My post last week was about how people in general are frightened to invest in the stock market while I, daring rebel that I am, have been shelving all my spare cash into equities for years. At the weekend, however, I read through this post by Jim Collins where he talks about the Wealth Accumulation stage of your life versus the Wealth Preservation stage. There’s no doubt that I am in the latter camp but, it struck me, I’m still acting as if I was in the former, because I’m still about 95% invested in equities.
I read what Jim has to say on Wealth Preservation – that basically I should now have about 25% in bonds – and think that he’s right (providing that you keep reallocating to this ratio as the market moves.) The trouble is, equities have been so good to me over the years (I think) that my own personal strategy of “do nothing” always kicks in when I think about making any changes to where I put my money. Leave it be. It ain’t broke, so don’t fix it.
Funnily enough, Jim also backhandedly supports this strategy when he mentions that Fidelity recently did a survey of their most successful investors:
Word is, Fidelity reportedly conducted an internal performance review of accounts held between 2003 and 2013 to find which did the best. The results:
- First: Dead people
- Second: People who forgot they had the account
I’m not sure if those dead people were 100% in equities or not, and reading that survey leads me to think, “You know, life’s too short. Why not go and spend some of your damn money while you still can!”, which immediately sees me following The Rhino’s advice to go and take a cold shower and calm down. Spend it? We can’t have that.
Anyway, my other balance against switching equities into bonds is my Defined Benefit pension scheme. God Knows how that’s all invested and, for all I know, He might care about it too. I don’t. I just want it to pay out, solidly, securely and forever, as it said it would. For me, that’s the really passive, conservative part of my investment portfolio that I’m never going to tinker with.
And then there’s the not to be sniffed at State Pension too, which I often forget about. Providing that me and my Darling Other Half both get to draw upon that, it will provide around fourteen grand’s worth of household income every year. That’s actually quite a bit of cash. With those two “bankers” to come (plus my wife’s NHS and Council DB pension schemes too) surely I can afford to “gamble” whatever else I have on the markets?
The State Pension, when I do think about it, does lead to me ask what I think I’m going to be doing with my money at sixty seven years old? For me, that’s about fourteen years away and those fourteen years are going to be, probably, the best I’ll have in terms of health in both body and mind. Shouldn’t I sprinkle some of the sugar of wealth on top of that while I still can? Because I can already see signs that my world is beginning to shrink. I used to happily take two long haul holidays a year. These days I can hardly be arsed taking one. I just can’t be bothered with the hassle of flying ten hours somewhere to be confronted by a McDonalds or KFC, the same traffic jam I just left, adverts for HSBC or Barclays and another bleeding slew of shops selling the same tat that I can buy in Aldi, Lidl, Debenhams etc etc.. As for heading somewhere unsullied and uncommercialised, well, the Scottish Highlands offer that in spades. Am I rushing there every spare weekend? No, so why would Peru or Nepal be better? Seen one mountain, you’ve seen ‘em all. I mean, if that’s how I’m thinking now, how likely is it that when I’m sixty seven I’ll suddenly be jumping on a flight to Auckland just to hear the pilot announce “Welcome to New Zealand. Please adjust your watches back twenty years” which allegedly happened when one of my mates holidayed out there. And, when I asked him how he found it, he replied, “It’s a bit like the Scottish Highlands”.
Given that, maybe I’ll just continue to try and enjoy my life and investing on pretty much the same trajectory as I’m on now. It’s served me well so far and, when you think about it, choosing to “do nothing” is still “doing something”, isn’t it?
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I FIREd when I realised my projected wealth exceeded my likely expenditure by 20% or more. All the advice about wealth preservation seems aimed at limiting the downside if you’ve only just enough for your plans, so need to reduce risk with cash buffers, bonds etc. An alternative is to stay fully in equity and just build an excess so you can take market collapses in your stride, scaling your expenditure accordingly. Better to be 95% to 150% of target than 100% to 110%.
With state + 10 years civil service pension banked means I’m otherwise 95% in equity and 5% in p2p. The latter is doing well, but its all money I can afford to lose.
I can’t see myself getting bored of exotic travel, and I can start revisiting places from 30 years ago as I’ve forgotten them, so the cycle will never end.
I’m hoping I won’t get bored with either investing or travel, if I’m honest. Just maybe not doing as much or going as far in future.
Well the logical conclusion if you want to improve your investing performance is to throw yourself off beachy head?
I think ermine was talking recently about lumping the SP and any DB in to the ‘bond’ component of your portfolio when sorting out the asset allocation?
That would seem to make sense to me – especially as you get closer in age to drawing on them..
Yes, I see the sense in looking at it that way. It now strikes me that the State Pension seems tragically little for an individual but slightly more manageable for a couple, if that’s all you had as an income. And for millions, it will be. Saying that, my in-laws are in exactly that position, both on their own relying on the SP, and they’re not living lives of extreme poverty.
Doing nothing at all seems to be a way to invest. It also seems to be what some people think about for their retirement years.
What are you going to do with your “extra” money when you reach 67? Are you going to be smiling, thinking how clever you were to have made all that money? (Happiest of all will be your inheritors.)
It does seem daft to receive the additional pensions at 67. We should be allowed to live our financial lives backwards!
We retired early last year (@49) and keep about 30% of our nest egg in bonds & cash. We also have a healthy pension coming from MegaCorp when I turn 55. Everything else is in equities – mostly index funds tat I pay little attention to!
Me too, I spend very little attention checking my index funds. Sometimes I can go for hours on end without looking at them. Mostly overnight.
This was a great article. Very well written.
I find that people are uninterested in investing… my investing related blog posts are some of my least popular even though those are the ones i work the hardest on.
Investing can be simple if a little bit of effort was put into understanding the art. We spend time in highschool to figure out chemical reaction results, but don’t even teach how to value a stock.
People need to wake up and invest
Thanks JF. At my school I don’t think I even learned about the “miracle of compound interest” or, if I did, it didn’t stick with me. Basic financial tenets should be hammered home at school, but the teaching profession might be the least interested in teaching it.
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Yes yes and another yes.
The education system is fractured and I hope finances (or basic life skills) become mandatory for all kids. Like how we learn about social studies or history.
You bring up an interesting point about pensions I had never thought of. I’m lucky enough to have a pension plan, which makes me an anomaly among 35 year olds. I can start collecting at 55. Bogle says to keep your age in bonds, which I think is too conservative. I have 17% in bonds, and intend on upping it 1% a year. But maybe even that is too high considering the pension payment bringing stability. I’d be at 37% bonds at age 55.. I’ll have to think about this!
Norm, if I were as young as you I’d be 100% in equities! (Not that should follow my advice though.) As I near 55 myself it’s very comforting to know a decent pension is in the bank, but the pressure to protect it a bit by switching allocations seems almost to grow on a daily basis!
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I think basically if you have some “fixed” income values such as a pension plan, those should be counted as part of your “fixed income/bond” bucket.
Arguably, the same could be said of salary/social security.
If you plan to get 30% of your money from social security, for example, to me that means you could have 100% of the rest in stock: you’d be 30%/70%.
Tend to agree Stockbeard, I’m definitely coming around to looking at it in this way.
Btw, anyone else not able to see a title for this post? Your titles are great, shame this one is incognito….