You've won the game so why keep playing?

[tjh290633]

At the age of 70, I'm in the privileged position of having sufficient assets to fund a long and sufficiently prosperous retirement.

So why continue with any equity investment, given the roller coaster ride that can ensue?

Having finally learnt about bonds, might it be sensible at my age to set up a rolling bond ladder (10, 15 years +) for 100% of my investments?

I'm guessing the risk of increased future inflation might be a worry, would a 50% portfolio in equities mitigate that risk?

Are there any other sensible ways to "stop playing the game"?

The risk you have to consider is that of inflation. A bond ladder can only protect your capital, as the income is derisory. Zero adjusted for inflation remains zero. Consequently you can only get income by drawing on the capital. That gives you a time limit. With longevity increasing, we saw D-Day veterans of well over 100.

The only route to protect against inflation is to use equities, which is not foolproof, as many of us Fools know to our cost. This means that a buy and forget approach is not possible. You have to manage your portfolio to some extent.

If you go for a mixed approach, what proportions should you use? 50/50, 75/25, 25/75 or what? Personally I am in favour of 100% equities, but that ideally needs a cash reserve to deal with fluctuations. The was a lot of discussion about this on the old Motley Fool boards, including how best to establish one.

TJH

[mc2fool]

Ah, now, is your ladder an "income" one or a "spending" one?

I.e. are you figuring on living off of just the income, and ending up at the end of the 10 years with the same £ amount as you started?

Or is your ladder a put-aside-to-future-spend one, where e.g., if you project you'll need, say, £nK in each of the next 10 years, you're going to invest £nK in each of a 1, 2, 3, 4, 5, 6, 7, 8, 9 & 10 year bond and when each one matures you'll just spend that £nK? (And any income along the way is just beer money...)

Each year's redemption is to be fully spent. I additionally have £100k invested in ERNS (Ultra short bond fund) which needn't be touched for 10 years

Ok, then index linked gilts could well appeal to you. There's plenty written about them on the Gilts and Bonds board*, but to use an example to put it simply (and to side step matters of accrued interest and indexed prices), index linked gilt TG36 0.125% 22-11-2036 is currently going for an (unindexed) price of around 92.57 and will redeem in Nov-2036 at (unindexed) 100. https://www.yieldgimp.com/index-linked-gilt-yields

But both the price now and at redemption are indexed by RPI, so what that means is that if you buy £92.57 worth of it today you will get a real £100 in Nov-2036. In other words, if your weekly shop at Waitrose costs you £92.57 today, and the cost of that basket goes up by RPI each year, then in Nov-2036 you'll still be able to buy that same basket -- regardless of how much inflation there is in-between -- and have an extra 8% (100/92.57) on top.

The same is similarly true of all of the ones at the above link with a price of less than 100.

* Start here: viewtopic.php?p=604783#p604783

[Bouncey]

At the age of 70, I'm in the privileged position of having sufficient assets to fund a long and sufficiently prosperous retirement.

So why continue with any equity investment, given the roller coaster ride that can ensue?

Having finally learnt about bonds, might it be sensible at my age to set up a rolling bond ladder (10, 15 years +) for 100% of my investments?

I'm guessing the risk of increased future inflation might be a worry, would a 50% portfolio in equities mitigate that risk?

Are there any other sensible ways to "stop playing the game"?

The risk you have to consider is that of inflation. A bond ladder can only protect your capital, as the income is derisory. Zero adjusted for inflation remains zero. Consequently you can only get income by drawing on the capital. That gives you a time limit. With longevity increasing, we saw D-Day veterans of well over 100.

The only route to protect against inflation is to use equities, which is not foolproof, as many of us Fools know to our cost. This means that a buy and forget approach is not possible. You have to manage your portfolio to some extent.

If you go for a mixed approach, what proportions should you use? 50/50, 75/25, 25/75 or what? Personally I am in favour of 100% equities, but that ideally needs a cash reserve to deal with fluctuations. The was a lot of discussion about this on the old Motley Fool boards, including how best to establish one.

TJH

You're right TJH and I'm aware of inflation as potentially public enemy No 1.

You've clearly won the game, I'm guessing your pleasure at continuing to play, trumps any need to consolidate your achievements. And I guess it helps to focus on your dividend income, and not really worry about capital? Are you not even tempted to cash in some of your chips and have a portion in bonds?

[kempiejon]

Mortgage paid off, state pension and company pension rolling in makes it easy to stay 100% equities.

[Bouncey]

Each year's redemption is to be fully spent. I additionally have £100k invested in ERNS (Ultra short bond fund) which needn't be touched for 10 years

Ok, then index linked gilts could well appeal to you. There's plenty written about them on the Gilts and Bonds board*, but to use an example to put it simply (and to side step matters of accrued interest and indexed prices), index linked gilt TG36 0.125% 22-11-2036 is currently going for an (unindexed) price of around 92.57 and will redeem in Nov-2036 at (unindexed) 100. https://www.yieldgimp.com/index-linked-gilt-yields

But both the price now and at redemption are indexed by RPI, so what that means is that if you buy £92.57 worth of it today you will get a real £100 in Nov-2036. In other words, if your weekly shop at Waitrose costs you £92.57 today, and the cost of that basket goes up by RPI each year, then in Nov-2036 you'll still be able to buy that same basket -- regardless of how much inflation there is in-between -- and have an extra 8% (100/92.57) on top.

The same is similarly true of all of the ones at the above link with a price of less than 100.

* Start here: viewtopic.php?p=604783#p604783

Many thanks for that explanation and the link, which I will explore.

Having finally understood how conventional bonds work, I'm guessing (hoping!) the learning curve will be less steep.

[dealtn]

the history of this site, and the Gilt board in particular, is littered with many similar sentiments since inception, which would have been costly to follow for the majority of this century.

I don't understand this part of the post, could you illustrate it with an example or two?

GS
@extremely happy holder of gilts for much of this century (starting 2001)

I'm not going trawling on a Sunday evening but there have been numerous examples of people expressing the view that buying linkers protects you against the effects of inflation, without realising this isn't the case when bought above par, which was the case for the majority of this century.

The OP admits the subject of inflation linked bonds is not one they understand. Anyone following the "simple" fact as expressed that inflation linked bonds protect your capital was/is at risk of disappointment. For much of the century instead of protecting against inflation they have in fact guaranteed a return that hasn't protected against inflation.

Concurrently, of course, the same period has provided huge opportunities for those invested in the asset class, and fixed income generally, to have made huge profits.

[Hariseldon58]

I understand the approach of the OP and have gone to 65% equity, 5% commercial property and 30% bonds.

The bonds are mainly Gilts and unhedged US Treasuries , split between index linked Gilts and US Tips ( real yields of over 2%) a mixture of index funds and directly held gilts.

This 30% bond holdings combined with a soon to be paid state pension and the commercial property income could possibly last 30 years, the 65% equity may even be surplus to requirements. I think it’s reasonably likely we have won the game and have a significant margin of safety.

So a 70:30 Equity /Bond mix is my solution but to be honest anywhere from 90:10 to 10:90 would probably work too !

[moorfield]

But there's an actuarial question in play here too - the average lifespan of males in UK is ~78 years.

Without wishing to sound morbid, is inflation such a problem then, really?

[Bouncey]

But there's an actuarial question in play here too - the average lifespan of males in UK is ~78 years.

Without wishing to sound morbid, is inflation such a problem then, really?

Yes, it could be a problem.

A male reaching 70 and in good health is likely to live beyond 85. Imagine how a couple of years of inflation at 15% or more would do damage!

[GoSeigen]

I don't understand this part of the post, could you illustrate it with an example or two?

GS
@extremely happy holder of gilts for much of this century (starting 2001)

I'm not going trawling on a Sunday evening but there have been numerous examples of people expressing the view that buying linkers protects you against the effects of inflation, without realising this isn't the case when bought above par, which was the case for the majority of this century.

The OP admits the subject of inflation linked bonds is not one they understand. Anyone following the "simple" fact as expressed that inflation linked bonds protect your capital was/is at risk of disappointment. For much of the century instead of protecting against inflation they have in fact guaranteed a return that hasn't protected against inflation.

Concurrently, of course, the same period has provided huge opportunities for those invested in the asset class, and fixed income generally, to have made huge profits.

Ah, you were referring specifically to linkers... okay, never found them attractive so have to be honest I have no idea how they performed, I always wanted exposure to the benefits of falling yields and that's what conventional bonds gave. I still don't find linkers tempting but if their real yields rose to 3% or so I'd have to seriously reconsider.


GS

[Urbandreamer]

But there's an actuarial question in play here too - the average lifespan of males in UK is ~78 years.

Without wishing to sound morbid, is inflation such a problem then, really?

I think that you are accepting a false assumption. The press will have you look at the "average" lifespan. However if you are 80, you are not going to die at 78. You would need a time machine to achieve that.

According to current figures male life expectancy if you are 70 is 86 rather than ~78.
https://www.ons.gov.uk/peoplepopulation ... 2019-06-07
Of course if you ARE 86, the predicted life expectancy is not tomorrow, but 92.

Inflation could make a serious dent over 16-22 years.

Personally I'm remaining invested in equities and avoiding "savings", but I'm reducing the effort that I put in. A significant chunk is now in an index tracker. Another chunk in a gold etf and yet another with Ruffer.
I dabble around the edges with stuff that is of interest to me, rather than, on analysis, should make money.

There is a 1 in 4 chance that I will live in excess of another 30 years.

[Adamski]

Are there any other sensible ways to "stop playing the game"?

Yes. There are banks and building societies offering 5% covered by the £85k fscs threshold, £175k for joint accounts so you can split between providers. That'll give max security vs stocks or bonds. Not a popular view so much here CPI supposedly 3.2%, so looking good for now. That's where I park my allocation which was previously in bonds.

[tjh290633]

The risk you have to consider is that of inflation. A bond ladder can only protect your capital, as the income is derisory. Zero adjusted for inflation remains zero. Consequently you can only get income by drawing on the capital. That gives you a time limit. With longevity increasing, we saw D-Day veterans of well over 100.

The only route to protect against inflation is to use equities, which is not foolproof, as many of us Fools know to our cost. This means that a buy and forget approach is not possible. You have to manage your portfolio to some extent.

If you go for a mixed approach, what proportions should you use? 50/50, 75/25, 25/75 or what? Personally I am in favour of 100% equities, but that ideally needs a cash reserve to deal with fluctuations. The was a lot of discussion about this on the old Motley Fool boards, including how best to establish one.

TJH

You're right TJH and I'm aware of inflation as potentially public enemy No 1.

You've clearly won the game, I'm guessing your pleasure at continuing to play, trumps any need to consolidate your achievements. And I guess it helps to focus on your dividend income, and not really worry about capital? Are you not even tempted to cash in some of your chips and have a portion in bonds?

Not once in the past 26 years. I did invest in gilts for my mother-in-law back in the 1970s, when you could buy a 12% stock below par. I had considered that when I retired in 1998, but there was no advantage. The only change that I might consider is to switch into investment trusts, but I'm not at that stage yet.

Capital values go up and down a lot, but dividends vary a lot less. 2008-9 did see many dividends cut, but ITs used their reserves to avoid cuts. They are a way of abdicating from portfolio management.

TJH

[Wuffle]

You don't actually need to learn all about index linked gilts. Something like Capitol Gearing is stuffed full of them and managed by people who have been doing it for years. I also not Ruffer has had a mention upthread.
The right combination of Investment Trusts and perhaps a global shares tracker in sensible proportions would box this off nicely.

W

[mc2fool]

You don't actually need to learn all about index linked gilts. Something like Capitol Gearing is stuffed full of them and managed by people who have been doing it for years. I also not Ruffer has had a mention upthread.

Yes, and I hold both (and PNL), but in recent years they've been on the roller coaster that the OP seems keen to avoid. And there is also the matter of taxation. Unsheltered low coupon gilts are pretty much tax free.


https://uk.advfn.com/stock-market/london/capital-gearing-CGT/share-price


https://uk.advfn.com/stock-market/london/ruffer-investment-RICA/share-price

[Wuffle]

Having done very well from the arrangements of our wider society, the OP may wish to pay some tax as a thankyou.

W.

[kempiejon]

Having done very well from the arrangements of our wider society, the OP may wish to pay some tax as a thankyou.

W.

Keeping my own money and not volunteering it to the tax office helps accumulate. Having done well I could give more and do consider this from time to time but I've seen society and what politicians do with tax money. I make some charitable donations but I've not given extra to the government for years. They can have a share if there's any left when I'm dead.

[Bouncey]

Having done very well from the arrangements of our wider society, the OP may wish to pay some tax as a thankyou.

W.

How dare you make the presumption that I haven't paid all the taxes that have been due?

[SalvorHardin]

At the cricket yesterday a friend who lurks here but doesn't post said about this thread:

"The reason why you keep on playing is the ever present risk that the bastards in government will change the rules and seriously screw up your situation"

[scrumpyjack]

I gave a further good chunk to my young grandchildren last week in the expectation that Labour might increase the 7 year limit.

Otherwise I am staying in equities with at least 5 years expenditure in cash/equivalents.

Bonds were a disaster for most of last century, some have done well as interest rates came down this century but I really do not have any faith our governments will keep inflation low long term. I'd rather invest in real businesses, mostly overseas. But an increasing proportion is in ETFs and ITs. Perhaps that is a partial withdrawal from 'the game'?