You've won the game so why keep playing?

[vand]

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"?

Never too late to learn to love asset allocation.

There are an near infinite number of alternative asset allocations that should sensibly be considered - and you don't have to just decide between equities and bonds. Other asset classes like gold and REITs can be considered to further improve a portfolio's risk/reward profile to meet your requirements.

As discussed elsewhere, and contrary to most wide-held beliefs, gold should be your first choice asset to add diversification to a stock portfolio, not bonds. See discussion here viewtopic.php?f=30&t=43352&start=40

[vand]

As we age the rates for annuities become more attractive.
I have lots of equities but I still need my money to grow and have a while longer to spend it. My older brother has thought about cashing in part of his pension pot for the certainty of income and removal of uncertainty.
When you have enough money you should be extracting pleasure from it, you could consider spending more, if not on yourself perhaps others by gifting or philanthropy.

Agreed - the annuity option is seriously undervalued in the current tight interest-rate environment, as well as making more sense in general as you age. Payout ratios go up and you benefit from the law of big numbers that insurers base their own payout ratios.

[mc2fool]

Bonds were a disaster for most of last century...

Not most, only for 1941-1981 it seems ... (in the US at least) ...

https://citywire.com/pro-buyer/news/stocks-don-t-always-beat-bonds-and-bonds-aren-t-always-low-risk-what-matters-are-regimes/a2438659

[Lootman]

Bonds were a disaster for most of last century...

Not most, only for 1941-1981 it seems ... (in the US at least) ...

Indeed and by 1981 bonds were considered dead money. I suppose the "wise after the event" crowd might smugly assert that they bought when nobody else was buying. But in any event bonds in 2021 are probably closer to 1941 than 1981, and I fail to see much need for them even if you have "too much" money. Even in the golden years of bonds I reckon I generally did better from equities.

As I like to say, bonds do not grow, they merely wobble. If I was going to look at bonds it would be the government bonds of nations with a traditionally strong currency, such as Switzerland. A big danger with gilts which nobody discusses is that they are 100% exposed to sterling. A pound was $4 in 1941 and $2 in 1981, about $1.25 now. With gilts you lost nearly 75% of your capital versus holding USD Treasuries.

[Urbandreamer]

As I like to say, bonds do not grow, they merely wobble. If I was going to look at bonds it would be the government bonds of nations with a traditionally strong currency, such as Switzerland. A big danger with gilts which nobody discusses is that they are 100% exposed to sterling. A pound was $4 in 1941 and $2 in 1981, about $1.25 now. With gilts you lost nearly 75% of your capital versus holding USD Treasuries.

Dare I suggest that USD also loses capital value. It's just, that as you say, GBP has done worse since the 40's.
Gold 1941 $33.85, 1981 $460.00, today $2,301.81. I don't assume that gold has got more valuable, but that USD has got less valuable.
Possibly a small bitcoin holding might be another option. Possibly not for the OP, as they question why accept volatility, but for others?

Caveat: I hold a gold etf and a small amount of bitcoin.

[vand]

There has been a lot of study and research on the topic of SWRs in the FIRE community.. and I have to say that imv TLF generally doesn't seem too up to speed on it, sometimes wanting to reinvent the wheel, as opposed to, say the MMM or Boglehead forums where they are very clued up on it.

A 100% allocation to anything in retirement portfolios is sub-optimal option. Yes, you may get lucky and get away with 4% or even 5% SWR if you remain 100% invested in equities.. however, make no mistake, your chance of portfolio failure did increase, even if you never lived one of those failed outcomes.

Diversification becomes particularly important when you are trying to live off your portfolio because you priority has changed - the primary aim is no longer just to grow your pot (otherwise you wouldn't be making withdrawals from it!!), but rather the primary aim switches to it proving an income that preserves your purchasing power for the rest of your life, to which end adding in other assets to improve the risk/return charactistics helps with.

[dealtn]

Bonds were a disaster for most of last century...

Not most, only for 1941-1981 it seems ... (in the US at least) ...

Well you would need to define "disaster" but even looking at your graph the period from 1900-1941 is also poor. Its the shape of the line that shows this, so a flat line when other options are rising is underperformance.

[mc2fool]

Not most, only for 1941-1981 it seems ... (in the US at least) ...

Well you would need to define "disaster" but even looking at your graph the period from 1900-1941 is also poor. Its the shape of the line that shows this, so a flat line when other options are rising is underperformance.

I see a rise from a real $700 to $1100, which is hardly flat.

[tjh290633]

There has been a lot of study and research on the topic of SWRs in the FIRE community.. and I have to say that imv TLF generally doesn't seem too up to speed on it, sometimes wanting to reinvent the wheel, as opposed to, say the MMM or Boglehead forums where they are very clued up on it.

A 100% allocation to anything in retirement portfolios is sub-optimal option. Yes, you may get lucky and get away with 4% or even 5% SWR if you remain 100% invested in equities.. however, make no mistake, your chance of portfolio failure did increase, even if you never lived one of those failed outcomes.

Diversification becomes particularly important when you are trying to live off your portfolio because you priority has changed - the primary aim is no longer just to grow your pot (otherwise you wouldn't be making withdrawals from it!!), but rather the primary aim switches to it proving an income that preserves your purchasing power for the rest of your life, to which end adding in other assets to improve the risk/return charactistics helps with.

Your point is more pertinent for those retiring today, whose investments may be 100% in a SIPP, but they are also likely to be receiving a state pension. Not as generous as when SERP was in full flight, but still substantial. If they have organised their affairs properly, they will have paid off their mortgage before retirement. In days gone by, they would have been obliged to buy an annuity. As interest rates return to more normal levels, this may become a favoured option for some of their pot. An index linked version may be the favoured way of providing a secure source of income. Back in 1998 the rates on offer were something like 7% for level and 5% for index linked. Nowadays somewhat lower. The income from an equity pot today can vary about the 4% level and will possibly outpace inflation. If a proportion can be reinvested, that is more likely, but can the same be said if that investment is in gilts or other bonds?

TJH

[GoSeigen]

Well you would need to define "disaster" but even looking at your graph the period from 1900-1941 is also poor. Its the shape of the line that shows this, so a flat line when other options are rising is underperformance.

I see a rise from a real $700 to $1100, which is hardly flat.

I see $700 to $2000...

GS

[mc2fool]

I see a rise from a real $700 to $1100, which is hardly flat.

I see $700 to $2000...

GS

Oops! Yep, agreed!

[dealtn]

I see $700 to $2000...

GS

Oops! Yep, agreed!

Poorly written. The two sentences weren't meant to be joined - but I can see that interpretation.

A flat line is an example of poor (maybe disaster depending on one's definition). One might also see underperformance compared to an alternative asset as (relatively) poor.

The claim that bonds were a disaster for much of the last century was dismissed as only being (seemingly) true for the period 1941 to 1981, leaving 60 other years where that wasn't true. I wish to object to that dismissal. There were plenty of other years, outside of 1941-81 when bonds were also poor, either absolutely or relatively. indeed for many other years (as can be seen by the shape of the line between 1900 and 1941) bond returns were negative, or underperformed equities, or both.

[mc2fool]

Oops! Yep, agreed!

Poorly written. The two sentences weren't meant to be joined - but I can see that interpretation.

A flat line is an example of poor (maybe disaster depending on one's definition). One might also see underperformance compared to an alternative asset as (relatively) poor.

The claim that bonds were a disaster for much of the last century was dismissed as only being (seemingly) true for the period 1941 to 1981, leaving 60 other years where that wasn't true. I wish to object to that dismissal. There were plenty of other years, outside of 1941-81 when bonds were also poor, either absolutely or relatively. indeed for many other years (as can be seen by the shape of the line between 1900 and 1941) bond returns were negative, or underperformed equities, or both.

Yeah, sure, for any asset there will always be good and not so good stretches, and you can always find something else that has performed better over shorter periods.

Actually the thing that surprised me most about that chart was, aside from the "decisive stock superiority" period, how closely matched the two lines are, including for, that period aside, most of the 20th century.

[dealtn]

Actually the thing that surprised me most about that chart was, aside from the "decisive stock superiority" period, how closely matched the two lines are, including for, that period aside, most of the 20th century.

So ignore 40 years of underperformance and then look only since 1981 when one asset class turned $30k into about $200k and the other turned it into $700k and call them "closely matched"?

[Mememe]

Vanguard have come out with some interesting data on the potential spread of returns on mixed and 100% equity portfolios over the next ten 10 years.

60/40 is looking nearly as good as 100. I would imagine that’s down to equity valuations as they stand today. If I was retired or nearing retirement I would be buying bonds (I’m 42 and I’ve bought bonds for myself for the first time ever over the last 18 months albeit linkers and HY)

Beware recency bias

[mc2fool]

Actually the thing that surprised me most about that chart was, aside from the "decisive stock superiority" period, how closely matched the two lines are, including for, that period aside, most of the 20th century.

So ignore 40 years of underperformance and then look only since 1981 when one asset class turned $30k into about $200k and the other turned it into $700k and call them "closely matched"?

Far from ignoring that 40 years the chart highlights them, and yes, since 1981 has been a been a period of stock outperformance, but my comment was in regards to the whole chart.

[Urbandreamer]

Actually the thing that surprised me most about that chart was, aside from the "decisive stock superiority" period, how closely matched the two lines are, including for, that period aside, most of the 20th century.

One might even consider the possibility that they increased because of a common factor. Given the apparent correlation.

Now what does the price/returns of XYZ share with ABC?
Oh yes that's right, the currency that you measure in.

One could ask why gold has increased in price so much over the same period. Oh yes, again, what are we measuring it in?

For many, the main reason to invest is to find a store of value into the future that doesn't suffer the downsides of what we now consider money.

[mc2fool]

Actually the thing that surprised me most about that chart was, aside from the "decisive stock superiority" period, how closely matched the two lines are, including for, that period aside, most of the 20th century.

One might even consider the possibility that they increased because of a common factor. Given the apparent correlation.

Now what does the price/returns of XYZ share with ABC?
Oh yes that's right, the currency that you measure in.

One could ask why gold has increased in price so much over the same period. Oh yes, again, what are we measuring it in?

For many, the main reason to invest is to find a store of value into the future that doesn't suffer the downsides of what we now consider money.

The chart says in the legend that it's showing "real" bonds and stocks, so it is already adjusted for inflation.

[vand]

There has been a lot of study and research on the topic of SWRs in the FIRE community.. and I have to say that imv TLF generally doesn't seem too up to speed on it, sometimes wanting to reinvent the wheel, as opposed to, say the MMM or Boglehead forums where they are very clued up on it.

A 100% allocation to anything in retirement portfolios is sub-optimal option. Yes, you may get lucky and get away with 4% or even 5% SWR if you remain 100% invested in equities.. however, make no mistake, your chance of portfolio failure did increase, even if you never lived one of those failed outcomes.

Diversification becomes particularly important when you are trying to live off your portfolio because you priority has changed - the primary aim is no longer just to grow your pot (otherwise you wouldn't be making withdrawals from it!!), but rather the primary aim switches to it proving an income that preserves your purchasing power for the rest of your life, to which end adding in other assets to improve the risk/return charactistics helps with.

Your point is more pertinent for those retiring today, whose investments may be 100% in a SIPP, but they are also likely to be receiving a state pension. Not as generous as when SERP was in full flight, but still substantial. If they have organised their affairs properly, they will have paid off their mortgage before retirement. In days gone by, they would have been obliged to buy an annuity. As interest rates return to more normal levels, this may become a favoured option for some of their pot. An index linked version may be the favoured way of providing a secure source of income. Back in 1998 the rates on offer were something like 7% for level and 5% for index linked. Nowadays somewhat lower. The income from an equity pot today can vary about the 4% level and will possibly outpace inflation. If a proportion can be reinvested, that is more likely, but can the same be said if that investment is in gilts or other bonds?

TJH

Yes, best annuity rates are offering better than the widely accepted 4% SWR for 55yos right now (+3% linkage) and north of 5% if you are of standard retirement age of 65%.

It's arguably a better solution that also enables you to spend your retirement money without worry rather than managing your own portfolio and being overly conservative as we sometimes see people here are prone.

https://www.williamburrows.com/calculat ... ty-tables/

IMO now is a good time to be considering this option to at hedge off at least some risk. The scenario you need to defend against is a deep deflationary recession right around the corner where stocks get cut in half, interest rates go back to zero and those attractive annuity rates disappear right when you are wishing you had locked in some while rates were so attractive.

[Clitheroekid]

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?

I can only speak for myself, but my answer would be "Because it's good fun".

I'm in a similar fortunate position, but I really enjoy the whole process of researching companies and investing in them.

And it's even more enjoyable at this stage of the game as it no longer really matters whether the investment works out or not, other than in terms of personal satisfaction, as it's money that I can afford to lose, whereas 30 years ago I really couldn't.

Ironically, I've made the serendipitous discovery that my overall investment performance is now a lot better than it used to be, and I think it's because although I can now afford to take more risk the incentive to do so - to accelerate the building of that elusive pension pot - is no longer there.