separate area of growth, preservation and income stream. So would be interested in hearing about how others are getting on.
I love the idea of a sequel! It would be interesting to compare and contrast two ends of the spectrum – beginners and decumulators – and how they can both be passive. Imagine two pots – one filling in and the other dripping out – just enough for it to keep going for long enough.
I would like to see the all weather style portfolio.
It could serve as a good example to learn about
diversification and defensive assets.
I’d also be very interested in the decumulation aspects.
I am currently planning SIPP portfolio decumulation for both my own and my wife’s SIPPs as we are now both retired and in our mid-sixties.
There does not appear to be much practical UK based advice on decumulation out there – the majority is US based.
This is my concern, also. However much we say that a new S&S is a *model* portfolio, some/many people will see it as a recommended portfolio.
We’ve seen this already with the S&S over the last 13 years. And at least it had the virtue of being relatively simple and easy to recommend.
As you can see, this is a (constructively) live issue between me and @TA 🙂 And I totally see where he is coming from with the desire to push the boundaries here.
One solution might be to continue to run the S&S beyond 20 years, and to combine updates on the ‘Slow and Steady and More Complex’ portfolio with traditional S&S updates.
The danger there is it’s getting cumbersome, and of course it’s more work for @TA who is meant to be retired 😉
While I’m here, does anyone find the ‘new trades’ summaries at the end useful?
Potentially we could create some sort of ‘trading log’ page elsewhere that is simply an infinitely long list of each quarterly transaction, divided by quarters so you could Search for any of interest, and with the latest trades at the top. We could link across from the quarterly update to direct anyone interested to them…
This would simplify the page down a bit. But if people love seeing the latest trade details as part of the ‘model portfolio experience’ then perhaps not optimal.
Intrigued by your remarks on the “grinding wheels of capitalism “
Surely it’s Capitalism in all its glory that is building your Hedge ie your portfolio against the vagaries of life or does/can Socialism/Marxism achieve the same end results in a nicer way-history seems to be against it
Re Portfolios-if I was starting out again
100% global equities index tracker till reasonable pot accumulated
Then add bonds-a global bond index tracker hedged to the pound
Amount of bonds in Asset Allocation -use your age or age minus 10 as a rough guide
Never have less than 30% equities in your portfolio
2-5 years of living expenses in cash at retirement to cope with downturns (important if a downturn occurs at retirement)
That’s it
Watch expenses ,taxes and live frugally
xxd09
Being in decumulation currently, I would love to see more on this.
We decided on an 85% global equities, 15% short dated bonds portfolio with a 3% withdrawal rate. Pulled the trigger in July.
The bonds were supposed to be very boring for drawdown for 5 years if the equities went south. Having realized over the past 12 months that short dated bonds aren’t quite as stable as first thought, were moving that to cash over time. I’m not sure I would say that we misjudged our risk tolerance exactly, but I do feel we picked an asset with the wrong (but adjacent) level of volatility for our purpose. Lots to learn, always.
Another tick for additional portfolios from me!
Too much change at any one time can be confusing/scary/etc. For that reason alone I would opt for just introducing the deaccumulation pot. Your suggested other changes could, of course, come along later and could use any key lessons learned from introducing the deaccumulation pot.
Re the deaccumulation pot, good old JPG has just done his 2022 update,
see: https://retireearlyhomepage.com/reallife23.html
By my calcs this, is his 22nd annual update of this dataset!
I believe the right answer for most people saving for retirement is a single global index tracker. So long as retirement is some way off and even then… The problem is that it’s not so interesting to write blogs about.
Perhaps you could have some example people with names,( like the Finimus post) to illustrate how they deal with things on top of the choice of securities (which is really a solved problem for passive investors). Jobs , expenses, tax wrappers, ages, marriage status etc.
William
Another small request during these turbulent times, although it will require some work and make your spreadsheet a lot more complex… how about showing real (inflation adjusted) annualized returns?
What a disgrace to hear schoolchildren are terrified and despondent about climate change. As adults we need to act as if we are. Mental illness seems to be on the rise amongst teenagers. Are we proud of this? I’d hoped we’d learn something from the terror indoctrination programme applied over Covid with their inflated daily death counts and everything else (Hancock’s “scare the pants off everyone.”) Seemingly not.
For beginners you would be better off suggesting one multi asset portfolio fund, Vanguard, HSBC. etc. This keeps it simple and removes the desire to meddle to your detriment. The decumulation portfolio is a great idea mainly because it covers an area mostly overlooked by most blogs. Keep on rocking
Another vote for the decumulation portfolio with perhaps a bit of time profiling.
Someone FIREing in 40s is very different to a SIPP access retiree who in turn is different to a state pensioner, which might indicate different attitudes towards growth/risk.
@CJ — You write:
This reinforces my point earlier in the thread. These are *model* portfolios, which aim to educate, yet in a discussion of such you propose we suggest one multi-asset portfolio fund as a portfolio to track. 🙂 Not having a go, I’m just pointing out that people come at these model portfolios from different directions.
Quarterly updates on a one-fund portfolio would be dull even for us! I guess there’d be the new money contributions to be fair, which might add some educational value / interest. But even still, would we really be adding value over the fund’s factsheet?
Again, thanks for your feedback! 🙂 My concerns tend more in your direction, as I noted, but I do think a one-fund portfolio would be going too far.
We do ‘recommend’ (we don’t recommend personally anything) that those minded to should investigate single fund portfolios at the end of each update. Perhaps we could bring that higher up the article?
+1 for Decumulation please. Fab idea!!!
As I’m sure you’re aware, there’s an excellent monthly “forward test” over at Bogleheads using Variable Percentage Withdrawal (VPW) by a contributor longinvest, which is brilliant (https://www.bogleheads.org/forum/viewtopic.php?t=284519).
Maybe, if it’s not too much work for TA, you could select 3 withdrawal methods and a couple of asset allocations? E.g. 4% SWR; VPW; Fixed Percentage with a Vanguard Lifestyle and something more esoteric with Gold and Inflation linked bonds and alternatives. The results could be reported in a shared Google worksheet which updates fund prices, etc, so minimising reporting once set up… I’m sure you’ve a catalogue of back articles you can reference for your decisions i.e. “our Withdrawal Rule is to withdraw only from the asset class which has done best, so we sell XX units of abc…” Actually, that bit could probably be automated too.
Sorry, realise I’ve gotten a bit carried away suggesting work for you guys!
But a really great idea for a new series.
I would be very interested in the decummulation portfolio and associated articles as well. Thanks.
Hi,
Another vote for decumulation portfolio as this area is represented far less on majority of posts/platforms.
Re Harry Brown portfolios would be interested if you would consider managed futures as a uncorrelated asset class to hold against a equity/bond portfolio?
Best
MrBatch
Nice update as always, not sure if another portfolio is needed, however it would be good to perhaps go into an all weather portfolio.. at least in terms as fund options for gold & commodities
Hi,
A decumulation portfolio would be very interesting. I have been looking at clients retirement portfolios for over 30 years and its not the investing which is the problem – its the money illusion!
Large drawdowns from the initial pot to buy the car etc.. “which will see you out”, then the emergency £5000 draws which attract higher rate tax … then the pot shrinks and the draws start to evaporate it.
So I now try to describe shape of retirement spending – spend whilst you can enjoy it with a reducing income curve – or be frugal and have a rising income curve.
And then life gets in the way throws in an unexpected illness and expense or bereavement and the whole plan goes to pieces.
Also voting for the decumulation portfolio. I’m not so bothered about SWRs, more about whether to re-jig my portfolio towards either, or both, of total return and dividend-paying. On the numbers alone I think TR on a portfolio of index trackers has the best of the argument, but the practicalities favour a dividend-paying portfolio of investment trusts – in my nineties do I really want to be thinking about what percentage to sell this year and how and when to allocate sales across different platforms? At present my portfolio is a ragbag of all sorts and will need rationalising one way or another in the next couple of years.
I’ve always wondered how far the S&S portfolio actually deviated from the LS60 fund over these past years. I anticipate there’s not much in it mostly due to the equity/bond ratio?
I realise the S&S has a lot going on with cash flows and rebalancing, so probably tricky to replicate. If it is possible in some fashion, it may illustrate the point regarding the alternative simplicity of these one fund portfolios?
+1 on the deaccumulation model portfolio tracker – trouble is what method, longevity, etc, etc. Might also take 30+ years to work out if there is a happy ending!
Thanks again for all the hard work. Conscious of asking for more – sorry.
Looking forward to how you handle the decumulation portfolio. Articles on the 4% SWR have always perplexed me – never anything about how complicated/difficult it might be for a buy and hold investor who has been accumulating for decades to suddenly sell 4% of their assets on a regular basis without that having some sort of psychological impact on them. I know for a fact that it’s going to affect me, which is why I hope that my divi paying investments will help cushion the mental blow in some way!
The beginner portfolio will be interesting too as I’d like to point to that when my nephew comes of investing age!
Following one of the all-weather portfolio styles would be good – a large part of my portfolio is still (mostly) based on the Tim Hale Home Bias – Global Style Tilts 4 Portfolio, which you mentioned in your (last updated in 2013) post:
https://monevator.com/9-lazy-portfolios-for-uk-passive-investors-2010/comment-page-1/ – which remains one of my favourite Monevator posts as it got me to actually read Tim Hale’s Smarter Investing book!
Been following these updates for years (sans the buys & sells at the end) Ade’s suggestion in post #24 re comparing S&S against a pure LS60 would be pretty interesting, in 7 years time you could move S&S into a decumulation strategy!
Another +1 for a decumulation series, having pulled the trigger at the start of 2020 it would be interesting and no doubt beneficial to see alternative strategies and importantly how they playout over time.
Keep up the excellent work !
Been in Deaccumulation for 23 years
Over half our income comes from an investment portfolio
Portfolio is in SIPPs and ISAs(wife and I)
3 funds only-a FTSE All Share index tracker ,a World Equities index tracker ex U.K. and a Global Bond index tracker hedged to the pound
Treat all accounts as one portfolio re Asset Allocation which is…….
30/65/5 -equities/bonds/cash (cash equals 2 years living expenses-now in Instant Access Cash ISAs)
Sell required number of units from equities fund and/or bond fund and from SIPPs and /or ISAs as required once a year to top up cash expenses account retaining Asset Allocation
Withdrawal rate varies from 3.5-3.8%
Have used the 25% tax free withdrawal from both our SIPPs early on in retirement
Seems to work -so far!
xxd09
Hi TA and TI,
I’d love to see an ESG/SRI/Impact-focused beginner’s guide.
There’s a wealth of information in this site’s back catalogue (albeit mostly not ESG), but reading the right bits, in the right order, and ignoring the bits which have been superseded, can be a struggle.
Whilst I’m now into the latter half of my career, I’m not yet near enough to decumulation to be seeking-out such articles. (But if you write ’em, I’ll read ’em.)
Two areas where my current research is slow-going are …
* ESG/SRI/Impact cheap global equity index trackers (most ethical-ish funds I’ve found are Active and costly)
* Investments with a negative correlation to equity
… so that’s what I’d like to read more articles about.
If you were to write articles aimed at 20-something’s who’d like a nice retirement without killing the planet then I think there would be enough overlap with my current situation to provide value.
I can also see the value of an optional 5% fun/active element – mostly to stop people fiddling with their main portfolio.
The Model S&S Portfolio – *I* don’t see it as anything beyond inspiration. Although I was happy to see the overlap and parallels with the results of my own research. =o)
The New Trades section – I find it useful both as a reminder to *do* my own topping-up and rebalancing, and also as a illustration of *how* it’s done. I don’t mind if you have it at the end of every quarterly update article, or just link to a log page.
Still, thanks for the excellent site and all the information and inspiration it provides. (And to all the regular commenters for their often valuable insights – thanks folks!)
Another great article.
My one addition would be to compare the S&S and/or new fund against a 100% equity fund.
I get the reason why the S&S was created, it is in the name.
You address some of the concerns in one paragraph:
Our model portfolio is meant as an educational exercise, rather than as a default recommendation. And my reading of the feedback is that everybody gets the global equities side of the equation.
All the angst lies on the defensive side:
“Why bother with bonds?”
Could a comparison be made with say 15 years investing into a vanguard all world index tracker, then the last 5 years buying into bonds.
It would highlight the ups and downs compared to S&S, but would it end up ahead of S&S at the end of the 20 years?
Is this the way to go or is there some ‘magic’ in rebalancing between the equities/bonds?
tempting to add “our random ftse100 share of the quarter” as the fun asset, to demonstrate just how bad things can go!
Yet another vote for the decumulation portfolio, with particular emphasis on the psychological aspects as highlighted by @weenie (26),
I’m less sure about the ‘beginner’ portfolio, particularly if it is deliberately to contain more volatile elements, albeit hopefully uncorrelated. If Slow & Steady still has seven years to run, can the decision on this not wait a little longer?
@Meany – that’s a great idea. Bench mark it against an equivalent active portfolio promoted by HL or II or whoever.
Thanks for the S&S updates. I was waiting for it.
I’ve just started my investment journey and would be very interested to see the new defensive portfolio. I believe the S&S model is a little bit outdated and nowadays it requires a different approach. Plus it would be nice to see the differences between S&S and the new all weather portfolio. Maybe the simplicity of S&S would return better results in the end.
Yet another vote for decumulation! I’m minded to buy an annuity, at least to cover basic costs, but perhaps that’s partly because I don’t really understand decumulation and how that would work. I also agree absolutely that the defensive side is the hard bit. Especially after last year’s bonds-mare.
But I hope you’ll stick with Slow & Steady. It’s actually the fact that by now you might be thinking you’d start out differently that makes it interesting. We all have these times when we look at what we have and think, well, I’d arrange things differently if I were starting from scratch. But it’s more interesting to have to deal with what you planned yesterday, and decide whether to stick to or ditch that plan. I’ve found the adjustments along the way quite insightful.
My suggestion for one or both of these portfolios is that you add a level of life hazard. Perhaps you could spin a wheel or something and if it lands badly, you can land your fictitious investor with a mishap (e.g. disability giving rise to care needs) so that you would have to cut contributions or raise more income. I find most financial models assume a predictable life, with neat phases (“young earner” “raising family” “kids left home” “retirement”), and an assumption your income will rise neatly to peak when you are in your career prime. At each stage you are supposed to look like the happy family, running along the beach on an insurance advert. You’re supposed to have an idea of your income, needs and time horizon. They don’t include time on chemo, divorce, not marrying in the first place, caring for elderly parents or a disabled time, or long-term disability of your own….
Sorry to end on a gloomy note!
And another vote for the decumulation portfolio.
I am planning to start taking an income in 2-3 years time and my SIPP is with Vanguard. Currently split 80/10/10 – equity/bonds/cash
Another “yes please” for the decumulation portfolio.
I retired last spring age 56 and have been living off cash savings to date. I will probably need to access my DC pensions this autumn so this topic would be very timely. Given all the help I’ve received from this site over the years, I’ve no doubt it will provide really valuable insights too. Thanks in advance!
A Decumulator’s portfolio would be interesting as that is what I should be doing. It is hard to establish a framework in which you have to have cash for living expenses, plus cash or equivalent for contingencies and gifting, while drawing down pensions and investments and at the same time throwing another £20k into an isa so as not to lose the annual allowance, oh and making sure you have a defensive portfolio which still has enough growth to smooth out bad years over time and combat inflation.
Sounds like a hospital pass to me but just establishing a mental framework would be good. My approach usually involves taking a cork out of a bottle.
34 and building a long term portfolio…
72% Vanguard FTSE Global All Cap – Global equities
10% Vanguard UK Government Bond – Intermediate gilts
10% CG Absolute Return – wealth preservation, bond heavy
10% Trojan Fund X – wealth preservation, bonds, commodities
3% HarbourVest Private Equity
Thoughts?
#39 @CM I would start from the problem not the exact product choice.
When do you want to start using the money? If it’s a long way off and you have a stable job, then why have anything but equities?
The right portfolio depends on the goal.
@TA:
Yes, Huzzah to a decumulation series!
I’m eight years down the FIREy yellow brick road of retirement, and would be particularly interested on your thoughts about withdrawing from SIPPs and ISAs, especially in conjunction with ‘annuity like’ work & state pensions chugging down the track in a few years.
+1 for a decumulation portfolio (with a quarterly update if possible!).
I don’t read the trades section of the S&S so that could save some time!
On the ESG front, I’d suggest this is something that should only be done with Active management (I know a dirty/’naughty’ word round these parts). Anything done with tick boxes is just greenwash. If you look at e.g. the Stewart Asia funds, they are genuinely passionate about what they’re doing & their case studies give you confidence on this. The long-term performance is pretty good too (on certain funds, not all).
Don’t know about the other portfolio – the longer I’ve been in the game, the more I think that Buffett’s right & people should keep it simple & just drip into the S&P500.
Congrats on the length of the Slow & Steady – I think it’s been a fascinating and impressive exercise (though I don’t agree with all of it).
+1 for decummulator portfolio
On the topic of assets that are uncorrelated with equities…
I have always thought that a good candidate for this is catastrophe bonds.
e.g. https://www.morningstar.co.uk/uk/funds/snapshot/snapshot.aspx?id=F00000NMKP
I’ve never seen a way to access them as a UK retail investor though. I’d love to know whether anyone knows how.
I also like the idea of a decumulation portfolio.
The other I’m not so sure of. Part of me wonders if it is driven by some sort of crisis of confidence in the simple passive portfolio brought on by this period of depressing equity and bond performances.
My current deaccumulation portfolio is basically a Vanguard 80/20 LS strategy fund. However, in order to take a more “cautious” approach, last year I cashed in £40k of this as part of my pension TFLS in order to put into two ISA funds (mine and my DOH) in a 20/80 Vanguard LS fund, at a time when I thought I knew that bonds were so much of a safer bet. That is currently sitting untouched at £34k, with me telling myself that I’m “in it for the long term” while I live off additional cash I took from the TFLS at the time. So my “more cautious” deaccumulation strategy is not quite going as planned, it’s fair to say.
Yes please to the Decummulator-tron! I need help!
34 and my ISA is for school fees and potential house upsize in 10 years time…
70% Vanguard FTSE Global All Cap fund
5% iShares Physical Gold ETC
20% Vanguard UK Government Bond fund
5% 3i Private Equity IT
Another decumulation vote please, great idea. Agree with @Maximus (41) for thoughts on managing decumulation of ISA/SIPPs from FIRE at ~55, then DB pensions ~60, then state pensions ~67, then maybe buying annuities ~75.
Adding to my previous comment. This S&S Isa is for school fees and a house upsize in 10 years time.
Was thinking:
70% Vanguard FTSE Global All Cap fund
20% Vanguard UK Government Bond fund
5% iShares Physical Gold ETC
5% HVPE investment trust
I am 100% global equities in my pension as that has a 24 year time horizon. Just looking for reduced volatility and some crash protection.
Thoughts?
A YT video to show Mrs Accumulator to share some ideas with her pupils. It is 4yrs old now so some minor errors have fleshed out but the principles regarding problem solving are surely sound. Obviously, regarding China, very many other aspects also need presenting to the uninformed.
YouTube potholer54 : “A conservative solution to global warming”
https://youtu.be/D99qI42KGB0
Yes indeed to tom_grlla (43) & Mike (46); simplest is bestest during the accumulation phase. Anything else is just expensive window dressing in my humble opinion; and so says all the evidence we have, as far as I know.
My vote is for the decumulation portfolio as well – much harder to navigate than accumulation, IMO.
In accumulation you just bung it all in 100% equities and clear off on your holibobs for rest of year. Easy. (well just about)
Not so decumulation – it’s like floundering around in treacle with lead boots – what asset allocation should I go with this month/what’s the latest science? How much should I hold in cash/bonds/linkers/gold/fine art/pearls & diamonds/jelly beans/Mane bald patch cover up spray? (https://maneuk.com/hair-loss-cover-bald-patch/ ) (Damn, didn’t want to tell about that!)
Should I have them in income funds for ease of withdrawal or better to sell up accumulation funds? Will I be bust (before I’ve croaked) on a 4% withdrawal rate? Then there’s the pesky rebalancing act now that other things have entered the scene.
Also what about all the tax implications? Should I even worry about Inheritance Tax, or as I get more decrepid, just blow it all on a year long “club swingers mega bang bash” in Honolulu? Not sure really.
I’ve had major problems with indecision – although nowadays I can’t be so sure? But just maybe this decumulation portfolio could enlighten me? That’s why it got my vote.
Another vote for a model portfolio for decumulation here.
Also belated thanks for that last SIPP v ISA article – very useful.
I’ve had to go back to the Broker Table article too – my twin boys turned 18 last week so JISAs became ISAs. Along with their independence they obviously get a side helping of charges so there is some more maths to do.
Do you need any more votes to make up your mind re. a Decumulation Portfolio?!
I have been a long-time reader but have never commented to date.
I wish I had discovered your blog a decade earlier than when I first stumbled on it.
You are doing an invaluable service. Please keep up the good work.
Would welcome your proposed portfolios.
Yet another one here for the Decumulation Portfolio please. With my last paypacket due in around 3 weeks time, if you could get the entire voluminous works published by the end of the month please that would be wonderful, thanks!
I’ve spent the last 20 years or so ‘planning’ for this moment, trying to work out how best to sequence withdrawals etc., and then along comes Mr J. Hunt with his Spring Budget and sets me back to square one. Well almost. Actually he’s been a very generous Chancellor, so far.
I find the subject of decumulation to be fiendishly complex, as everyone has a unique situation and there can’t be a ‘one size fits all’ approach. As mentioned by others, the psychological aspect of no more paydays can have a big effect on the mind and definitely needs addressing early on. For those fortunate to have a DB pension or sufficient funds to generate enough ‘natural income’, these can provide a bit of a comfort blanket for the disappearing monthly fix, but it’s still going to take a bit of getting used to checking the old bank balance and seeing a big gap.
Isn’t it hard to model decumulation without having a plan? It’s a very different portfolio if you plan to leave nothing compared to passing something on.
Regarding young people worrying about climate change; when I was young, I worried about a nuclear holocaust. I’d say that there’s always something to worry about and maybe that’s how problems eventually get addressed.
PS Another vote for a deacumulation portfolio.
I think the beginner portfolio would be a great idea. I actually used the Slow and Steady as my blueprint for getting into index funds. Didn’t know what I was doing and had 5 HSBC index funds. After then reading, reading and reading, I ended up with 5 vanguard funds and still have the same ones 6 years later; Global Small Cap, FTSE All Share, FTSE Dev World, Global Emerging Markets and UK Gilts.
I still have doubts about how I ended up with what I have so a follow on for beginners would serve as a good ‘check in’.
One thing that is clear reading the Comments is that if you’re not on a big DB pension and if you don’t have a massive savings account approaching seven figures, then you’re worrying about your pension income on a daily basis from Day One of your retirement. The responsibility of trying to preserve your retirement financial position in a way that will ensure peace of mind is constantly tapping you on the shoulder. I believe there used to be something that people once purchased called an “annuity” that might give a guarantee of your future income, until the financial industry effed that up too. I really do feel sometimes that I just don’t want this responsibility of managing a big pot of money for who knows how many years, but that I’m just left to get on with it, like it or not.
A vote for each portfolio. It would be nice to see your slant on the de-accumulation side of things as well as the starting out one.
I remember back in the mid eighties sitting around the sixth form common room with my pals talking about how living for now was all we could do as the road to nuclear destruction seemed certain. I suppose my point is that it took a near crisis to have the will to avert a crisis. Yes it still could happen and we seem to take steps every year towards or away from the doomsday clock ticking its final. I actually find it uplifting that so many are now concerned about this. We stand a better chance of taking action if they are!
JimJim
Decumulation yes please. Could you also cover the mechanics? Seems potentially complex to me, esp with multiple pots/providers. With your help I got rid of an expensive adviser to build the pots, I now fear I need one to help get the money out.
TA: At the last S&S I think you indicated that benchmarking against VLS60 was a great idea so I was a teensy bit disappointed not to see it this time. If it’s not too difficult, any chance you could give us a clue? While I find the transaction details interesting I would happily lose them in exchange for a meaningful comparison. If not VLS60, because of the home bias I would happily go for 60/40 Vanguard AllCap equity fund (Acc)/non-interest-bearing cash. I guess the comparison’s main complication is the drip feeding and dividend top-ups, but at least there would only be one top-up.
Against all of the above I imagine you have plenty on your plate already, so I won’t comment further if it doesn’t happen. The value of Monevator to me and my family is immeasurable.
@Gizzard — You write:
There’s a saying among (smarter!) active investors that “timebombs don’t explode”.
At least I think there is, maybe it’s my phrase. 😉
Anyway, the gist is that I agree with you that when we know something is coming, we are generally not entirely terrible at taking evasive action.
The best example par excellence was the Y2K bug. Billions was spent addressing this problem in advance to ensure planes didn’t fall out of the sky and so on, to the extent that skeptics did victory laps afterwards saying it was all a massive hysteria. (Entirely missing the point that the hysteria curbed the calamity).
There are two issues with this approach as a cause for optimism re: climate change, however:
1) It can lead to complacency. If you think “we will sort it out, we always do” and use that as an excuse not to do anything, you don’t defuse the bomb. I definitely see that issue with climate change.
2) We need to (mostly) all agree that it is a bomb/potential crisis. Scientifically we’re there with climate change and in practical terms have been for three decades. Politically we’re mostly there, with some lamentable lapses (e.g. Trump, and successive UK governments suspending fuel duty escalator etc). The public however has shown itself to be fickle and a cohort easily swayed by ‘common sense’ populists. (See the B-word, which has a chunky crossover with climate change denialism).
Anyway, I’ll be extremely pleased if it turns out that when I’m an old man (if I’m so fortunate to get there!) my concerns about climate change / environmental degradation look misplaced in retrospect or even foolish, because we defused the bomb. 🙂 Perhaps falling birthrates everywhere (except Africa) are the biggest stroke of unexpected luck we’ve had in this department for a while. (The increasing cost-competitiveness of alternative energies have been baked in mathematically for at least 15 years, even if many strove not to see them.)
Anyway a bit off-topic for the main thread I suppose. We hear you re: decumulation! We can’t make it too complicated however (testing 5 alternative strategies etc) as this is a tracking problem that will only get thornier over time I expect (as you have to adjust for edge cases, quirks, whatnot). We’ll see! 🙂
JimMcG,s post is one I am seeing more and more of
It seems to take 2 forms
Investor been managing a portfolio during a working life with yearly salary coming in but realising that at retirement one mistake in the running of their portfolio will make life very difficult ie having not managed to save enough to have a safe “financial cushion”
Or
Someone coming to retirement and suddenly having to manage a large amount of money probably via stocks and shares with little or no prior knowledge of investing
Both rather frightening scenarios for the people concerned
Advice from a blog like this badly needed
xxd09
Slightly off topic, but it is Bed and ISA time…
Question – if I bed and isa (same shares) and make a £4K loss can I use this loss to offset other gains? Ie does the usual 30 day rule not apply as you are switching from a taxable to non-taxable wrapper?
Couldn’t find it online or HMRC – a link or opinion would be useful
@xxd09 Ah yes, I remember in 2008 watching my portfolio crash and thinking, “Oh good, think of all those extra units I can buy in my tracker at half price!” as I fondled my pay packet. Fast forward to more recent times and watching almost 30% being knocked off your DC pot, with no income coming in from a salary whatsoever. It almost sent me back to work.
Re decumulation I think if the model is in terms of having SIPP + ISA it serves as a generality i.e. some pot taxable on drawdown the other not. People can adjust for their own circumstances re TFLS and taxable GIA.#
Having said that I question whether you’d really need the SIPP/ISA divide as well unless there is some choice re risk weighting in the ISA etc. Re Inheritance surely you designate a sum in today’s pot terms you’d ideally pass on and deduct it from your calculations: it doesn’t really impact the desired portfolio
@xxd009 (#28):
A quick question please:
Not sure how 5% cash (described as “2 years living expenses”) maps to “Withdrawal rate varies from 3.5-3.8%”.
Does your withdrawal rate calculation include non “investment portfolio” income, presumably pensions, etc?
@Al Cam, great link you posted. That’s exactly what I wanted to see. it’s not just the asset allocation it’s the starting date also. @Confuzed, does the spray work, asking for a friend.
@CJ:
JPG is a bit of a forgotten pioneer of FIRE, see e.g.:
https://forum.earlyretirementextreme.com/viewtopic.php?t=10436
IMO, his annual deaccumulation update has a lot going for it!
The only non-trivial issues that I can see with John’s annual update for a UK audience is that it is entirely US-based and IIRC ignores [any] platform fees and taxes.
Re deaccumulation, I’m still not 100% sure of the optimal batting order when accessing funds (assuming I’ve settled on the method, McClung’s, VPW, etc.).
What I mean is, do I expend all in taxable GIA, then ISA, then PCLS, then finally the taxable DC pension (assuming no other income).
One alternative being a blend to extract the maximum of all tax free allowances until income tax due.
I guess I’m really referring to drawdown tax planning DIY style.
I sense this just got a little easier with the removal of the LTA, leaving the pension to grow with more equity allocated now possible.
Just wondered if anyone knows of a general consensus or guide/book out there I can educate myself with?
@Al Cam (#12) – The Harry Dent portfolio really shines on JPG’s deaccumulation study even beating Warren Buffett! I think we need to be careful drawing too many general conclusions from this impressive result though.
First of all, most of the study has been carried out during a time when interest rates and inflation were lower and growth stocks were shining. It’s increasingly likely that we’re now going through an economic regime change. In fact, if we zoom in the last update compared to last year’s (raw data before inflation adjustment):
Harry Dent went down by -11.14%
Warren Buffett went up by +1.01%
Larry Swedroe went down by -0.68%
Harry Browne went down by -14.61%
You can see how Larry Swedroe’s portfolio went down by only slightly more than half a percent because it’s small bond portion has very short duration and the large stock portion is skewed to small caps.
Harry Browne’s has 25% of long duration bonds, so no wonder it’s gone down by almost 15%.
I’m really happy with my own portfolio. I’m not withdrawing yet and contributed a bit in 2022. I stopped contributing though just before the market really tanked. If I take that period just after my last contribution and compare with the beginning of April this year, I get close to the Warren Buffett’s portfolio: +0.75% annualised 🙂
My fixed income portion has been mainly low to medium-ish duration for years, the stock portion is skewed to value and small caps, and the gold portion is slightly less than that of the Golden Butterfly rather than Harry Browne’s 25%.
@TBDW (#75):
Re: “I think we need to be careful drawing too many general conclusions from this impressive result though.”
Indeed. The whole (so-called) SWR approach is deeply questionable, but interesting nonetheless.
Alternatives to the SWR method could IMO be a rich vein for any future Monevator deaccumulation series.
An additional facet of JPG’s annual update is that he provides a link to the underpinning spreadsheet. So, if wrangling spreadsheets is your thing, you could pretty easily do a lot of what-ifs, such as varying the w/d rate, £/$ x-rates, etc.
@Al Cam (#76) – “An additional facet of JPG’s annual update is that he provides a link to the underpinning spreadsheet. So, if wrangling spreadsheets is your thing, you could pretty easily do a lot of what-ifs, such as varying the w/d rate, £/$ x-rates, etc”.
I’m not a great fan of spreadsheets but this is a good idea. Thanks! The spreadsheet will be useful as a source for the data anyway, even if the additional analysis is done somewhere else.
@TBDW (#77):
You are most welcome.
I assume you know that ERN provides links to all his spreadsheets too?
What I particularly like about JPG’s work is that he uses published data from purchasable funds (albeit US based) and not just the index data, a la ERN, et al. As I see it, this means John’s results embody all the real-world wrinkles and nuances (and costs) that are just not present in pure index data, no matter what the timescale resolution (IIRC, ERN uses monthly rather than annual data).
Al Cam -yes I treat all my stock,bond and cash investments-SIPPs,ISAs and cash accounts as one “portfolio -easier to manage that way re withdrawals and maintaining a desired Asset Allocation
The withdrawal rate for this “portfolio “ is 3,5-3.8%
The cash portion of the portfolio (5%) =2 years living expenses
The “portfolio “ provides over half our retirement income
A Teachers pension plus 2 State Pensions provide the rest of our retirement income
xxd09
It may be tricky to come up with a generic decumulation portfolio and strategy as indivdual requirements and attitude to risk can vary so much.
I would suggest simplicity should be a key attribute for a decumulation portfolio, as there is much to think about already with the mechanics of ISAs, SIPPs, LTAs (or not), annuity decisions, downsizing, rebalancing and/or harvesting, gifts, charitable donations, IHT mitigation and probably other things I have not thought of. Personally I am happy to be 90/10 global equities/cash+short dated gilts, with extra cash to meet expected short term (up to 5 years) spending. I don’t feel the need for gold, linkers, etc.
“It’s not a personal thing. I’m happy and remain optimistic about my own future.”
Wow, can you tell the rest of your ARTICLE? @TA, I come to rely on you for a balance of Monevator optimism.
As for children being terrified of an apocalypse. There’s always been enough bad news to terrify people.
In peacetime, it is up to us adults to role model positive action and change in a safe space for our young people. If we’re all terrified, they will be too.
You can make better decisions when survival isn’t your primary focus (FI is financial side of this).
Minimise your negative physical impacts, focus on the amazing world around us all and role model it to influence others.
How to retain the buying power of your accumulated wealth in retirement and avoidance of inheritance tax as the end game approaches might be useful. Maybe Trusts for the next generation or two.
I would like to see the beginner investment portfolio and the inclusion of ESG is a great idea. I have seen that investing my pension pot into sustainable funds can be the biggest possible reduction in my carbon footprint, so I am considering moving lots of my investments that way
@ all – Sorry for the late reply, I’ve been away most of the week including a visit to TI HQ. Thank you so much for your positive responses, thoughts, links, and bonus suggestions for mane rescue products.
It’s all going into my ideas pot but clearly it’s time for me to get on with it!
It may be hard to come up with a decumulation pathway that’s as universal as the accumulation equivalent.
Perhaps the key to making a decumulation series work will be workshopping various scenarios (e.g. planning for inheritance) and then standing back while the Monevator Massive pile in with alternative suggestions in the comments.
Invariably whenever someone has a particularly problem, someone here has something thoughtful to say about it.
Aside from that, I’ll aim to pick a decumulation path that contains as many dilemmas as I possibly can heap onto it like a Buckaroo pony.
Hence the SWR should be borderline uncomfortable i.e. closer to 4% than 3%. There’s no DB pension cavalry on the way. The income level doesn’t sit too far above ‘the essentials’ level, so there’s only a limited headroom to cut expenditure. Guardrails could force inflation-adjustment holidays or other income reductions.
Perhaps I’ll model front-loading spending in the hope that the State Pension and retirement spending smile takes care of the risk further down the line. There’ll definitely have to be an inheritance element but this will be more aspirational than certain.
I’ve previously thought I should build in some random event generator to model emergency demands on cash. If anyone can recommend anything like that – where I can input events for it to randomise that’d be fantastic.
Onedrew – The VGLS comparison is still on my list. I need to find the time to work out how to do it though.
Yet another vote for the decumulation model!
I’ve followed the S&S right from the beginning and it’s been a fascinating ride. At the time I was fully invested in a LS80 fund and the comparison was interesting as a benchmark.
But I am now way closer to winding down than up, so I have an eye on the horizon as the decumulation phase approaches.
Look forward to this one developing!
Thanks for the great work over the years btw.
Decumulation decisions project?
Love the idea.
Thanks for all you do to help amateurs like me.
Phil