SIPP portfolio and planning for drawdown

[bofh]

Hi,

In 5 years, at age 57, I plan to reduce my independent consulting work and begin drawing a regular income from my SIPP.

Consequently, I'm considering gradually building up a high-yield income approach from uninvested cash.

Context

As background, I switched tax residency back to Hungary shortly after COVID border restrictions put an end to my live-in-Hungary/London consulting lifestyle. The treatment of foreign pensions (as per the Double Taxation Treaty) is favourable since the local tax authority applies no income tax (confirmed locally with professional advice). This treatment can change, of course, but for now, this looks to be a low probability.

In addition to my SIPP, I qualify for a mostly full state pension (extra years were bought where it made sense) and have a smallish DB pension. In theory, both should become accessible when I'm 67, but I won't be holding my breath (!).

When I reach 57, two of my three children will likely be at university or working. Bank of Dad is cash liquidated from ISAs prior to switching tax residency. These funds are now mostly held in Hungarian Treasuries to maintain spending power. Today, family running costs are relatively low at around ~5000EUR per month.

My SIPP income will mainly support my wife and me, in addition to a reduced consulting income and some extra money from MES Futures trading.

Portfolio idea

For the past 4 years or so I have primarily invested in UK small cap, high growth stocks. With careful risk management, I have achieved total returns I am happy with whilst sitting about 2/3 in cash (cash interest from ii at 3.5% ish). I plan to start diverting some of the uninvested cash into high-yield FTSE350 shares resulting in a 50% allocation to HYP (20 holdings w/2.5% max position size). A further 30% will be held in a FTSE250 tracker and 20% will be dedicated to growth stocks (i.e. a 10-13% smaller allocation than now). This suits my risk appetite.

If I treat the SP/DB pensions as bond proxies, then the obvious answer is to start pound cost averaging into these new positions, perhaps starting with out of favour sectors with depressed prices. Or am I trying to be too clever?

[tacpot12]

No, it sounds like you have a reasonable strategy.

The combination of 2/3 cash, 1/3 high growth stocks looks a little odd, but that's in the past. I'm retired and have about 2% of my retirement portfolio in cash, mainly just to smooth out payment frequencies, but also to give some cover in dividends fall. I used to hold more cash, but my dividend stream only fell by 5% during the Covid pandemic, so I've reduced the cash I hold to increase my returns. (I also have cash savings for day-to-day purposes; birthdays, christmas, vets bills, car expenses, appliance replacement, etc. that is also about 2% of my retirement portfolio, but these are topped up from income and used day to day.)

[bofh]

The combination of 2/3 cash, 1/3 high growth stocks looks a little odd, but that's in the past.

I was unclear and should clarify I'm currently sat in 2/3 cash - at peak I was around 3/4 invested as a consequence of building on winning positions and cutting losers early (with wide stops and tight risk management).

No, it sounds like you have a reasonable strategy.

Thanks for the feedback.

For the 50% HYP allocation, my next step is to pull together a list of HYP shares, compare relative strength and/or compare sector strength to identify shares of good businesses that are currently out of favour and start buying. My concern here is not buying into dying sectors, but I'll pick that up over on the HYP practical board. This allocation should give me decent international exposure.

For the FTSE250 ETF, I've already started averaging into this. I'm 3% allocated and will build this in a further 9 tranches based on monthly price action/volatility rather than strict pound cost averaging. The goal to get to full allocation within 1-3 years. Buying a developed economy index has the benefit that averaging down is less risky than for individual shares. Not without risk though - see Japan.

Finally, the growth share approach will continue but the pool of cash available will decrease due to the above buys and be capped at 20%.