Don't Invest in the S&P 500. Especially if you're retired. (108-year backtest results)
ฝัง
- เผยแพร่เมื่อ 13 พ.ค. 2024
- I know it’s tempting, but it does not pay to chase past performance.
This backtest was done using www.timeline.co/
To get data going back to 1908, they use a combination of indexes, but they currently map to:
US Total Market - Morningstar US Market
US Aggregate Bonds - Morningstar US Core Bond
Global Equities - Morningstar Global All Cap Target Market Exposure
Global Aggregate Bonds - Morningstar Global Core Bond
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00:00 Intro
00:57 The Test
04:14 US
07:46 Global
13:26 Third Strategy
Very thoughtful analysis!
I'll add that the world is a small place now and US companies have serious international exposure, so holding a US index fund includes much of the world's returns. This was not always historically the case.
Another excellent video, James. One of the clearest explanations I've seen of why timing is everything when you retire and how a few years of poor performance can make all the difference. A great explanation of the difference between average returns and how volatility in those returns really does make a difference when you've retired.
Very useful information as always and essential viewing for those nearing or just started their retirement journey. Perhaps a mention of dynamic withdrawal guardrails could have been added as an additional method for sustainable withdrawals.
As you have highlighted, investment fund and/or bonds selection for appropriate diversification is important since index funds will contain all listed companies and will therefore contain trash as well as winners.
Interesting ideas.
The S&P 500 might be an American market, but the companies (e.g., Apple, Alphabet (Google group), etc.) are multinationals for the large part. So, while I take your point about America having a lucky run, I still think the S&P is diverse (in industries) and hires the most lobbyists to ensure they will continue to receive favorable treatment. I’m about 3-5 years from retirement and have just set up a Treasury ladder for two years worth of withdrawals (which I could increase to 4 years, if necessary) and S&P with the rest. As I draw down from the treasuries, I will sell the S&P to replenish them (but if it’s a bear market, I’ll be more frugal with my withdrawals until the market recovers, thus the 2-4 year flexibility.
Thanks.
The elephant in the room is that after 80 years of age, you’re not flying around the world, not buying Porsche cars, hell I eat out a lot and almost never see octogenarians in restaurants
Maintaining a £500,000 pot is pointless as you age. (Nursing home fees ‘priced in’ of course)
That's because you're spending it on doctor bills
@@PitDaddy I’ve told my family, once I’m unable to bathe or ‘toilet’ myself, I’m packing it in and accepting the end 😀
It’s a nice sum to give the kids or grandkids though.
@pataleno so is your house, preusming its paid off. Id consider it enough giving my kids the odd bit of cash as a gift while living, my house in my will, and spending the vast majority of my liquid assets enjoying my retirement.
@@jackb5640 yeh fair enough. Yes my main home is paid off. I also have a second property I rent out (and a holiday home in spain I share with the family). Mortgage almost paid on that as well. My two kids will hopefully inherit these. I really want to leave as much as possible to them whilst not scrimping in retirement. Hope to retire in about 5 years.
Happy New Year, Mr. James Shack. Thank you for all your videos and may I wish you the very best for 2024 and appreciation from Nova Scotia, Canada.
As usual another excellent video. Not what I expected and thanks for the tip, as I am hurtling towards retirement. Keep the videos coming, they are really good at assisting your viewers understanding of a complex subject matter
Very good video. Many thanks. I intend to invest 85% in Global Stock Index (ACWI) and 15% in Small Caps.
Great Video James. I’m 55 in March and very heavy invested in S&P. I do also invest in a global index fund.
Looking to retire in about 5 years. This is certainly food for thought on how I invest in future.
Great content. I find a lot of finance you tubers default to the US with their commentary and analysis so it's good to see a different perspective.
You're welcome!
Yes, to hear some people talk you would think it's the only game in town but so often history has shown that the point of maximum euphoria is also the point of maximum danger.
It’s because this guy is not just a TH-camr, he’s a practicing financial planner
It's only when the tide goes out.........
I've been doing the maths on retirement for a LONG time, and this is one of the most interesting and thought-provoking things I have ever heard! Great job; subscribed!.
Have you done the math for a global leveraged portfolio to get the same expected return as SP500? Will that be more or less volatile than SP500?
There are a lot of things to research, and I did not do that one@@colin3120
Keep in mind that the place of living very much changes the outcome. Not the performance but what you pay for a living. You won't need 4% in any part of the world. Like if you live till the end in the US with high living standards and especially huge health care costs, maybe 5% isn't enough. But in a low cost region you might only need 3% and therefore can effort a more risky type of investment. Then again, why building up more money when you won't use it anyway..? Paradoxic.
Thanks James. Great content as always. Would be great to hear more about possible dynamic withdrawal stratagies, as I suspect that could have a massive impact on success outcomes for fairly small changes to early retirement incomes.
Check out James previous video: Watch "Stock Market Crash in Retirement - How to protect your future" - th-cam.com/video/oyzR7tMmj9o/w-d-xo.htmlsi=JwHTAgkEXCdYi76R
This may provide a partial answer to your question.
I would simply re calculate a scenario every year that gave a ninety percent success rate and adjust my spending accordingly. A dynamic spending plan that would give you more to start, and give you more clarity, and also possibly more spending, most years.
Yep. Alternate revenue streams help too: Pensions, Social Security etc. Have 2-4 years of cash and reduce spending in years that are down more than 20%. Also, take care of major expenses like a new car and big home repairs before retiring. As long as you don’t suddenly need a new roof or your house replumbed, scaling back spending by a bit should be fairly easy for most people.
Well done. Next level, simply explained, and very impactful. Cheers!
You make some excellent points. What you are saying is strongly supported by decades of academic research as well, however, you put it in a more palatable form. Your key points are great:
1) each of us only has one time path through the market (which will cause our actual results to vary from the average, sometimes very significantly);
2) we can alter our withdrawals if needed part way through if we are on a low return path;
3) DIVERSIFICATION is important, it lowers risk and can actually result in higher returns as well.
Thanks.
I love that chart @ 12:40 really. It shows the intensity of the Japanese Asset Price Bubble in a way I’ve never really thought of.
Interesting, thanks. I recently switched from S&P500 to Global All Cap. (I'm in the UK and 40 years old)
Did you sell your S&P 500?
@@berniekeene868 yes, I sold it all and replaced it with Global All Cap. Now just going to invest in that for the rest of my life. No more switching.
you should stay in S&P. You're young and still have ways to go before retirement.
Poor thing
Good choice. I am also invested in the global all cap.
Great video James. I’ve seen a similar argument against investing in just the S&P500 made before but your explanation is much clearer and more compelling!
This is a superb and very well-thought out analysis. Well, I actively manage a good sized retirement portfolio, and it is on track to pile up far faster than any expectation of drawing it down. There are so many pertinent factors of advancing age. Most people (and written articles) often talk in terms of enjoying "experiential" uses for the money. But there are those of us who really are not so drawn to continual travel, and who find such trips to be very exhausting and fraught with a variety of other negatives. In the end, I see no particular compunction to spend all of the money.
Great Video and very well explained - particularly for somebody approaching retirement. Excellent analysis too. Thank you!
I started investing in dividends with my taxable account. I used the buy and hold strategy in my Roth, adding some Berkshire B stock, SCHD, and an S&P 500 and total market exchange-traded fund.
Top class video James. I’m 55 and just started my early retirement so this is very relevant to me. I have a similar sized pension to the example and was pleased to hear that my strategy of going for good global diversification is the recommended approach. I’ve been using my SIPP provider’s portfolio X-Ray tool to make sure I am well spread across geographies and sectors, with a mix of growth and income funds. It’s slightly scary, knowing that decisions I make now will impact me (and my family) in the future, but I also quite enjoy researching funds, and watching YT videos like this! 😊
Which Sipp provider do you use? Mine does not offer anything like as useful as this.
@@gcbadger I’m with Interactive Investor. Very impressed with their service and platform so far. I’m in the process of moving my S&S ISA over to them as well (from Hargreaves Lansdown) due to their lower fees.
This answers my headscratching moment looking at the funds in my mom's annuity. US large cap growth and value, small cap growth and value, international, US bonds, International bonds. Killer job explaining
Great video James, thanks.
What do you think of the two small cap value UCITS ETFs? One is SPDR MSCI USA Small Cap Value Weighted and the other SPDR MSCI Europe Small Cap Value Weighted.
James, your ability to cleary and cogently explain the results of your analysis of different investment strategies is, in my opinion, exceptional.
I always look forward to each new video and the insights it brings. I wish you a Happy New Year and look forward to learning more from you in 2024.
Thank you very much and happy new year to you too!
Great video James . I’m in process of looking to invest £1.1m in my SIPP and like the 60/40 split as im now retired and taking an income. I’m struggling to get my perfect selection of etf and bonds. Any suggestions? I appreciate not advice but shortlist would help.
Hi , another great video , to Paul Merriman a big thank you . Can you tell please witch small cap value funds were considered for UK traders in the back test ? Best regards .
Great to see a new Video from you James and food for thought, would be great to have some practical advice on selecting standard funds from some of the big pension providers, or at least some of the things to look out for.
Great episode James. It's worth noting that adding bonds to portfolio greatly reduces success rate in a long run. This feels a bit ironic, assuming most/some investors add bonds to their portfolio to reduce the risk of runing out of money. There is no place for bonds in most portfolios if the plan is to have a high SVR for a long time.
For what it's worth, some of my suggestions for future episodes:
1) Drawdown techniques vs how actual retirees drawdown their portfolios?
2) Protection from sequence of return risk in early retirement.
3) What should early retirees think of when moving permanently to another country. - this one is almost non existent subject and yet so many people would be interested. Take UK citizens residing/planing to reside in Spain as an example audience.
4) Factor investing for UK based investor.
Yeah, his talk of bonds here (as in "60/40") is VAGUE in the extreme. Which is quite surprising: James, like every other FA on the planet probably, did not warn of the coming bond collapse 2 years ago. And a couple of weeks he did a video touching on bonds. But here he seems to have forgotten all about them again, and gone back the "stability" mantra, which I find disappointing. I don't think retail investors should hold bonds (and certainly not bond funds) at all.
@@mikerodent3164 in my limited understanding, there is a huge difference between bonds (guaranteed return if you hold to maturity) and bond funds (which act much more like stocks). I hold bond funds and have learned the hard way that they don't hedge against a big stock dip - quite the opposite perhaps.
I have to agree. Even as someone ready to retire, bonds are just not the place to be… at least for me. I’ve recently repositioned my portfolio for income. There are plenty of opportunities for stable equity investments that pay dividends and are less volatile (than, for example, an S&P 500 fund).
@@byteme0000 can you name some stable economy investments..please..
Check out some of the latest research/thinking in retirement planning - “bond tents” or “rising equity glide path.” You build toward retirement with a decreasing equity glide path and then upon retiring, maintain a conservative or balanced portfolio with 40-60% to bonds; then, start increasing your equity exposure again gradually over time. You avoid sequence of returns risk early on in retirement and then assure more growth over time.
Excellent stuff again James. One issue with factor investing is the psychological aspect, small cap value has shown itself to outperform historically, but it could underperform for years or decades. You need to be absolutely sure you feel good holding it while you can read in the paper again and again how "the stock market" is having record breaking gains and your small cap value ETF is going nowhere.
Have there been more longer periods when small caps have underperformed the S&P than vice-versa? If not, you could also make the same psychological argument about the lost decade (2000-2009) for the S&P, which returned -0.9% while small caps returned +12.3%. Its just part of a diversified portfolio. Different parts go up and down at different times. In a sense, investing in the S&P 500 or the MSCI World Index is factor investing because you are only going for medium and large caps.
Another informative and well explained video.
Well done for creating such a great TH-cam channel.
I've learnt so much from your videos. Keep up the great work.
You have a perfect voice for audiobooks. Great video too haha
Could you tell what ETF or combination of “global stock markets” are you using to represent the global returns? I’m also interested in understanding the asset allocation of your “more diversified” portfolio.
Yeah, I"m not sure how it's different from "global" when global should include large, mid, and small-cap stocks from all countries (with public markets).
I completely agree that investing solely in the US near retirement is a risk, however, a global portfolio will have a high percentage of US stocks and if the US drops significantly, the chances are the rest of the World will see it too. I get the principle though.
Great video as always! Has highlighted that when you are drawing from your pot (assuming it's a single pot), then volatility can have severe long term impact, especially at the beginning (ie prior to UK Pension being received).
I am going to have 2 or 3 different pots to pull from, so i can maximise the upside, while minimising the downside. Something Similar to cash/or other easily accessible income, then the main amount of my pension in something more stable, and then a small say 10-20% in equity. Each year or couple of years, i will shift funds from the volatile pot into the more stable pot, and then move equity from the stable pot into my next year or 2 pot, on which i will draw.
I don't plan to retire for another 10 years. During this time, I will invest in a basic FTSE 100 all world tracker for my main investments. I will also allocate 5-10% of my portfolio for more speculative investments, such as Scottish Mortgage and UK Wind.
Hey James - Happy New Year ! I have a question unrelated to the video but I thought I'd ask if you have a moment. What software do you use to create your graphics, charts etc ? They're very good. Keep up the good work in 2024, taught me loads.
You can protect yourself from this so called sequence risk with 2-3 years of cash...100% equities is the only way to go
Some drawdowns can last for many many years
Bonds were supposed to let you sleep better at night by limiting exposure to stock market crashes - it’s all a matter of perspective though - my thoughts are to keep 5 years cash/fixed income in retirement (to avoid sequence of returns risk) and to view stock market crashes as a great opportunity to buy more stock with years 4/5 cash - historically, stock market crashes have recovered within 2 years 90% of the time - de-risking in/approaching retirement is fine if you want annuities but for drawdown you really need your money working hard to keep/beat inflation over next 30+ years
Agreed on the 100% equities. I think a significant holding of S&P500 is wise while accumulating, maybe move to a higher split of global equity as you approach retirement. I think I’ll remain 100% equities when I reach drawdown, mitigated by a large cash reserve.
@@Holdeenioso if risk is mitigated in retirement by "a large cash reserve", then you are not 100% in equities; you may only be 75%, 80%, or 90%, depending on the size of your "large cash reserve". I guarantee that in the years immediately preceding your planned retirement, you will start to take a greater interest in the risk of your investments declining in value unexpectedly and this will cause you to review your investment strategy in order to preserve value, rather than continuing to chase growth. Thus it's simply a transition between 100% equities and your "large cash reserve". It is rarely a black and white choice or scenario.
Large value/ blue chip companies would help in retirement w those dividends being pumped out and lower beta then S&P500
00:02 Questioning the wisdom of investing in the S&P 500, especially for retirees
01:56 Diversify retirement portfolio beyond S&P 500 for sustainable income
03:55 Backtest results show varying success rates for S&P 500 investments during retirement.
05:50 The 4% rule may be too conservative, aiming for 85-95% success rate could be better
07:48 A globally diversified portfolio outperforms the US Stock Market in retirement scenarios.
09:59 Withdrawal rate and portfolio performance impact retirement sustainability.
11:55 Diversify globally for lower volatility and higher income in retirement.
13:51 Small cap value stocks have outperformed the S&P 500 over the long run.
Thank you ❤
Thanks .
The reason I invest in US stocks, bonds, is because my assets are in IRA's. Many foreign countries withhold taxes from returns that significantly reduce your returns.
So nice to see a breakdown of all the areas where this is completely wrong.
A great video as always, thank you. However, you linked to your Vanguard video's, and there is a lot of noise on TH-cam that Vanguard Life Strategies are dead. Is there anything behind this?
HNY 🎉 really appreciate the content, I often share your videos with the young and old chums that I have.
Very interesting analysis James. One of the reasons I've steered my portfolio to US stocks is that the vast majority of the research into safe withdrawal rates seems to be based on US stocks - so I felt like I was 'wandering off into the unknown' if I deviated too much from US stocks. So this is useful insight. Although there is one other factor to consider and that is that global stock funds seem to have higher management fees than a fund of purely US stocks, which I would imagine in reality makes this sort of analysis look slightly better than it turns out to be for global funds when you've taken the management fees into account.
A good point on fees, however if you do passive investing with low cost index funds rather than active investing you get to ignore management fees and only have to deal with OCF and platform fees which you can minimise to the point of insignificance.
HSBC FTSE All-World Index Fund Accumulation C: 0.13% OGC on the fund and the ETF. The Vanguard equivalent is 0.23% (in the UK).
VEVE ETF is 0.12% ongoing charge.
@@george6977 VEVE is not All-World: it's Developed World. Which is fine if that's what you want.
I'm currently looking at my retirement drawdown options (I'm 61) but my plan is to take more in the early years (e.g. aged 61-75) after this I'll most likely want to slow down and do less anyway and quite frankly if the funds/income is minimal at say 80 years old plus it really doesn't matter and I could always downsize my property. I guess what I am saying is that the plan doesn't need to assume an income amount with an annual increase until you're in you're 90's - for me that's illogical. Anyhow, appreciate the analysis James and I know you have covered the point I make previously.
Very good point. Never thought about it
You are absolutely correct. I am now 79, having retired at 52. My portfolio was mainly in cash (yes, really)- I regarded volatility as my greatest enemy. I travelled much, especially in my 60s (holidays buy memories, and the earlier the longer you have them). Has it worked out? Yes- I am now over-funded. Main reason is inflation- most forecasters glibly put in a value such as CPI. Study how it is measured and you lose all faith in it being sensible. I have tracked my expenditure for 35 years now, and inflation, for me, is a fraction of the published numbers. But my state pension (SP) goes up each year by that or more. When I and my wife first received it, we could cover all our 'normal' expenditure (running costs, excluding holidays and other discretionary spending) with 85% of SP. It now takes only 60%. Try as I might, I cannot keep up with our spending target. Not only am I not withdrawing capital, or even growth on capital, I am not spending all my income (SP & pensions). Saving at my age is madness- but what can I do? My biggest mistake was not retiring earlier- but I believed forecasts like this...
One has more control over spending than earning. If squeezed, one can drop from 3 holidays a year to two. Perhaps forsake business class for the shorter hops. In retirement, one has the time to shop around, and choose well. And, as you say, as you get older you have less desire to spend- most of the bucket list has been ticked off...
What a great perspective. It's always a worry that you'll withdraw too much too soon but you also don't know what your health will be like as you get older and so I intend to focus on the earlier years and if necessary cut back when I'm older. I also like your comment about having the memories for longer the earlier you do something!
@@Tensquaremetreworkshop It sounds as though you've had a fantastic retirement already - congratulations! Your comments do provide an indication why James will not make specific recommendations though - because each person's circumstances are different. I shall be in a similar financial situation to you but having retired around 12 years later, in that the state pension will cover the majority of our fixed expenditure but someone that is used to a higher income and higher expenditure will have a greater dependency on their personal pension savings.
What to do with your surplus? Donate to charities, or family - this probably needs some professional financial advice.
@@davem.4003 Sounds like you are suffering from Parkinson's second law- expenditure rises to meet income. IMHO 'subscriptions' are a major contribution- the modern trend to break down ongoing costs into monthly payments. They are like leaks in a ship- they require constant baling to avoid sinking. You have much more control over your spending than your income- retirement gives you the time to examine each and every drain on your wallet, and determine if you are getting value for it. Or if there is a better choice.
Yes, everyone's circumstances are different- and complex beyond the time a professional can spend on it. And, in almost all cases, the information is not available. Only you can gather where it all goes, and put your value on it. The only one fully vested in your interests is you. IFAs use crude measures such as 'risk apatite' - a construction that does not pass even the most cursory analysis. Professional advice? - I have yet to meet an advisor that does not follow his trite training, divorced from your reality. Never forget, s/he is doing it for money- his money. It really is not that hard- I have done many more difficult things in my life than manage my money. Do with the surplus? A friend of mine determined to will his money to charity (his children were well set up). A year later, I asked him how it was going. He was frustrated- his investigations (he is a thorough person) had not turned up a single charity that he felt worthy of his money. How diligent would a 'professional' be? Remember, most advisors do worse than the market. There is no science- it is a drunkards walk.
You got some pretty useful content. Thank you for this.
Thanks James! Is factor investing especially applicable then to the drawdown phase cf. the accumulation phase?
You should always have 5 or 6 years in a money market (cash) to allow for down years invest the rest in sp500 let it grow reinvest dividends and gains
James, many thanks for this. I wish you and other TH-cam financial commentators would do more like this, for those of us many, like me, already at retirement age or already retired, with money to invest and starting from zero.
99% of videos are for either much younger folks with a lifetime to invest, or those with 5-10 years to go until retirement and how to plan for it.
There are many like me in my situation - only started earning the bigger salary late in career and now with a lump sum payout (company assumes it'd be for a pension, but up to the individual).
No previous investments, so have to get that money working for me NOW, with some growth, but need an income.
Luckily I'm still fit and working age, at 61 I may find more work, and have the mortgage paid off, and a small pension already coming in. But if folks at 60 can't find work again, they need any lump sum they have working for them.
Any suggestions on funds to invest in, dividend stocks and funds, and income investing, would be very welcome!
I enjoy all your videos, but this one is the closest to my own circumstances. Thanks.
You may not realise it but your situation is not so different to someone planning to retire in 10, or 20 years because, if you are still in good health, then you could still be benefiting from your pension investments in 20-30 years time. The main difference, if you need to consume some of those investments as income to take you through to normal pension age, is to have sufficient funds in accessible savings to carry you through any volatility in your other investments. I recommend viewing James's previous videos.
In your situation, it is important to gain a sound understanding of the HMRC (assuming that you are in the UK) tax rules. For example, if the lump sum that you referred to is part of your pension (Pension Commencement Lump Sum "PCLS") then you are not allowed to put that back into a pension arrangement (pension recycling) but you can put it into an ISA, subject to annual limits (currently £20k for the 2023-24 tax year). Commencing drawdown from a Defined Contribution scheme, or SIPP also sets a limit on future pension contributions, including from continuing employment.
Thanks James, Can you look at a video with your thoughts on managed futures diversification and also the new etf products like wisdom tree core efficient that allow small leverage to allow space for firther diversification ie 90/60 eq/bonds
fantastic analysis. i've noticed many factoring in large % in US and 10% in "INTL". when you define global, what exactly is that made up of in a global portfolio? Is it just S&P level assets globally?
I wonder what happens if we have a Japonification for the next few decades and we are already or near retirement on a very lean FIRE having to survive without a State pension for potentially 30 years. As you have shown a collapse mid retirement can make you fail if you are using variable income while fixed income might be too low 😬
Happy Almost New Year 🥂
That's a very good point. At 63 I'm old enough to remember the rise and fall of the Nikkei, and some of the comments in the press during the early 1990's which,with hindsight, were hopelessly wide of the mark.
What happens? You go back to work until things get back on track.
The problem is being employable. @@johnoneill1011
Large cap Value companies w an etf like SCHD should help lower your volatility in retirement
Thanks for reinforcing my point, @@johnoneill1011
That's obviously what most retirees, specially ones that retired early on a lean FIRE, want to avoid, and what the governments want to promote as they want more participation in the workforce by this specific segment, as it tends to be the most productive (while working).
Many global funds are heavily weighted to the US, as it's still currently the chief value of equity in the world. A global fund only reduces the US exposure, but not by much.
i have 2 etfs, one for the developed world (60% usa) and one for emerging markets (0% usa), developed weight is 70% and emerging markets 30%, going from 100% usa to ~50% usa is much lol
@@michelbruns But you have chosen 2 funds to create app. 50% US weighting. Just choosing a single global fund, as the video indicates, does not reduce the US weighting by much.
@scareybailey then take 2 etfs, wheres the problem lol. Even using the first one i mentioned drops the usa weight from 100 to 60
Thank you for this very informative video!
Absolute quality content once again. Thanks.
So basically invest in something like the Vanguard Global All Cap, as that has lots of small cap stocks as well as a global diversification?
I thought that's basically what he's saying, but how is that different from the "global" column on the graph?
I'm not sure.. I guess it would fall under the global column but I'm struggling to see what to invest in/ which fund to choose if we want the "more diversified" option. US: SNP 500, Global: Global All Cap or similar. More Diversified: no idea!
Love the videos James! Keep them up! :D
I enjoy them too!
Just subscribed. I'd love to hear your views on small-cap, mid-cap, small-cap value and REITs.
Since subscribing to your channel James, I am constantly reminded to consider my future retirement actions...
Hi James, I love your videos, this one is great, I must check my funds. I just watched another one where I found out you can put £2,880 into a pension and the govt will add £720 in tax relief even if you are not working or do not pay tax. My partner is not working but he does get some property income (less than the personal allowance at present). Could you do a video explaining pension contributions for non working partners in a bit more detail. Many thanks
See the following form HMG:
If you do not pay Income Tax
You still automatically get tax relief at 20% on the first £2,880 you pay into a pension each tax year (6 April to 5 April) if both of the following apply to you:
you do not pay Income Tax, for example because you’re on a low income
your pension provider claims tax relief for you at a rate of 20% (relief at source)
Source: www.gov.uk/tax-on-your-private-pension/pension-tax-relief
So anyone (up to the age of 75) can pay up to £2880 pa net into a SIPP and will receive 25% of the net sum (20% of the gross) in tax relief.
This.
This is what I am doing
Your premise is flawed. Invest in dividend stocks and live off the divvies; do not sell stocks for cash.
Super subjective. Principal preservation is a subjective, preferential thing for people who are more risk averse but often not willing to admit it, or who want to leave wealth behind.
Are you recommending Global small cap value or US small cap value??
This is great information. Thank you
You did this without saying ‘sequence of returns risk’ 🤗, and then there’s also the other risks embedded in assumptions - exchange rate risk etc. - but we don’t want to scare the clients. Good you highlighted global diversification. tl;dr People need to understand the risks of all approaches
6:45 Close enough 😊
Really great deep dive! I’ve noticed that the US economy is more resilient and set up for business than other parts of the world so perhaps the assumption the US will continue to outdo others is a good one
Well yes in general for investment only and over long-term, but kind of against the whole point of the video! (e.g. avoiding volatility & consistent drawdowns)
@@jimbob2hats925 About managing risk and volatility, yes, I suppose you're right. But some of the desire for hedging that risk is the assumption that the US will not be as strong as it has been, and that the last 100 years may be more of an anomaly in history
@@mwp6662 did you not see the graphs at 12:40 and 13:00 (ish)? It already is volatile...
@@mwp6662again the video isn't talking about hedging "against" thst risk. It's talking about volatility and drawing down from this.
Interesting concept. The pamphlet I read on retirement planning in the 1970's still holds true. It used a simple future value calculation, taking into account inflation. This would have been a 2 minute video if you had just said diversify your investments. The charts and graphs should help some get the point. Darn good video!
Thanks James. Very pertinent for me at 59. As an IFA I recently consulted said - "why take the additional risk?"(though he was referring to an aggressive equity/bond allocation at the time).
Spreading the risk seems prudent. Going back a couple of years I was overindexed on UK equities, and that clearly didn't prove to be wise, post Covid.
Unfortunately my company pension no longer offers many individual fund choices within their mainstream scheme, so I have some decisions ahead.
Post covid/brexit you mean?
You do not describe the "third strategy"....
James, have you ever done a video on the exchange rate risk of investing in S&P500 if saving outside the US?
Would be interested to see this
Very interesting! What do you think of combining the SP500 with an Emerging Markets ETF?
Excellent video James thank you!👏🏽👏🏽👏🏽🇺🇸❤️
Ironic that you released this video today as S&P closed out yesterday up 24% for 2023. That being said, I totally agree with diversification, another great video
And was down 18% in 2022 …
@@alistairstanger2940 I think that emphasized the point of diversification
Exactly 👍🏼
How come you were never taught the meaning of the word "ironic" at school? I know, I know: you never paid much attention at skool. Teechers are a drag.
@@mikerodent3164 I am content with my use of the word ironic
Thank you! I am a single mom, I've been thinking about investing going into 2024. I'm starting a business and am about to be financially stable enough to start putting money into the market. My biggest question before I get started is: How do I know if the stock market is too high right now so should I wait for a downturn before investing? Or what type of stocks (ETF, Index Funds, Penny Stocks, High Yield Dividends, etc.) should I buy at different turns in the market?
@sammyphon you're really doing well for yourself, my retirement plans are going down the drain. I've tried investing in the stock market several times but always got discouraged by fluctuations of stock value, I'd rather not reinvent the wheel. Since this strategy works for you, how can I contact your advisor?
Exactly what I’m doing again this week. The smartest thing I’ve ever done was having 30% in cash to buy on the way down in 2021. It hurt watching 30-40% discounts drop to 50, but grabbing Google, NVDIA, Apple, and others near the bottom has paid off. I love the bull outlook but I’m not confident to should hold all equities
Thanks for sharing. searched for her full name and her website popped up
Thanks a lot🙏 i really appreciate. Was amazing speaking with Martha
Overloaded in property, whuch global index to buy ? If I’m using IBKR …. Ty
thanks James, really interesting !!
I suspect that if you had been able to use 500 index data rather than total market data, the 500 index would have crushed the global market. The index continuously sheds underperforming stocks and replaces them with better performing ones- with nearly no load. The 500 index math is hard to beat.
There is barely and difference between US total market and S&P 500. See for yourself with: www.portfoliovisualizer.com/monte-carlo-simulation#analysisResults
US total market outperforms slightly in fact.
The problem, particularly with pension funds, is that no amount of backtesting can tell you what will happen in the future. Even if your pension fund is mostly in bonds, you can experience huge unexpected losses (as has happened in recent years), early on in your retirement. You can make estimates over the long term, but that is no good if you are retiring today and are trying to avoid a catastrophic loss in the first year. You could see a 25% increase in your investment this year, or it could equally drop by 50%.
Well done James. Really well explained and super interesting.
Great and careful analysis- except for one point. Like most forecasters, you glibly put in a value for inflation. Yes, it needs considering- but there is a problem- not a single person in this country has the same inflation rate as CPI in the long term (and this is the long term). Having tracked accurately my costs for 35 years now (I started with Excel v1), I know what mine is- and it is way below CPI. This is especially true in retirement- you have reducing expenditure. I gave up golf (handicap was going the wrong way) and downsized (mowing lawns in retirement- no thanks) meaning my inflation over a 14 year period was actually negative. Plus I gained a tax-free lump sum. At 79, my income (state pension and annuity) exceeds my spending (despite all my efforts). Belief in inflation can cause you to retire later than you need to. Step one in any retirement plan is to understand your own costs, and your own inflation. Yes, it is grunt work, but essential.
The best investment one can do right now is investing on real estate though stocks are good but ever since I swapped to real estate, I've seen so much difference.
I have been making a lot profit through real estate which has been the main source of my income.
Sounds great! please I will appreciate your assistance on how to go about it, who's your coach and how good is your coach?
STEPHINE KOPP MEEKS she is whom i work with look her
thanks i for recommending i find her and left her with message online
What about tax liability on you property investment
Munger and Buffet never talk about sequence of return risks . This is a lucid and valuable analysis you’re giving. The growing federal deficit and interest expense and the magnificent seven are warnings . The S&P is headed for years of lower performance .
Warren rarely sells his stocks and if he does, he's reinvesting in another stock, thus sequence of return risk isn't a risk for him. His holding period is forever, usually.
For the rest of us, selling stock during a stock crash, can be very harmful to our portfolios. But, sometimes we have no other option, if we want to eat food and pay the electric bill.
As the client has expected 40 years of life ahead of him, why do we cash in all his holding on retirement?
Wouldn't investing most of his pension pot in dividend growth securities within his pension wrapper be a smarter move?
Hi James - an interesting perspective! One question though, why are advisors still recommending a 60/40 mix?? when bonds have proved a disaster when compared to shares in recent times. they did not negate the recent stock market fall like they where meant to and did quite the opposite. i know that advisors may accuse punters like myself of 'recency bias' but i cant help feeling that more emphasis should be put on recent times (last 30-40 years) rather than the last 108.
i have yet to see a youtube video too convince me of a valid reason to pick bonds, maybe you can convince me otherwise??
Even with the long term analysis he used in the video, the success rate of the 60/40 portfolio was lower.
BEcause they are clowns
Because it's not just about growth, it's also about reducing risk and volatility. James did say that this aspect is more important for those who are retired, or nearing retirement. If you still have 15-20 years before your planned retirement, then you would be more willing to accept higher volatility and risk in return for greater returns. Some people have commented that using a historical duration of more than 100 years is not relevant to modern circumstances. Similarly, the issues with bond rates vs. equities is a recent historical anomaly and from where we are today, bonds are predicted to provide a secure investment solution that could well exceed returns from equities in the short-term. The problem is that no one can accurately predict the future, so decisions are always a best guess of risk vs. reward.
@@davem.4003 how are you defining risk? Surely the risk with respect to a retirement strategy is the success rate - the likelihood of not running out of money before the end of your timeline. As James shows in the video, the success rate with bonds is lower so you are MORE likely to run out of money and the risk is higher.
@@Ebenezer563 The risk in my mind is the one described in James's video - that the fund could lose a significant part of its value near to your prospective retirement date and that could have a significant effect on your success rate, especially if you are retiring early and rely on drawdown to bridge the gap to normal pension age. Long-term, I agree that a 60/40 fund is extremely unlikely to achieve the growth of a fund containing a higher proportion of equities.
Another response to stubrooks point is that many people simply do not want the complexity of managing investments into their 70's and 80's, so a likely destination for their pension fund is an annuity. Also, people in general do not understand the difference between risk and volatility, so they have a low tolerance for "losses" (meaning a reduction in the value of their investments) in the short-term, short-term being less than three years in the context of a 30+ year retirement.
Does Ben have the stomach for 2022 with a 60/40 portfolio? Would he have sold everything in 2022? If he didn't in 2022. Why would he do it with a 100/0 portfolio?
I’m with you. In my after tax brokerage accounts, I plan on having 5 years of living expenses in cash equivalents like money market, cds and possibly some tax advantaged bonds to weather down markets up to 5 years. Everything else will be in S&P 500 and I’m fortunate enough to have ~90% of that in Roth and 10% in traditional, so my taxes will be simple and have more spending power. I want those accounts to go up and down like a yo yo on a string that I’m holding while walking up a steep mountain to the top.
It's very simple: Ben is risk averse so he wants to increase his chance of failure by adding bonds.
@@Ebenezer563 ha. Kind of true. Bonds will likely do very well the next couple of years as interests rates decline, but the old dogma of bonds as safe guards probably doesn’t apply to current and future financial reality. Unless you don’t have the short term reserves to weather down markets and MUST pull the same amount of money out every single year without making adjustments, I just don’t see bonds as a sound investment. Maybe a small percentage for the less common years where bonds do outperform stocks, but 40% of your assets barely keeping up with inflation (or not even keeping up quite often in the last two decades) seems to be riskier to me.
Great video! What’s an example/recommended Global fund? Thanks
James, what do you think of the bucket approach? As a retired IFA I will need to start drawing from my portfolio in c.2 years, currently I am invested in Globally diversified funds but also keep a decent cash balance which I intend to use for the first c.2-3years income, replenishing it as time goes on assuming my investments grow. These will then be bonds and equities. The theory being I will be able to ride any dips or take profit as appropriate.
Interesting.
Although this is (obviously) aimed at people who can - and do - invest for the future, the guidance here is basically the same as the financial planning as employed by poor peasant communities that has been traditional for centuries.
The concept has been that you cannot afford to risk falling below a basic standard of living (in peasant terms, this means having enough food to last until the next harvest) so farmers will, for example, plant low-yield rice that can withstand varying weather conditions rather than high-yield rice that cannot. As a result, while the farmers' average income (over many years) may be lower, the relative lack of volatility may save them from starvation.
(See James C Scott, "The Moral Economy of the Peasant" for an introduction to the logic of risk-taking in traditional communities).
to me 500k isn't enough to retire on , would love to see this with 750k and 1 mil. also remembering the 1.4% dividend and for most people this wouldn't be your only source of income. great vid but a very hypothetical scenario.
Well I spose 1 million is 500k x 2... so maybe you could just multiply everything by 2. Does that work for you?
@@mikerodent3164 id like a more realistic retirement scenario tbh
I was happy to see 500k…everything is always a million…gives the mortals among us a bit of a boost 😅
Morning James, very good point on mitigating risk, i've now diversified to different sectors. Could you make a video on reducing tax from company share schemes (unless you already have and i can't find it 🧐 ) i have 4 schemes, and when they mature in 24 and 25 i'll be liable for some CGT, i was looking to use my CGT (diminishng 6k to 3k) allowance and then transfer what i can into a S&S ISA, and gift some to my wife so she can do the same, but is there anything else that i may be able to do? It's a confusing subject when lots of sites say you can't transfer shares to an ISA without selling first, but HMRC advise you can transfer shares from some companys schemes, although they only seem to mention SAYE, and if a broker supports this. Many thanks.
What do you think will happen to global diversified stock market returns in case of success with GPT-4 successors and developing an AGI (Artificial General Intelligence) followed by mass automation, mass extremely high unemployment and UBI (Universal Basic Income) around the world?
I'm only 22, so I will keep investing my entire SIPP in the S&P 500 (by buying VUSA units). Hopefully I stay alive long enough to witness my portfolio grow!
Unless you're suffering from some terrible disease (or ride a motorbike), your chances are VERY good on that! But if it doesn't grow over the next 2 years, say, just remember this: there has NEVER been an L-shaped crash on any stockmarket (except the Russian one in 1917). All crashes are V-shaped and all indices recover. Bear in mind too that the PAIN of losing money in investments is about 20 times more painful than the pleasure of seeing an equivalent growth. In such an eventuality, tough it out and hold the faith, Mr Jason!
Predicting market movements is extremely difficult in reality. It requires the investor to be right twice: Essentially why individuals engage service of experts who provide proper strategies to navigate the markets
in my case Fergus Waylen has assisted me in doing that effectively, I'm not an expert so I lack experience in investment strategies, I work and my consultant handles the rest....
I am surprised that this name is being mentioned here, I stumbled upon some of his clients testimonies on CNBC news last week..
Best signal provider in the market. Knowledgeable, level headed no loss like some other traders who recently jumped on the bandwagon..
What impresses me most about Fergus Waylen is how well he explains basic concept of winning before actually letting you use his trade signals. This goes a long way to ensure winning trades.
His technical analysis is excellent and hid interpretation/projections of the market is so accurate I sometimes ask myself if he is human haha. Point is, Waylen is the perfect trader to follow for advise and daily signals.
thank u so much for telling us about the third startegy
Very good. What if more than 50% is in property? Is that wise?
Bet against the US S&P 500 at your peril…. Going back 108 years isnt really relative to anyone alive.
What i will add, if you are close to retirement or at retirement keep a 3 year cash buffer fund just incase there is a large crash. This can be kept in a money market fund so it continues to grow to some degree. If there is a crash, draw from this cash fund at that time so not to damage the long term performance of the S&P 500 fund, until it recovers.
You get the best of both worlds then 🙏🏻
I don't believe James suggested betting against the S&P 500. Just that it isn't necessarily going to be the best tool for this job.
@@wololo4761 it is if you keep a Cash Buffer, in case of a crash… Run the exercise again for the last 30 years (much more relevant than the 108 years used), utilising cash in the event of a crash (2001/2008/2019) the S&P 500 would crush it!! You may have 4/5 bad years (which the cash would assist with) but if you invested elsewhere you would
have lost out big time on the other 25/26 years
What money funds? Aren’t they fixed years? Any examples?
Remember Covid? Do you know why the US was so unprepared for it? Because the President who was in office at that time said we would not have a pandemic so it was a waste of money and time to have so many resources devoted to it. I mean, what were the odds of having something like the Flu Pandemic happen again? It was like 100 years since the last serious pandemic. So they gutted the programs, organizations, and people who were responsible for ensuring a pandemic didn’t have an effect like the Flu Pandemic. And…well…
Nobody recommended betting against the S&P500.
He’s recommending against late stage investors keeping all their money in a volatile place
It's for this exact reason I like the idea of living off a dividend focused portfolio in retirement. Far more predictable to know your dividend income which should also grow with or above inflation.
And particularly if you hold global investment trusts with substantial revenue reserves.
Companies that pay a dividend have an equivalent reduction in their share price. Dividends are not magic money.
Your total return (which is all that matters) will still be the same regardless if the company pays a dividend or not.
When you’re paid a dividend you’re just being forced to withdraw some of your investment which might not be what you what at that time.
You can achieve the regularity you’re after by selling a slice of shares each money and keep investing in growth companies instead
@TheTommowg I think the OP means he still receives the dividend, even if the stock market plummets 30%, rather than baking in his losses by selling at a low.
@@TheTommowg I fully know that, but it limits income volatility as I won't be drawing from a stock market that's dropped 40% therefore locking in losses
I still don’t think you guys get what a dividend is. Your total return will still be the same whether you receive a dividend or not. It’s purely psychological that you like the company distributing its earnings as a dividend rather than its share price appreciating instead.
In your example, your stock has fallen in price by 30% but let’s say it paid you a 10% dividend. Well if it didn’t pay a dividend then its share price would’ve only fallen by 20% and you could’ve sold 10% to receive the income you’re after. Your total return is exactly the same and that is ALL that matters. It’s not free money.
Maybe I’m not explaining this very well, check out the YT video “Irrelevance of Dividends by Ben Felix” and that might help
Always educated by your content, thanks! Was the "global" fund used in the graphs equal weighted to all indexes or more like the life strategies fund?
I'd like to know the comparison between investing in the global market, perhaps with some bonds (this is in retirement) vs using the barbell method where you keep 4-5 years of cash (say in a money market, cds, treasuries, etc. and the balance in the S&P 500. With the barbell method you use your cash in down years and then replenish it in years when the S&P 500 is up. So your cash is a buffer against sequence of return risk.
❤️Thank you for the content!! All we need is the right advice on how to invest in arypto and we will be set for life. I made half a million dollars from trading last year regardless of the market conditions.
As a beginner it is essential for you to have a mentor to keep you accountable. I work with Bridget Dennison and we have been working together for nearly four years, and she is excellent. You could proceed with her if she satisfies your discretion. I endorse her
It really depends on what is in the portfolio. If you took Alibaba. And compared it to the S&P 500, of course Alibaba did a lot better . But if you take NVDA and compared that to Alibaba , you did better with NVDA. In the end countries that do well have a capitalistic model. US is more capitalist than Europe or the UK. So it does better. Tax structures are vital. In France owning shares in a company is almost a sin. While in the US it’s vital you do own shares for retirement. US pulls the rest of the world along. If the US does badly the rest of the world will do worst. High growth stocks do better than dividend stocks. High growth etf s do better than the S&P 500. Bonds hopefully stay with inflation, but usually do worst. If Biden get re elected in Nov. 2024 and not Trump you should not expect the stock market to perform very well. But if Trump gets elected and gets rid of lots of regulations, then companies make bigger returns.
A couple questions:
1. Have you run these numbers factoring some sort of spending smile?
2. Aren't you chasing past performance by purchasing small cap value? I understand that they have outperformed over a long history, but can we really assume that will always be the case? I am vaguely familiar with factor tilt, Fama/French Five Factor Model, etc.
3. What dimensional fund/funds were you using for the more diversified portfolio? I tried digging around dimensional etfs/mutual funds and could not find anything that would lead to that level of outperformance. Most of dimensional funds were majority US Equity anyway. I think DGEIX was a decent candidate.
Good video though! Somewhat of a party pooper, but it is important that retirees understand the risks associated with the juicy S&P500 returns
It would be great o fyyou could try do the same with some quality dividend etf as well.. This would add to the argument of the relevance of the (schd could be a good go?)
Luck? Seems the harder we work the luckier we get. "In my experience there's no such thing as luck."- Obi-Wan Kenobi
The Chinese work harder though so will US luck continue? Maybe the Chinese will be the ones making more luck in the future? Who knows but a measure of prudence might be in order.
This is just wrong, yes working hard improved your chances but to say luck doesn’t exist is nonsense
You improve your probability of success but the probability of failing is NEVER zero
Agreed, absolute wham spoken by Europoor. 100 years of luck 😂 #1776
@@person.X. you obviously have not understood what he has been talking about 😂
@@VegasMilgaussThe luck is soon to run out. Read up on Ray Dalio and long-term debt cycles.