Even if bond yields are rising while stock prices are decreasing,the markets are still a bit skeptical as to whether the federal reserve will stick to its goal to raise interest rates until inflation is under control. Would it be best to sell my $210 k worth of equities, what is the best way to profit from the current down market.
She has been the CFA responsible for my portfolio success, she operates a private client base you can confirm her yourself on the internet, regulation and all that.
Not necessarily! Higher interest rates mean lower present value of the large future liabilities that pension funds owe. Reduced liabilities as well as reduced assets!
With bonds overpriced, gold overpriced, real estate overpriced, the only place I found wise to put money is the stock market because from my experience it’s paid off more than any other investment I’ve gotten into.
Virtually everything is overly priced. I'm livid as to what to put money into that can bring me returns. I live paycheck to paycheck and I'm looking to have all that changed this year, as I want to have money work for me instead. Would you be kind enough to share your process?
Herman Jonas is the brain behind my success. I've gotten into a plethora of assets with $43k spread across stocks (options and futures) for the short term and Roth IRA, index funds, and ETFs, for the long term. Now I sit back, and just reinvest at intervals while I handle my other businesses.
Do not forget that prices can be erratic, rising and declining quickly, often in relation to companies' policies, which individual investors do not influence.
Planning retirement has never been this confusing! First SVB, then Signature bank and now First republic, these are all the signs of yet another 2008 market crash and recession 2.0, so my question is do I still save in the United States dollar, or could this be a good time to buy stocks? So I’m left wondering what 2023 has in store for us investors, I’ve been sitting on over $745K equity from a home sale and I’m not sure where to go from here,
Everyone needs a different stream of income , unfortunately having a job doesn't mean security due to the high rate of tax , one needs to move ahead their expectation, I would recommend refraining from investing in stocks for now. Instead, it would be prudent to consider retaining a portion of your assets in gold. Alternatively, seeking advice from a financial advisor could provide valuable guidance in this matter.
true, A lot of folks downplay the role of advisors until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for license advisors and came across someone of due diligence, helped a lot to grow my reserve notwithstanding inflation, from $275k to approx. $850k so far.
Do you mind sharing info on the adviser who assisted you? been saving for pension since age 18 - company scheme. along the way I hit higher tax, so I added to my company pension with a SIPP (tax benefits) I'm 46 now and would love to grow my finance more aggressively, there are a few cars I still wish to drive, a few mega holidays
I really don't like making such recommendations, because everybody's situation is unique. But there are many freelance wealth managers you could check out. I have been working with "Stacie Lynn Winson" for about four years now, and she's really, really good. If she meets your discretion, then you could go ahead with her. I endorse her.
I've watched 100+ different finance experts, but James Shack is hands down my favourite. The analysis is well researched, unbiased and presented in a very digestible way. Respect!
I cant disagree, he knows his stuff and is obviously just trying to help people achieve greater financial security and stability which is obviously a good thing. My point is something slightly different , where can surplus wealth go when P/e ratios are too high and what value has gold when cities are riddled with crime, roads are gridlocked, icebergs are melting causing all these floods, we have to look at better ways to spend surplus wealth for greater quality of life along with protection and conservation of the planet. At the very least I'd like to see people have charity as part of their investment portfolio, the returns will be priceless. Saw on the news this morning Charles and Camilla visiting an Elephant sanctuary in Kenya, an elephant orphanage. No body can tell me there is not a link between increased wealth of China and increased poaching of Ivory . Better if the orphanage didn't have to exist at all but as it does am sure they could benefit from some funding, this is called 'Irredeemable investment' , you won't get to see your money back but you will have pleasure of knowing you've helped secure the future of precious wildlife. Restoring the rain forests would also be money well spent, this has nothing to do with being a 'do-gooder' as satn would label it, it is science, con-science, ecology and common sense. Remember, we are just temporary custodians of the planet.
People grappling with the difficulty of meeting essential expenses often encounter this situation due to inadequate savings during their working years. The decisions taken in readiness for retirement carry extensive consequences, as demonstrated within my own family dynamics. Despite my husband and I having equal tenure in civil service, differing investment approaches yielded disparate results. Guided by a financial advisor, We are both retired and still earn monthly from our investments.
Indeed, that's accurate. I'm currently in my mid-50s. My husband and I were on a similar path until a couple of years ago when I decided to shift my investments to his wealth manager. While I haven't quite caught up to his accumulated profits over the years, I'm at least earning more now. I'm generating income even before retirement, and my retirement fund has experienced remarkable growth compared to what it would have with just the 401(k). It's quite amusing.
It's regrettable that many individuals lack access to such insights. I understand why people might become anxious. Insufficient information can indeed pose significant challenges. Personally, I've been able to generate over $25k passively simply by investing through an advisor, and the best part is, I don't need to exert much effort. Regardless of economic fluctuations, skilled wealth managers consistently deliver returns.
*@shirleygarland4766* Who is the professional who is advising you, if you could perhaps tell us? As a novice investing in stocks without the correct direction of a professional, I have lost a lot of money.
Do your homework and choose one that has strategies to help your portfolio grow consistently and steadily. ”Camille Alicia Garcia is responsible for the success of my portfolio, and I believe she possesses the qualifications and expertise to meet your goals.
I've taken the initiative to research Camille Alicia Garcia online and verify her credentials. I'm impressed with her expertise, and I've reached out to her to share my financial market goals in detail.
Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.
This is true. I'm in my mid 50's now. My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. I'm making money even before retiring, and my retirement fund has grown way more than it would have with just the 401(k). Haha.
Its unfortunate most people don't have such information. I don't really blame people who panic. Lack of information can be a big hurdle. I've been making more than $87k passively by just investing through an advisor, and I don't have to do much work. Doesn't matter if the economy is misbehaving; great wealth managers will always make returns.
@@TomD226 I think this is something I should do, but I've been stalling for a long time now. I don't really know which firm to work with; I feel they are all the same.
Firms can be unscrupulous as they prioritise their own commission over your profitability. On the other hand, I prefer working with individual investors like Laurel Dell Sroufe, who only take a share from your profits, not your initial capital. I must say, my experience with her has been exceptional thus far.
James - you’ve hit the nail on the head when you said “….it’s pretty nuts when you consider the financial literacy of the average person in the UK…”. If you're looking for financial advice from the average person, you're better off asking a goldfish. This is why your videos are so valuable. Thank You.👍
That is not the issue. It is "experts" who advised people bonds are lower risk and experts who set up our pension funds to automatically switch to bonds. It is hardly the first time "low risk investments" proved to be anything but, there was a previous scandal over "low risk" investiment trusts targetting pensioners who wanted income. It seems if you are a "low risk" investor you are the mark for some Bernied Madoff character.
🐟. Sadly that's true. I have been investing in the market for 20 years but recognise it's been pretty hit and miss. I learnt the basics of p/e ratio, and debt to Equity but probably need to know a lot more to play the market especially now we are in a bear market.
I think it needs to be stated that if you buy quality (such as uk gilts) individual bonds they are actually a very safe bet providing you hold it to maturity as you will get back exactly what you paid plus the coupons . The issue with a lot of pension platforms is they are investing your money in bond funds where the bonds are constantly being bought and sold before they reach maturity, meaning you are subject to what’s happening in the market.
I'm in exactly the situation James is describing and now I need to decide whether I keep contributing to these funds in the hope they will recover or stop and leave them where they are and start an entirely new pension and hope this frozen one recovers in a few years, I contribute about £2.5k per month and my fund doesn't increase by that per month recently !
Another excellent video James. Fortunately, i never went for the standard lifestyle option in my DC company pension since I wasnt keen on buying an annuity at retirement, so I went for self selected funds. This approach has served me well as I have recently been able to retire earlier than anticipated. Incredibly, whilst working the DC pension "advisor" told me that I was the only person in a relatively large company DC scheme not to be in the lifestyle option and to have my own choice of funds. I totally agree with trying to educate oneself financially and I started this process many years ago after a "fall-out" with my then financial advisor after years of very poor returns after which I realised that all they wanted was for them to make an income off my capital. I still have a lot to learn based on your videos, if only my financial advisor had years ago provided information as good as yourself !
I took control of my company pension a couple of years ago and moved my money out of the default “safe” fund and into passive global equity fund, plus a money fund…saved me from losing tens of £000’s!
Yes mate and always replies to questions too. He words everything as childproof as everything and my finances have never looked better since watching tbf
After work set up our salary sacrifice scheme i tried to find out what they actually invest in. It is very difficult and almost impossible to manage other than ‘risky’ or ‘less risky’. In the end, i ended up just annually doing a partial transfer out to my sipp to give me control over what my money gets invested in. Pension companies need to be more transparent with such things.
If i'm invested in a fund i woulds expect the fund manager to be adjusting the ratio of bonds to stocks on my behalf since he/she is the expert. I should not have this volatility due to bond prices dropping. They should have sold out of these bonds, the drop was expected surely as rates were going up.
It’s awful that the “balanced” portfolio supposedly contains such a high bond quantity. It’s been clear that basically negative real interest rates were not sustainable.
James could you please make a video about what is happening with the money in pension when you die early or your designated people die early. How much money are left in the found and wouldn't these be enough to cover someone elses retirement, taking the proportion between working age and retirees numbers drop. What is the point in spending all of this time and attention if we will work till 70 at which point most of us will be incapacitated if not physically then mentally. According to predictions 3rd of us will have dementia and no control over how our pension is used. Hours in learning unpredictable stocks and tons of money on stock advisors. It looks grim and depressing. Instead of building just society when everyone can depend on one another invest in retirement dependant on speculation. By default it is not sustainable.
Maybe you could do something on creating your own Bond Ladder? I think this gives you more control than Bond funds since you have the option of holding the Bonds to maturity...unlike the Bond funds that have to constantly buy/sell Bonds, sometimes at disadvantageous prices. At least you know what you are getting with a Bond Ladder and so you can plan your future income better. You can also lock in the higher Bond yields at the moment. I think a Bond Ladder and a Global Tracker is probably just as good, and probably cheaper than a LifeStyle fund portfolio. It is also easier to rebalance your portfolio to a different Bond/Stocks ratio if your appetite for risk changes.
Please correct me if I am wrong but I think you should point out that bond holdings are priced on their current "sell value". That notional value is used to price the holding, and very reasonable too. However if you don't exit you don't actually lose any money (unless you are invested in junk bonds which might fail).
Thanks, thats answered my thoughts about the Vanguard lifestrategy 40. I retired last year and being roughly half my portfolio, I've not touched it. Jokingly before covid I said to a work colleague that all this planning of pension i bet there'll be a disaster or a third world war. 😢
My company, partially at the urging from me and the few outliers who actually took note of their pensions instigated a change / consult about stopping the lifestyle option because it was clear that annuity rates were falling, many people would not be buying one or if so ata much later age and so people were being switched into cash something like 10-15 years before they *might* buy an annuity. I stayed fully invested into retirement I figure I may have another 20 years and then my kids will get what's left so going to cash makes no sense. Maybe when I'm a fair bit older I might buy an annuity with some of my investments. I'm lucky (and planned well enough) that I can ride out falls without an issue.
The phasing out of DB schemes was more a case of companies wanting to either pay bigger dividends and/or bank more profits. It's no coincidence that these schemes have been rapidly declining at the same rate as trade union membership.
Well regarding the bonds it is true that if you own a single one, at the maturity you will get your money back, however pension vehicles invest in bond ETFs, which is more complex, since they keep switching the bonds based on indexes' structure before maturity. That would be a good point for further analysis in one if your next videos
Here'a my issue with bonds: if the defining economic issue of our time is the enormity of government debt, and if you read or hear endlessly of things like debt default, debt jubilees, the great reset, etc, why would you want to be holding government debt if everything might disappear in a puff of smoke?
You may be too young to remember but the demise of defined benefits pensions was caused by Gordon Brown removing the tax benefits for companies. This caused most of them to freeze these pensions and switch employees over to defined contribution schemes transferring the risk from employer to employee.
Righty ho, this is something I need to hear. I just hope there will be a happy ending at some point as my pensions and my investments have bled out badly of late. Makes you wonder why you bothered instead of just living a good life whilst the joints were willing, so to speak.
Although bond prices have fallen recently, future expected returns are now much higher. I can't comment on how long it might take your bond funds to recover - and they could even fall further in the short term - but you should be seeing higher yields moving forward.
Default option sliding into bonds ignores the fact that your life expectancy at retirement is proabably 25+ 😊years these days. You can afford to run way more risk than this option gives you.
Love the video James!! Just a small thing, the line "With great power, comes great responsibility", that's a Marvel Universe line, not a DC Universe line 😅
Looks like the central banks are pausing rates with a likely future direction as down. If so we could see a sizeable rotation into bonds from equities and a surge in bond valuation.
Why haven’t they blamed this on Rishi Sunak ?? After all, they blamed the same thing on Liz Truss. Oh, it’s because the BoE used the issue to install their “own man” as PM in a coup no one will talk about.
One of the great advantages in learning as James suggests and really understanding what you have is that you are much less likely to panic sell at the bottom. If something you confidently own goes down a lot in price you should be choking on buying more and certainly not selling. Love the bond explanation James 👍
In the uk, the best pension is NO pension. Let the state pickup the tab😊! I’ve seen it time and time again. No care costs and looked after in sheltered accommodation.
I have advisors calling me someone who is happy to take risk- ( so I am inequities) but I try to say I don't see myself as accepting "high risk" I just use the data to help with my decisions. Do you think this is fair comment on my part, I don't specifically see myself as high risk. I love your channel it is great.
Incredibly well explained as always. Thank you James for encouraging us all to take control of our pensions ~ I have learnt a great deal from watching your informative videos.
I've recently logged on to my work's pension one of two down 8k in the past month it's in an investment lifestyle scheme I'm in the process of moving it to a vanguard sipp so I can self invest it....I'm only a few year's off early retirement I can't afford to take hits like this .
Well I don't ...At least it will be my choice and the fees won't be sky high for the pleasure of watching the fund dwindling it will follow the same fund's as the isa and that's serving me ok .
*Excellent !!! Thank you for the concise and to the point update.... I've been trying to grow my portfolio of $258k for some time now, my major challenge is not knowing the best entry and exit strategies... I would greatly appreciate any suggestions*
I suggest you venture into trading with professional trader Mr Morris. He's strategy and skills is very exceptional. Making profit will be easier for you and he will also teach you how to trade and achieve good profit. I have personally achieving good profit of $18,000 every week trading with Mr Morris. Which speaks volumes about him
OMG!!! you trade with him also. Honestly He's great skills and knowledge about the market. I enjoy full profit and easy withdrawal with no complains, trade with him is the best
Same here, i moved my previous work pension (stakeholder pension) that had done very well to a Vanguard SIPP. Ive been managing my own funds for 6 years now.
Could you give us a very basic demo of setting up a trading account, and then how to go about choosing funds to invest in. What you would do with say 20 grand.
I'm so pleased I didn't settle for the default fund that my workplace pension provider put my money into 2 years ago. Luckily I moved into a passive global index tracker....saved me from losing my shirt just before retirement this year! I really don't understand how the big pension providers expect default pensions to give a decent return over ~30 years of retirement in they are not exposed to equities...perhaps they don't care, provided they have your money!
Probably some government rule that they have to buy bonds to support the money printing machine. I'm meeting my pension advisor soon and I want just stocks.
Hi James, great video. One think I am trying to see is if I can do a partial withdrawl from my company pension arranged through Fidelity, I cannot find anything on their site or online. I get a double match up to 10% through my company so wouldnt want to risk that, but would like more control over my pension by transferring it into my SIPP once a year. The fidelity account doesnt have the fund I would like to invest in. Do you think my strategy is a good idea?
Very nice video - thanks! Last year I started a Penfolds plan on level 4 (higher risk). I think one problem is that because you can get these with a really easy to use interface, then it encourages you to check often. Whilst some might suggest that is not a bad thing, I think it interferes with the strategy that you are in it for the "long term". So I put a lump sum of about £50K in (split over the April new tax year etc). The first month I "made" 1K and I was checking every other day - I was in the green! Now I am about 2.5 k down and in the red. It is really tempting to go on a panic spree. But we are talking less than 6 months !
Define long, medium and short-term investments. For example, if long-term is 10+ years, then a check every year may be interesting. If short-term is 2-3 years, then checking monthly may be more appropriate but remember, all investments have some volatility - it's a bumpy road but you should get there in the end. If you are checking values on a daily and weekly basis and are tempted to switch investments, then you are starting to think like a trader, rather than an investor. Very few retail traders are able to make any money but they are very successful at losing it. For pensions, we need to be able to invest and forget.
Doesn't it make sense to start buying bonds now as they've performed so poorly. They will recover ( as they always have ) eventually so a good bet , no ?
Another sorry tale from me, got to 55 last year, got offered 400k to opt out of my DB, this year it was 200k. Oh well I was actually going to keep the DB anyhow but still stings. Currently paying £30kpa into my DC with Scottish Wid and it’s actually losing more than I’m paying in 😕 Let’s hope all this turns around😢 defo going to do some research into what funds are available.
I appreciate the DC universe "great responsibility" Spiderman joke, it made me laugh! (But I do have to point out that Spiderman is part of DC's biggest rival, which is Marvel.)
With bonds (fixed income) generating without going into distressed/junk bonds, yields of less than 2% with interest rates only having the prospects of going up due to a rock bottom base rate. What prospect did anyone with a nouse of knowledge have for bonds. Ok it's been exasperated by the rapid rise in rates meaning the value of these bonds not held to duration have plummeted. The irony is now everyones scared off from bonds it is now arguably the best time in decades to buy bonds, strong yields and when the rates start cutting again these values will soar.
So the take out I presume James, and correct me if wrong, is that if one has bonds, just hold it. I use bonds for income and intend to keep it long term so if I'm not selling, I won't realize the loss from falling bond prices and still expect the distributions to be maintained. a local asset manager here in South Africa is bullish on bond prices increasing next year, but the messages from the market is mixed. Year to date, our stock market is -14% and -7% in USD. The Austalian market is -6.5%. USA is + 6% and appears to be the only market that's had a positive YTD. I doubt that we've seen a non-return market persisting for this long (Excluding USA) and THAT is the unique investing dystopia we find ourselves in. I'm still and cash and bonds advocate. The risk free returns can no longer be ignored.
The problem with DC pensions as you alude to is the knowledge and expertise of the individual in most cases isnt good enough. Point in question lifestyling was designed in essence to buy an annuity…. The curriculum needs to shift to support educating our children.
I don't understand these graphs. Whenever I see the line go down for stocks, I see the line go down "almost as far" for bonds. Whenever I see the line go up for bonds, the line for stocks has always gone higher. And given enough time (a few months?!) stocks always seem to return higher than bonds, whatever the earlier crash. To me the lines for bonds look just as terrible as the lines for stocks? (Until the last 18 months which you point out is not normal!) Why shouldn't I go 100% stocks all the way to retirement? From these graphs, it looks like if I "reached retirement" and wanted to cash out, but was unhappy at recent performance, then I'd only ever have to wait a few months for recovery?
So, as my pension is mostly bonds and the income from them is steady, the asset value of my pension fund is immaterial? I.e. the “Bond crash 30%” is a dog whistle, with no practical impact on me. But how about fund liabilities? How come the surpluses have risen?
I’ve just moved my pension out of the standard lifestyle fund that has made very little over the last five years into a couple of funds, including for natural resources and gold mining stocks. My pension is pretty small and I’ve still got about 17 years before retirement age, so I thought it was time to take a risk and see if I can catch up..
Lifestyling funds are historically more attuned to people planning to buy an annuity. However, lots of folk with big pots made their money in non-financial jobs and genuinely don't have a clue.
If the average person struggles with the accumulation phase of a DC pension then consider how much more of a challenge the DEaccumulation phase after retirement is! There is very little coherent guidance about this subject at all as no-one, not even the experts, has a clue about the best way to go about it. How much money do you need? How long will you live? What will inflation be? What will investment returns be? Very difficult to answer these questions with any degree of certainty. Although the demographics have deteriorated the beauty of PAYG pensions such as the state pension is that they are a proper form of insurance for retirees based on the average life expectancy which IS knowable so risk can be pooled. Our current system is hideously ineffective, inefficient and wasteful. While millions will not have enough money many others will die with much of their money untouched as they oversave.
I have a question on this. If the sale value of bonds is the same at the end of the investment period why are pension plans falling in value? If you just buy bonds, no difference. But if you invest in bonds through a pension are you not actually buying bonds, but just investing in the perceived value? If the is the case, then why not take cash and buy bonds yourself?
It's because the (pension) bond/lifestyle funds won't always keep bonds to their maturity. They need to sell/buy based on client requests and cashflow. This means that they may have to sell when bond prices are low (as currently). Some of these will have long maturity times and will be sold at a big loss. I agree with your last point. You can do a better job yourself by buying bonds individually; the choice of selling at the best price or waiting to maturity is then under your control.
Given the predictability of what has happened to bonds , why were they ever put forward to be employed as the large proportion of the "low-risk" part of pension portfolio investments? Is this a case of mis-selling or mis-representation of the true risk? As someone who has seen one of my pension pots cut in value by about 30% in the last year, with one year to go, I'm very unhappy that the pension company - who was supposed to be managing the fund to avoid major risk at this stage of the investment - apparently did nothing, or were incapable of doing anything! And I'm someone who does have a reasonable level of interest and understanding of investing. Thanks for an interesting video, James.
It only seems predictable in hindsight, some in the asset management industry has been anticipating rate rises every year for the last 10 years, getting it wrong every time. Lots of people sold out of bonds 5 years ago, and then lost out as bond yields went negative in 2021 and prices through the roof. No one can reliably time the market in the short term, and no regulated investment manager or pension provider will ever guarantee you that they can - that would be mis-selling. This has been the worst bond crash for 100 years, perhaps longer. It's very unfortunately timing, but even with the recent crash, short/medium term bonds (which have only fallen 10-15%) would still be consider to be lower risk when compared with other investments. Low risk, not no risk. Long term bonds however (down 30%+) are not low risk and have never been low risk. Their prices swing dramatically when interest rates rise. However it's rare to find these held in pension funds unless the strategy is set to buy an annuity on retirement.
So Should we sit tight on the heavier invested bonds, on the view it will recover in sort term OR Sell the bonds to move to bigger stock investments or is it too late now to switch
Hi James another great video, got a question if you had just entered retirement and had 70% invested in a global index and 30% invested in a low risk fund like a money market fund or bonds etc as your drawing money out of the lower risk fund should you regularly sell the global index to keep topping up the lower risk fund as your withdrawing money or should you just sell a certain amount per year I feel this is the argument for dollar cost averaging vs lump sum investing but with rebalancing the portfolio on withdrawals. This could be a topic for one of your videos 👍
Why do the public sector still provide DB pensions? Surely rather than giving doctors/teachers etc DB pensions that they may not see the benefit of for 30 years they should give them more appropriate salaries? Don't get me wrong I fully support the NHS staff etc (it's generally the management causing issues) but why should they struggle with getting decent mortgages/houses now. I was considering applying for a council job and had to figure out what value I put on the DB pension over my salary/pension.
Great video. A couple of things to note (both mentioned in the video but really worth emphasising): 1) the inverse relationship between yield and prices works both ways, so when rates fall, there may be a partial recovery in prices (albeit unlikely to previous levels), and 2) the fall in prices is theoretically offset by the rise in yields, as cashflows within the bond funds can be reinvested at higher rates. Some of the largest asset managers (i think including Vanguard) see the recent fall in prices as positive over the medium-long term for total returns within the bond markets (i.e., intermediate total return expectations are now higher because of the fall).
Best hands off strategy for the average person. Put 50% in a passive global index fund and put 50% in an automatic de-risking fund. It works because you are partially protected from sequence risk (excluding tail events such as bond crash of 2022/2023) and you're also protected when you're taking your pension when you're 75+ years old as you held onto the higher risk/higher reward fund as you're still a long term investor (even at 60 years of age).
save 20% of what you earn and buy gold coins, one ounce Britannia coins, tax free, capital gains tax free, transferable fee free, no third party risk, ideal for long term saving.
Employers and their scheme providers have no interest in educating employees, conflict of interest as more employees would change to SIPP's and people would also put pressure on employer contribution rates. The trade unions aren't concentrating enough on this either in my view, if their members were more aware of what's going on they too would get more pressure to be pro-active with employers over pension provision.
They are various ones and all held in a defensive portfolio investment discretionary product - bundled together with equities- overall the product has dropped approx 30% - not sure if that helps answer your question
I think Lifestyling is out of date as many dont by annuities, i am 65 now but am still 85% in Equities. I use Global i dex funds to keep the cost down.
I agree, however Royal London have at least three different Lifestyle pension funds - one for annuities, one for cash, and one for drawdown. They all have the same fund allocation until you reach retirement. Other than the annuities one, this makes no sense to me. My pension was originally in the Lifestyle Drawdown fund, and had less than 40% invested in stocks, so it took a big hit when bonds collapsed.
James, My question relates to asset allocation. I am 61 in April 2024 and feel I need to start to move into more bonds (currently 90/10 stocks to bonds). As my full state pension is in effect a fixed income when it kicks in at 67, how do I reflect this in my asset allocation as I assume this is equivalent to holding a monetary amount of bonds and thus needs to be reflected in my overall asset allocation?
Even though I hate bonds, I am always interested in any liquid asset that has fallen 40%. Therefore I think some long dated UK bond funds with high yield to markets are definitely worth considering. Yes they are highly geared to interest rate movements, so further rate rises will hurt, but if you think interest rates will ease back in a few years, these will give you the best returns. Maybe ease money in monthly rather than hit with a lump sum.
Hi mate, a question for you: I'm 40 years old and I work the NHS. I want to retire at 57 and I am thinking to start MPAVC or SIPP since I want to "manage" my own pot of pension money (not ERRBO, nor other options since it's apparently not so worth it and if leaving the NHS I will have problem in the future). So my question is whether MPAVC vs SIPP? Which one is better? In a normal employment Salary Sacrifice is possible however the NHS doesnt allow it and the only benefit is reduce Income Tax (20%). Cheers
Maybe you should consult an IFA in order to address your personal circumstances? I am not an IFA but there are some clues in James's previous videos, as well as this one. If you are a higher rate taxpayer then deductions at source can keep you below the 40% tax threshold, which simplifies the tax treatment. If you are a 20% taxpayer then there's little to choose because anything that you invest (from income, or savings, tax paid) in a SIPP will receive a 25% rebate from HMRC, so you'll only miss out on reducing your NI contributions. If you follow the Money Purchase AVC (MPAVC) route, then you should be allowed to move some of your AVC fund into a SIPP, if you feel that the MPAVC funds are less suitable for your long term needs but you should also consider the charges of both schemes.
Great video James, but there's a nuanced point that is really important that few understand. The nominal value of the portfolio, whilst clearly people's primary concern, shouldn't be the focus; what matters is your ability to fund future spending. Yes portfolio values have fallen, but so has the cost of buying an inflation-linked annuity and securing a future income. If your portfolio falls by 20% and annuities fall by 20% - you are actually no worse off when it comes to achieving your future returns! Maybe you should be reassuring your viewers that they may not be in is as bad of a position as they might think! Also as an aside, I would say bond yields are now more normal with positive real rates - it's the last two decades that have been unusual! This is just the painful return to reality.
There are disadvantages to buying an annuity. For instance, with an annuity if you die within a few years, your pension pot is gone. With drawdown, your pension pot is part of your estate. Also, the cost of buying an annuity did not fall by the same amount as the fall in value of bonds. There may some mitigation if you buy an annuity, but if you had no intention of buying an annuity originally, then you won't be happy.
@@MattMcQueen1 you can replicate an annuity within a flexible drawdown strategy without taking on the mortality risk. Just build a linker bond portfolio with a duration matching the duration of an appropriate fixed term annuity. My argument is less about the pros of buying annuities and more about considering the idea of managing a drawdown portfolio in a "liability-aware" way. I.e. focusing on generating future income, not portfolio volatility.
Default work L&G portfolio wasn’t great. Took me a while to realise then changed future investments to a North American equities portfolio. The default portion is down and the equities is up. Waiting for the default portion to recover before doing a partial switch to my sipp so I can just focus on a global equities fund. There really needs to be more advice given to employees on WP pensions.
Hi James, are pension companies at fault, by saying lifestyling was low risk ? Also can you explain how the coupon value, and actual value of a bond works with for example black rock 15 year gilts? As I dont see the coupon value it magically gets put back into the fund to maintain its value and doesnt buy additional bonds. Great video but still not sure what to do with a 30 % loss that shows no sign of improving, is the best thing to buy an annuity with this portion as a way to mitigate the loss ta..
No. Firstly in the DC world it’s your responsibility to invest your own money, and secondly although these options say they are lower risk, they are not no risk. Even with the recent sell off, bonds on the whole have still been less risky than stocks. Although it’s important to differentiate short and long term bonds. As detailed in the video, Short term bond prices are not as sensitive to interest rate changes, so they are low risk. Long term bonds prices however are extremely volatile and are typically not suitable for retail investors.
I wish I had understood several years ago the inverse relationship between annuity rates and bonds - it would have prompted a much more urgent transfer of DB funds into a SIPP. In your specific case, using cash from bonds to by an annuity should be more or less cost-neutral. On the other hand, using a portion of your equities pot, which may have grown more, while waiting for bonds to recover some ground, is an alternative approach. Which you choose really depends on your attitude to risk. Exchanging bonds for an annuity now, you know exactly where you are. No one really knows if or when bonds will recover, or how far, nor can they say whether equities will continue to fall, as they have done in recent months, or regain the longer-term trend of continuing to grow.
@@davem.4003thanks Dave that makes sense, i guess I looking for a way to lessen the pain of -35% I know low risk doesnt mean no risk... but there is still an expectation of .. well lower risk than equities...strangely the fund factsheet shows higher risk but pension companies are happily passive, which is a bit annoying since you might think with their huge resources the would zbe more reactive.... but hindsight an all ....
I'm currently 17% down on LS20. Been invested since 2021 and didn't even buy at the top of the market! Really expected to see some kind of improvement by now, will it be years and years before this recovers to where it was?
Wait for a decent correction and start to average in to LS100 or the S&P500, your portfolio will recover much quicker, to be fair, now is a good time to start nibbling…
The pension providers were supposed to convert their long term bonds into short term bonds. The government/BoE gave them advice to do that. After the bond market crash the Bank of England purchase £63 billion of bonds to increase the price (decrease the yield) so long term bonds could have been swapped for short term bonds with no loss and short term bonds have much less exposure to loss. If your pension provider didn't switch to short term bonds you should be calling your them to get a reason.
1 year or so to retirement, with fewer and fewer choices from my Pension provider. Frustrating stiation to say the least. Just grateful I didn't have too much in bonds as we'd previously had self select funds available. It is a total mess. We've been hugely let down by our government for allowing this situation, our employers and the pension companies.
I warned people a while ago about pensions being hit it’s a con you put your money into a prison on the off chance that your going to be able to get some back if you live long enough and then you still get taxed on it
Great video! I can sense your frustration with how a lot of people assume the wrong conclusions with pensions and the general lack of understanding. Personally I'm a couple of years away from retiring but I'm 80%+ in equities. As I will remain invested during retirement, I see no reason to dial down "risk". I will implement a bucket strategy and ensure I always have around 3 years of living expenses in high interest easy access savings. That should help ride out any market turbulence. It's just a fact that equities always outperform bonds in the long run. Why compromise? Saying all the above though, I do frequently think about converting a large percentage of equity investment into lower volatility funds/classes. It's just human nature to protect what you have.
I actually like the 80% approach. At that percentage you’re almost all in on equities but there’s still some bonds. You never know the bond market could be in for significant growth.
@@johnristheanswer I don't think it's a contradiction. I said that I am planning on keeping 3 years of living expenses in easy access cash (well high interest savings/bonds). Everyone needs access to cash quickly and having that element tied up in equities is foolhardy as we all know the market is turbulent.
You're doing great at that rate and will retire wealthy if you just carry on. Get it all in a range of index funds and relax . Remember, you need a life too.
![The BIG Financial Risk That Everyone is Underestimating [Must Watch]](http://i.ytimg.com/vi/G1tVI5OhWRM/mqdefault.jpg)
This could lead to a significant strain on pension funds, which may not have enough assets to cover the increased demand.
Even if bond yields are rising while stock prices are decreasing,the markets are still a bit skeptical as to whether the federal reserve will stick to its goal to raise interest rates until inflation is under control. Would it be best to sell my $210 k worth of equities, what is the best way to profit from the current down market.
She has been the CFA responsible for my portfolio success, she operates a private client base you can confirm her yourself on the internet, regulation and all that.
Not necessarily! Higher interest rates mean lower present value of the large future liabilities that pension funds owe. Reduced liabilities as well as reduced assets!
With bonds overpriced, gold overpriced, real estate overpriced, the only place I found wise to put money is the stock market because from my experience it’s paid off more than any other investment I’ve gotten into.
Virtually everything is overly priced. I'm livid as to what to put money into that can bring me returns. I live paycheck to paycheck and I'm looking to have all that changed this year, as I want to have money work for me instead. Would you be kind enough to share your process?
Herman Jonas is the brain behind my success. I've gotten into a plethora of assets with $43k spread across stocks (options and futures) for the short term and Roth IRA, index funds, and ETFs, for the long term. Now I sit back, and just reinvest at intervals while I handle my other businesses.
Do not forget that prices can be erratic, rising and declining quickly, often in relation to companies' policies, which individual investors do not influence.
Planning retirement has never been this confusing! First SVB, then Signature bank and now First republic, these are all the signs of yet another 2008 market crash and recession 2.0, so my question is do I still save in the United States dollar, or could this be a good time to buy stocks? So I’m left wondering what 2023 has in store for us investors, I’ve been sitting on over $745K equity from a home sale and I’m not sure where to go from here,
Everyone needs a different stream of income , unfortunately having a job doesn't mean security due to the high rate of tax , one needs to move ahead their expectation, I would recommend refraining from investing in stocks for now. Instead, it would be prudent to consider retaining a portion of your assets in gold. Alternatively, seeking advice from a financial advisor could provide valuable guidance in this matter.
true, A lot of folks downplay the role of advisors until being burnt by their own emotions. I remember couple summers back, after my lengthy divorce, I needed a good boost to help my business stay afloat, hence I researched for license advisors and came across someone of due diligence, helped a lot to grow my reserve notwithstanding inflation, from $275k to approx. $850k so far.
Do you mind sharing info on the adviser who assisted you? been saving for pension since age 18 - company scheme. along the way I hit higher tax, so I added to my company pension with a SIPP (tax benefits) I'm 46 now and would love to grow my finance more aggressively, there are a few cars I still wish to drive, a few mega holidays
I really don't like making such recommendations, because everybody's situation is unique. But there are many freelance wealth managers you could check out. I have been working with "Stacie Lynn Winson" for about four years now, and she's really, really good. If she meets your discretion, then you could go ahead with her. I endorse her.
I just checked her out and I have sent her an email. I hope she gets back to me soon
I've watched 100+ different finance experts, but James Shack is hands down my favourite. The analysis is well researched, unbiased and presented in a very digestible way. Respect!
Thank you very much for the comment! Glad to be of service.
Yes definitely
I cant disagree, he knows his stuff and is obviously just trying to help people achieve greater financial security and stability which is obviously a good thing. My point is something slightly different , where can surplus wealth go when P/e ratios are too high and what value has gold when cities are riddled with crime, roads are gridlocked, icebergs are melting causing all these floods, we have to look at better ways to spend surplus wealth for greater quality of life along with protection and conservation of the planet. At the very least I'd like to see people have charity as part of their investment portfolio, the returns will be priceless. Saw on the news this morning Charles and Camilla visiting an Elephant sanctuary in Kenya, an elephant orphanage. No body can tell me there is not a link between increased wealth of China and increased poaching of Ivory . Better if the orphanage didn't have to exist at all but as it does am sure they could benefit from some funding, this is called 'Irredeemable investment' , you won't get to see your money back but you will have pleasure of knowing you've helped secure the future of precious wildlife. Restoring the rain forests would also be money well spent, this has nothing to do with being a 'do-gooder' as satn would label it, it is science, con-science, ecology and common sense. Remember, we are just temporary custodians of the planet.
me too!
People grappling with the difficulty of meeting essential expenses often encounter this situation due to inadequate savings during their working years. The decisions taken in readiness for retirement carry extensive consequences, as demonstrated within my own family dynamics. Despite my husband and I having equal tenure in civil service, differing investment approaches yielded disparate results. Guided by a financial advisor, We are both retired and still earn monthly from our investments.
Indeed, that's accurate. I'm currently in my mid-50s. My husband and I were on a similar path until a couple of years ago when I decided to shift my investments to his wealth manager. While I haven't quite caught up to his accumulated profits over the years, I'm at least earning more now. I'm generating income even before retirement, and my retirement fund has experienced remarkable growth compared to what it would have with just the 401(k). It's quite amusing.
It's regrettable that many individuals lack access to such insights. I understand why people might become anxious. Insufficient information can indeed pose significant challenges. Personally, I've been able to generate over $25k passively simply by investing through an advisor, and the best part is, I don't need to exert much effort. Regardless of economic fluctuations, skilled wealth managers consistently deliver returns.
*@shirleygarland4766* Who is the professional who is advising you, if you could perhaps tell us? As a novice investing in stocks without the correct direction of a professional, I have lost a lot of money.
Do your homework and choose one that has strategies to help your portfolio grow consistently and steadily. ”Camille Alicia Garcia is responsible for the success of my portfolio, and I believe she possesses the qualifications and expertise to meet your goals.
I've taken the initiative to research Camille Alicia Garcia online and verify her credentials. I'm impressed with her expertise, and I've reached out to her to share my financial market goals in detail.
Retirees who struggle to meet their basic needs are the ones who could not accumulate enough money during their active years to meet their needs. Retirement choices determine a lot of things. My parents both spent same number of years in the civil service, but my mom was investing through a wealth manager, and my dad through the 401k.
This is true. I'm in my mid 50's now. My wife and I were following this same trajectory. Last two years, I pulled out my money and invested with her wealth manager. Not catching up with her profits over the years, but at least I earn more. I'm making money even before retiring, and my retirement fund has grown way more than it would have with just the 401(k). Haha.
Its unfortunate most people don't have such information. I don't really blame people who panic. Lack of information can be a big hurdle. I've been making more than $87k passively by just investing through an advisor, and I don't have to do much work. Doesn't matter if the economy is misbehaving; great wealth managers will always make returns.
@@TomD226 I think this is something I should do, but I've been stalling for a long time now. I don't really know which firm to work with; I feel they are all the same.
Firms can be unscrupulous as they prioritise their own commission over your profitability. On the other hand, I prefer working with individual investors like Laurel Dell Sroufe, who only take a share from your profits, not your initial capital. I must say, my experience with her has been exceptional thus far.
James - you’ve hit the nail on the head when you said “….it’s pretty nuts when you consider the financial literacy of the average person in the UK…”. If you're looking for financial advice from the average person, you're better off asking a goldfish. This is why your videos are so valuable. Thank You.👍
Thanks for the comment and continued support!
That is not the issue. It is "experts" who advised people bonds are lower risk and experts who set up our pension funds to automatically switch to bonds. It is hardly the first time "low risk investments" proved to be anything but, there was a previous scandal over "low risk" investiment trusts targetting pensioners who wanted income. It seems if you are a "low risk" investor you are the mark for some Bernied Madoff character.
🐟. Sadly that's true. I have been investing in the market for 20 years but recognise it's been pretty hit and miss. I learnt the basics of p/e ratio, and debt to Equity but probably need to know a lot more to play the market especially now we are in a bear market.
I think it needs to be stated that if you buy quality (such as uk gilts) individual bonds they are actually a very safe bet providing you hold it to maturity as you will get back exactly what you paid plus the coupons . The issue with a lot of pension platforms is they are investing your money in bond funds where the bonds are constantly being bought and sold before they reach maturity, meaning you are subject to what’s happening in the market.
Yup - absolutely nailed it.
I'm in exactly the situation James is describing and now I need to decide whether I keep contributing to these funds in the hope they will recover or stop and leave them where they are and start an entirely new pension and hope this frozen one recovers in a few years, I contribute about £2.5k per month and my fund doesn't increase by that per month recently !
Another excellent video James. Fortunately, i never went for the standard lifestyle option in my DC company pension since I wasnt keen on buying an annuity at retirement, so I went for self selected funds. This approach has served me well as I have recently been able to retire earlier than anticipated. Incredibly, whilst working the DC pension "advisor" told me that I was the only person in a relatively large company DC scheme not to be in the lifestyle option and to have my own choice of funds. I totally agree with trying to educate oneself financially and I started this process many years ago after a "fall-out" with my then financial advisor after years of very poor returns after which I realised that all they wanted was for them to make an income off my capital. I still have a lot to learn based on your videos, if only my financial advisor had years ago provided information as good as yourself !
I took control of my company pension a couple of years ago and moved my money out of the default “safe” fund and into passive global equity fund, plus a money fund…saved me from losing tens of £000’s!
This bloke is absolutely fascinating.
He’s giving great advice/commentary for absolutely no cost to YT watchers.
Yes mate and always replies to questions too. He words everything as childproof as everything and my finances have never looked better since watching tbf
After work set up our salary sacrifice scheme i tried to find out what they actually invest in. It is very difficult and almost impossible to manage other than ‘risky’ or ‘less risky’. In the end, i ended up just annually doing a partial transfer out to my sipp to give me control over what my money gets invested in.
Pension companies need to be more transparent with such things.
The worse thing is the pensions advisers still get massive money
If i'm invested in a fund i woulds expect the fund manager to be adjusting the ratio of bonds to stocks on my behalf since he/she is the expert. I should not have this volatility due to bond prices dropping. They should have sold out of these bonds, the drop was expected surely as rates were going up.
It’s awful that the “balanced” portfolio supposedly contains such a high bond quantity. It’s been clear that basically negative real interest rates were not sustainable.
James could you please make a video about what is happening with the money in pension when you die early or your designated people die early. How much money are left in the found and wouldn't these be enough to cover someone elses retirement, taking the proportion between working age and retirees numbers drop. What is the point in spending all of this time and attention if we will work till 70 at which point most of us will be incapacitated if not physically then mentally. According to predictions 3rd of us will have dementia and no control over how our pension is used. Hours in learning unpredictable stocks and tons of money on stock advisors. It looks grim and depressing. Instead of building just society when everyone can depend on one another invest in retirement dependant on speculation. By default it is not sustainable.
Thank you very much Gordon Brown for getting rid of the final salary pensions! Yes, Labour is definitely for the working man!!
Maybe you could do something on creating your own Bond Ladder? I think this gives you more control than Bond funds since you have the option of holding the Bonds to maturity...unlike the Bond funds that have to constantly buy/sell Bonds, sometimes at disadvantageous prices. At least you know what you are getting with a Bond Ladder and so you can plan your future income better. You can also lock in the higher Bond yields at the moment. I think a Bond Ladder and a Global Tracker is probably just as good, and probably cheaper than a LifeStyle fund portfolio. It is also easier to rebalance your portfolio to a different Bond/Stocks ratio if your appetite for risk changes.
Please correct me if I am wrong but I think you should point out that bond holdings are priced on their current "sell value". That notional value is used to price the holding, and very reasonable too. However if you don't exit you don't actually lose any money (unless you are invested in junk bonds which might fail).
Thanks, thats answered my thoughts about the Vanguard lifestrategy 40. I retired last year and being roughly half my portfolio, I've not touched it. Jokingly before covid I said to a work colleague that all this planning of pension i bet there'll be a disaster or a third world war. 😢
My company, partially at the urging from me and the few outliers who actually took note of their pensions instigated a change / consult about stopping the lifestyle option because it was clear that annuity rates were falling, many people would not be buying one or if so ata much later age and so people were being switched into cash something like 10-15 years before they *might* buy an annuity. I stayed fully invested into retirement I figure I may have another 20 years and then my kids will get what's left so going to cash makes no sense. Maybe when I'm a fair bit older I might buy an annuity with some of my investments. I'm lucky (and planned well enough) that I can ride out falls without an issue.
The phasing out of DB schemes was more a case of companies wanting to either pay bigger dividends and/or bank more profits. It's no coincidence that these schemes have been rapidly declining at the same rate as trade union membership.
Blame Maggie
Well regarding the bonds it is true that if you own a single one, at the maturity you will get your money back, however pension vehicles invest in bond ETFs, which is more complex, since they keep switching the bonds based on indexes' structure before maturity. That would be a good point for further analysis in one if your next videos
Here'a my issue with bonds: if the defining economic issue of our time is the enormity of government debt, and if you read or hear endlessly of things like debt default, debt jubilees, the great reset, etc, why would you want to be holding government debt if everything might disappear in a puff of smoke?
I have a Standard Life Sustainable Pension. It feels like ESG or sustainable pensions are really performing poorly….I wonder what people think?
You may be too young to remember but the demise of defined benefits pensions was caused by Gordon Brown removing the tax benefits for companies. This caused most of them to freeze these pensions and switch employees over to defined contribution schemes transferring the risk from employer to employee.
@Tapbiotowtsap_me scammer sniffs blood
Righty ho, this is something I need to hear. I just hope there will be a happy ending at some point as my pensions and my investments have bled out badly of late. Makes you wonder why you bothered instead of just living a good life whilst the joints were willing, so to speak.
Although bond prices have fallen recently, future expected returns are now much higher. I can't comment on how long it might take your bond funds to recover - and they could even fall further in the short term - but you should be seeing higher yields moving forward.
Default option sliding into bonds ignores the fact that your life expectancy at retirement is proabably 25+ 😊years these days. You can afford to run way more risk than this option gives you.
Love the video James!! Just a small thing, the line "With great power, comes great responsibility", that's a Marvel Universe line, not a DC Universe line 😅
But saying "I'm Batman" wouldn't have worked as well 😂
Looks like the central banks are pausing rates with a likely future direction as down. If so we could see a sizeable rotation into bonds from equities and a surge in bond valuation.
The reason bonds crashed was the zero interest rates suddenly reverting to normal levels.
This was completely avoidable if gov acted responsibility..
Why haven’t they blamed this on Rishi Sunak ?? After all, they blamed the same thing on Liz Truss.
Oh, it’s because the BoE used the issue to install their “own man” as PM in a coup no one will talk about.
You say many people prefer a DC pension. I think that is highly unlikely to be true. As you yourself say, DB/final salary is vastly more generous.
One of the great advantages in learning as James suggests and really understanding what you have is that you are much less likely to panic sell at the bottom. If something you confidently own goes down a lot in price you should be choking on buying more and certainly not selling. Love the bond explanation James 👍
In the uk, the best pension is NO pension. Let the state pickup the tab😊! I’ve seen it time and time again. No care costs and looked after in sheltered accommodation.
The conditions of people living in those accommodations is akin to a hospital at best and prison at worst. It’s no future id wish on my worst enemy
@servicestwo4754 agreed, but if you have your own pension you will be paying hand over fist to be put in one of these places.
I have advisors calling me someone who is happy to take risk- ( so I am inequities) but I try to say I don't see myself as accepting "high risk" I just use the data to help with my decisions. Do you think this is fair comment on my part, I don't specifically see myself as high risk. I love your channel it is great.
It's high risk not to take control of your own life
Incredibly well explained as always. Thank you James for encouraging us all to take control of our pensions ~ I have learnt a great deal from watching your informative videos.
I've recently logged on to my work's pension one of two down 8k in the past month it's in an investment lifestyle scheme I'm in the process of moving it to a vanguard sipp so I can self invest it....I'm only a few year's off early retirement I can't afford to take hits like this .
What makes you think you won’t get hit in the funds you put it in 🤷🏻♂️…. Markets don’t go up in a straight line.
Well I don't ...At least it will be my choice and the fees won't be sky high for the pleasure of watching the fund dwindling it will follow the same fund's as the isa and that's serving me ok .
This is a once in a generation fall for the 60/40 Model I’m gonna add more in to these funds now
*Excellent !!! Thank you for the concise and to the point update.... I've been trying to grow my portfolio of $258k for some time now, my major challenge is not knowing the best entry and exit strategies... I would greatly appreciate any suggestions*
I suggest you venture into trading with professional trader Mr Morris. He's strategy and skills is very exceptional. Making profit will be easier for you and he will also teach you how to trade and achieve good profit. I have personally achieving good profit of $18,000 every week trading with Mr Morris. Which speaks volumes about him
I'm a beginner where can someone reach Mr Morris.
*@morris1961 ^^^^^^that's it^^^^^ 人人人 "*
Trading as a newbie is quite stressful and discouraging but I'll linking up to your coach. This is useful info❤
OMG!!! you trade with him also. Honestly He's great skills and knowledge about the market. I enjoy full profit and easy withdrawal with no complains, trade with him is the best
I took charge of my pension in 2016, it is currently in a global passive index tracker, low charges of 10 bps.
Same here, i moved my previous work pension (stakeholder pension) that had done very well to a Vanguard SIPP. Ive been managing my own funds for 6 years now.
Nice
Could you give us a very basic demo of setting up a trading account, and then how to go about choosing funds to invest in. What you would do with say 20 grand.
I'm so pleased I didn't settle for the default fund that my workplace pension provider put my money into 2 years ago. Luckily I moved into a passive global index tracker....saved me from losing my shirt just before retirement this year! I really don't understand how the big pension providers expect default pensions to give a decent return over ~30 years of retirement in they are not exposed to equities...perhaps they don't care, provided they have your money!
Probably some government rule that they have to buy bonds to support the money printing machine. I'm meeting my pension advisor soon and I want just stocks.
Very interesting as I moved from lifestyling to a SIPP and bought 100% stocks. So what has more growth going forward now stocks or bonds?
Predictions are always difficult, especially regarding the future.
Stocks.
Now is a better time to buy investments than, say, last month, if you are investing for the long term. Just enjoy the cheap shares while they last.
Hi James, great video. One think I am trying to see is if I can do a partial withdrawl from my company pension arranged through Fidelity, I cannot find anything on their site or online. I get a double match up to 10% through my company so wouldnt want to risk that, but would like more control over my pension by transferring it into my SIPP once a year. The fidelity account doesnt have the fund I would like to invest in. Do you think my strategy is a good idea?
Good video but increasing interest rates isn't the cause of the crash of bond prices.
Very nice video - thanks! Last year I started a Penfolds plan on level 4 (higher risk). I think one problem is that because you can get these with a really easy to use interface, then it encourages you to check often. Whilst some might suggest that is not a bad thing, I think it interferes with the strategy that you are in it for the "long term". So I put a lump sum of about £50K in (split over the April new tax year etc). The first month I "made" 1K and I was checking every other day - I was in the green! Now I am about 2.5 k down and in the red. It is really tempting to go on a panic spree. But we are talking less than 6 months !
Define long, medium and short-term investments. For example, if long-term is 10+ years, then a check every year may be interesting. If short-term is 2-3 years, then checking monthly may be more appropriate but remember, all investments have some volatility - it's a bumpy road but you should get there in the end.
If you are checking values on a daily and weekly basis and are tempted to switch investments, then you are starting to think like a trader, rather than an investor. Very few retail traders are able to make any money but they are very successful at losing it. For pensions, we need to be able to invest and forget.
@davem.4003 thx, sounds like good tips and advice to me . Invest and forget
Doesn't it make sense to start buying bonds now as they've performed so poorly. They will recover ( as they always have ) eventually so a good bet , no ?
Another sorry tale from me, got to 55 last year, got offered 400k to opt out of my DB, this year it was 200k. Oh well I was actually going to keep the DB anyhow but still stings.
Currently paying £30kpa into my DC with Scottish Wid and it’s actually losing more than I’m paying in 😕
Let’s hope all this turns around😢 defo going to do some research into what funds are available.
I appreciate the DC universe "great responsibility" Spiderman joke, it made me laugh! (But I do have to point out that Spiderman is part of DC's biggest rival, which is Marvel.)
Oh shit! Haha
Bwahahaha was looking for this comment 🤣
Not just rising interest rates that have driven down bond fund performance - also inflation fears. They've been hit with a double whammy.
With bonds (fixed income) generating without going into distressed/junk bonds, yields of less than 2% with interest rates only having the prospects of going up due to a rock bottom base rate.
What prospect did anyone with a nouse of knowledge have for bonds. Ok it's been exasperated by the rapid rise in rates meaning the value of these bonds not held to duration have plummeted.
The irony is now everyones scared off from bonds it is now arguably the best time in decades to buy bonds, strong yields and when the rates start cutting again these values will soar.
So the take out I presume James, and correct me if wrong, is that if one has bonds, just hold it. I use bonds for income and intend to keep it long term so if I'm not selling, I won't realize the loss from falling bond prices and still expect the distributions to be maintained. a local asset manager here in South Africa is bullish on bond prices increasing next year, but the messages from the market is mixed. Year to date, our stock market is -14% and -7% in USD. The Austalian market is -6.5%. USA is + 6% and appears to be the only market that's had a positive YTD. I doubt that we've seen a non-return market persisting for this long (Excluding USA) and THAT is the unique investing dystopia we find ourselves in. I'm still and cash and bonds advocate. The risk free returns can no longer be ignored.
The problem with DC pensions as you alude to is the knowledge and expertise of the individual in most cases isnt good enough. Point in question lifestyling was designed in essence to buy an annuity….
The curriculum needs to shift to support educating our children.
I don't understand these graphs. Whenever I see the line go down for stocks, I see the line go down "almost as far" for bonds. Whenever I see the line go up for bonds, the line for stocks has always gone higher. And given enough time (a few months?!) stocks always seem to return higher than bonds, whatever the earlier crash.
To me the lines for bonds look just as terrible as the lines for stocks? (Until the last 18 months which you point out is not normal!)
Why shouldn't I go 100% stocks all the way to retirement? From these graphs, it looks like if I "reached retirement" and wanted to cash out, but was unhappy at recent performance, then I'd only ever have to wait a few months for recovery?
How does this fit in with bond funds?
So, as my pension is mostly bonds and the income from them is steady, the asset value of my pension fund is immaterial? I.e. the “Bond crash 30%” is a dog whistle, with no practical impact on me.
But how about fund liabilities? How come the surpluses have risen?
I’ve just moved my pension out of the standard lifestyle fund that has made very little over the last five years into a couple of funds, including for natural resources and gold mining stocks. My pension is pretty small and I’ve still got about 17 years before retirement age, so I thought it was time to take a risk and see if I can catch up..
Lifestyling funds are historically more attuned to people planning to buy an annuity. However, lots of folk with big pots made their money in non-financial jobs and genuinely don't have a clue.
I moved my AVC to a 80%-20% it is slightly down but I am happy I moved it.
If the average person struggles with the accumulation phase of a DC pension then consider how much more of a challenge the DEaccumulation phase after retirement is! There is very little coherent guidance about this subject at all as no-one, not even the experts, has a clue about the best way to go about it. How much money do you need? How long will you live? What will inflation be? What will investment returns be? Very difficult to answer these questions with any degree of certainty. Although the demographics have deteriorated the beauty of PAYG pensions such as the state pension is that they are a proper form of insurance for retirees based on the average life expectancy which IS knowable so risk can be pooled. Our current system is hideously ineffective, inefficient and wasteful. While millions will not have enough money many others will die with much of their money untouched as they oversave.
I have a question on this.
If the sale value of bonds is the same at the end of the investment period why are pension plans falling in value?
If you just buy bonds, no difference. But if you invest in bonds through a pension are you not actually buying bonds, but just investing in the perceived value?
If the is the case, then why not take cash and buy bonds yourself?
It's because the (pension) bond/lifestyle funds won't always keep bonds to their maturity. They need to sell/buy based on client requests and cashflow. This means that they may have to sell when bond prices are low (as currently). Some of these will have long maturity times and will be sold at a big loss. I agree with your last point. You can do a better job yourself by buying bonds individually; the choice of selling at the best price or waiting to maturity is then under your control.
@@nunwarthead6935 thanks for the comment pal. I always assumed that bonds in pension were for the duration so this really helps to know.
Thanks again!
Given the predictability of what has happened to bonds , why were they ever put forward to be employed as the large proportion of the "low-risk" part of pension portfolio investments? Is this a case of mis-selling or mis-representation of the true risk? As someone who has seen one of my pension pots cut in value by about 30% in the last year, with one year to go, I'm very unhappy that the pension company - who was supposed to be managing the fund to avoid major risk at this stage of the investment - apparently did nothing, or were incapable of doing anything! And I'm someone who does have a reasonable level of interest and understanding of investing. Thanks for an interesting video, James.
It only seems predictable in hindsight, some in the asset management industry has been anticipating rate rises every year for the last 10 years, getting it wrong every time.
Lots of people sold out of bonds 5 years ago, and then lost out as bond yields went negative in 2021 and prices through the roof.
No one can reliably time the market in the short term, and no regulated investment manager or pension provider will ever guarantee you that they can - that would be mis-selling.
This has been the worst bond crash for 100 years, perhaps longer. It's very unfortunately timing, but even with the recent crash, short/medium term bonds (which have only fallen 10-15%) would still be consider to be lower risk when compared with other investments. Low risk, not no risk.
Long term bonds however (down 30%+) are not low risk and have never been low risk. Their prices swing dramatically when interest rates rise. However it's rare to find these held in pension funds unless the strategy is set to buy an annuity on retirement.
So
Should we sit tight on the heavier invested bonds, on the view it will recover in sort term OR
Sell the bonds to move to bigger stock investments or is it too late now to switch
Good video, explained in simple terms.
Hi James another great video, got a question if you had just entered retirement and had 70% invested in a global index and 30% invested in a low risk fund like a money market fund or bonds etc as your drawing money out of the lower risk fund should you regularly sell the global index to keep topping up the lower risk fund as your withdrawing money or should you just sell a certain amount per year I feel this is the argument for dollar cost averaging vs lump sum investing but with rebalancing the portfolio on withdrawals. This could be a topic for one of your videos 👍
Genius at breaking down complex systems. Another great video 😊
I see that I'm just one more viewer who massively appreciated the DC gag. You should be able to retire with that under your belt.
Haha thank you.
Why do the public sector still provide DB pensions? Surely rather than giving doctors/teachers etc DB pensions that they may not see the benefit of for 30 years they should give them more appropriate salaries? Don't get me wrong I fully support the NHS staff etc (it's generally the management causing issues) but why should they struggle with getting decent mortgages/houses now.
I was considering applying for a council job and had to figure out what value I put on the DB pension over my salary/pension.
Great video. A couple of things to note (both mentioned in the video but really worth emphasising): 1) the inverse relationship between yield and prices works both ways, so when rates fall, there may be a partial recovery in prices (albeit unlikely to previous levels), and 2) the fall in prices is theoretically offset by the rise in yields, as cashflows within the bond funds can be reinvested at higher rates. Some of the largest asset managers (i think including Vanguard) see the recent fall in prices as positive over the medium-long term for total returns within the bond markets (i.e., intermediate total return expectations are now higher because of the fall).
Best hands off strategy for the average person. Put 50% in a passive global index fund and put 50% in an automatic de-risking fund.
It works because you are partially protected from sequence risk (excluding tail events such as bond crash of 2022/2023) and you're also protected when you're taking your pension when you're 75+ years old as you held onto the higher risk/higher reward fund as you're still a long term investor (even at 60 years of age).
top stuff James...........hope baby is doing well................always look forward to your uploads mate
Thank you very much Will! Yes he'd doing very well!
save 20% of what you earn and buy gold coins, one ounce Britannia coins, tax free, capital gains tax free, transferable fee free, no third party risk, ideal for long term saving.
Great vid!
Could you do a video about UK student loans? Is it worth repaying earlier if you earn X amount, should you just let it run its course etc
Employers and their scheme providers have no interest in educating employees, conflict of interest as more employees would change to SIPP's and people would also put pressure on employer contribution rates. The trade unions aren't concentrating enough on this either in my view, if their members were more aware of what's going on they too would get more pressure to be pro-active with employers over pension provision.
So how do I get out of bonds that have lost over 30%? Crystallise the loss and reinvest?
What bond fund are you holding?
They are various ones and all held in a defensive portfolio investment discretionary product - bundled together with equities- overall the product has dropped approx 30% - not sure if that helps answer your question
@@G3Z44 I can see you have booked some time in my diary for us to speak. We can discuss it then 👍
Bonds don't even seem safe......... no what? just hide out in the short end?
I think Lifestyling is out of date as many dont by annuities, i am 65 now but am still 85% in Equities. I use Global i dex funds to keep the cost down.
I agree, however Royal London have at least three different Lifestyle pension funds - one for annuities, one for cash, and one for drawdown. They all have the same fund allocation until you reach retirement. Other than the annuities one, this makes no sense to me. My pension was originally in the Lifestyle Drawdown fund, and had less than 40% invested in stocks, so it took a big hit when bonds collapsed.
James, My question relates to asset allocation. I am 61 in April 2024 and feel I need to start to move into more bonds (currently 90/10 stocks to bonds).
As my full state pension is in effect a fixed income when it kicks in at 67, how do I reflect this in my asset allocation as I assume this is equivalent to holding a monetary amount of bonds and thus needs to be reflected in my overall asset allocation?
Terrific clarity. Thank you
So, is it worth buying bonds now then?
Interest rates are going to fall and bonds have repriced themselves so bonds will do well going forward.
Could you have a look into royal London & the options they offer
Can’t happen to DB scheme
Right, you are there.
Glad I've got one!
Even though I hate bonds, I am always interested in any liquid asset that has fallen 40%. Therefore I think some long dated UK bond funds with high yield to markets are definitely worth considering. Yes they are highly geared to interest rate movements, so further rate rises will hurt, but if you think interest rates will ease back in a few years, these will give you the best returns. Maybe ease money in monthly rather than hit with a lump sum.
Hi mate, a question for you: I'm 40 years old and I work the NHS. I want to retire at 57 and I am thinking to start MPAVC or SIPP since I want to "manage" my own pot of pension money (not ERRBO, nor other options since it's apparently not so worth it and if leaving the NHS I will have problem in the future). So my question is whether MPAVC vs SIPP? Which one is better? In a normal employment Salary Sacrifice is possible however the NHS doesnt allow it and the only benefit is reduce Income Tax (20%). Cheers
Maybe you should consult an IFA in order to address your personal circumstances? I am not an IFA but there are some clues in James's previous videos, as well as this one.
If you are a higher rate taxpayer then deductions at source can keep you below the 40% tax threshold, which simplifies the tax treatment. If you are a 20% taxpayer then there's little to choose because anything that you invest (from income, or savings, tax paid) in a SIPP will receive a 25% rebate from HMRC, so you'll only miss out on reducing your NI contributions. If you follow the Money Purchase AVC (MPAVC) route, then you should be allowed to move some of your AVC fund into a SIPP, if you feel that the MPAVC funds are less suitable for your long term needs but you should also consider the charges of both schemes.
Forgot to add the link, James. Final finger points to nothing! Thanks for getting me into a SIPP a few years ago.
What platform are you watching on? Tv?
Great video James, but there's a nuanced point that is really important that few understand. The nominal value of the portfolio, whilst clearly people's primary concern, shouldn't be the focus; what matters is your ability to fund future spending. Yes portfolio values have fallen, but so has the cost of buying an inflation-linked annuity and securing a future income. If your portfolio falls by 20% and annuities fall by 20% - you are actually no worse off when it comes to achieving your future returns! Maybe you should be reassuring your viewers that they may not be in is as bad of a position as they might think!
Also as an aside, I would say bond yields are now more normal with positive real rates - it's the last two decades that have been unusual! This is just the painful return to reality.
There are disadvantages to buying an annuity. For instance, with an annuity if you die within a few years, your pension pot is gone. With drawdown, your pension pot is part of your estate. Also, the cost of buying an annuity did not fall by the same amount as the fall in value of bonds. There may some mitigation if you buy an annuity, but if you had no intention of buying an annuity originally, then you won't be happy.
@@MattMcQueen1 you can replicate an annuity within a flexible drawdown strategy without taking on the mortality risk. Just build a linker bond portfolio with a duration matching the duration of an appropriate fixed term annuity.
My argument is less about the pros of buying annuities and more about considering the idea of managing a drawdown portfolio in a "liability-aware" way. I.e. focusing on generating future income, not portfolio volatility.
Default work L&G portfolio wasn’t great. Took me a while to realise then changed future investments to a North American equities portfolio. The default portion is down and the equities is up. Waiting for the default portion to recover before doing a partial switch to my sipp so I can just focus on a global equities fund.
There really needs to be more advice given to employees on WP pensions.
Excellent video. Thanks.
Whatever lump sum you can get your hands on, get it. Buy something that will sell on easily. Just do it.
Hi James, are pension companies at fault, by saying lifestyling was low risk ? Also can you explain how the coupon value, and actual value of a bond works with for example black rock 15 year gilts? As I dont see the coupon value it magically gets put back into the fund to maintain its value and doesnt buy additional bonds. Great video but still not sure what to do with a 30 % loss that shows no sign of improving, is the best thing to buy an annuity with this portion as a way to mitigate the loss ta..
No. Firstly in the DC world it’s your responsibility to invest your own money, and secondly although these options say they are lower risk, they are not no risk. Even with the recent sell off, bonds on the whole have still been less risky than stocks.
Although it’s important to differentiate short and long term bonds. As detailed in the video, Short term bond prices are not as sensitive to interest rate changes, so they are low risk.
Long term bonds prices however are extremely volatile and are typically not suitable for retail investors.
@@JamesShack thanks James, any comments and the 2nd part of my question ?, 😀
I wish I had understood several years ago the inverse relationship between annuity rates and bonds - it would have prompted a much more urgent transfer of DB funds into a SIPP.
In your specific case, using cash from bonds to by an annuity should be more or less cost-neutral. On the other hand, using a portion of your equities pot, which may have grown more, while waiting for bonds to recover some ground, is an alternative approach. Which you choose really depends on your attitude to risk. Exchanging bonds for an annuity now, you know exactly where you are. No one really knows if or when bonds will recover, or how far, nor can they say whether equities will continue to fall, as they have done in recent months, or regain the longer-term trend of continuing to grow.
@@davem.4003thanks Dave that makes sense, i guess I looking for a way to lessen the pain of -35% I know low risk doesnt mean no risk... but there is still an expectation of .. well lower risk than equities...strangely the fund factsheet shows higher risk but pension companies are happily passive, which is a bit annoying since you might think with their huge resources the would zbe more reactive.... but hindsight an all ....
Can you purchase these bonds via a SIPP (eg. Vanguard) and if so... would you bother or just stick to index funds?
I'm currently 17% down on LS20. Been invested since 2021 and didn't even buy at the top of the market! Really expected to see some kind of improvement by now, will it be years and years before this recovers to where it was?
Wait for a decent correction and start to average in to LS100 or the S&P500, your portfolio will recover much quicker, to be fair, now is a good time to start nibbling…
2-3 years probs, offset with some bitcoin
@@XORTION with the upcoming ETF approvals and halving next year, I would go all in on BTC but didn’t want to recommend as it’s quite volatile 😄
The pension providers were supposed to convert their long term bonds into short term bonds. The government/BoE gave them advice to do that. After the bond market crash the Bank of England purchase £63 billion of bonds to increase the price (decrease the yield) so long term bonds could have been swapped for short term bonds with no loss and short term bonds have much less exposure to loss. If your pension provider didn't switch to short term bonds you should be calling your them to get a reason.
1 year or so to retirement, with fewer and fewer choices from my Pension provider. Frustrating stiation to say the least. Just grateful I didn't have too much in bonds as we'd previously had self select funds available.
It is a total mess. We've been hugely let down by our government for allowing this situation, our employers and the pension companies.
The uk government hates all the working / middle class plebs unfortunately
Everything is geared for THEM .. .. ..and their paid overlords,
😮
I warned people a while ago about pensions being hit it’s a con you put your money into a prison on the off chance that your going to be able to get some back if you live long enough and then you still get taxed on it
I’m four to five years from retirement this doesn’t really help
Great video! I can sense your frustration with how a lot of people assume the wrong conclusions with pensions and the general lack of understanding.
Personally I'm a couple of years away from retiring but I'm 80%+ in equities. As I will remain invested during retirement, I see no reason to dial down "risk". I will implement a bucket strategy and ensure I always have around 3 years of living expenses in high interest easy access savings. That should help ride out any market turbulence. It's just a fact that equities always outperform bonds in the long run. Why compromise?
Saying all the above though, I do frequently think about converting a large percentage of equity investment into lower volatility funds/classes. It's just human nature to protect what you have.
Isn't that a contradiction? Why not have 100% in stocks if you're so confident?
I actually like the 80% approach. At that percentage you’re almost all in on equities but there’s still some bonds. You never know the bond market could be in for significant growth.
@@johnristheanswer I don't think it's a contradiction. I said that I am planning on keeping 3 years of living expenses in easy access cash (well high interest savings/bonds). Everyone needs access to cash quickly and having that element tied up in equities is foolhardy as we all know the market is turbulent.
Great video man.
I’m 22 years old, and currently pay 12.5% of my salary into my pension. Would you recommend me pay a higher %?
Need a lot more info than that to give any sort of advice.
@@MrJeffHead say my salary is 30k a year and I still live at home with my parents
What does your company contribute?
You're doing great at that rate and will retire wealthy if you just carry on. Get it all in a range of index funds and relax . Remember, you need a life too.