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Help understanding risk
Mr Helpful
Posted: 21 June 2017 10:27:17(UTC)
#17

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Ludditeme;48123 wrote:


1. I'm interested in people's opinions about bond/defensive investing generally.

I currently have about 10% of my SIPP invested in bond (or bond substitute) funds, and have approximately 17% in RCP, PNL, and RICA. My view is that these IT's can expend more research time & experience than myself in making calls on when/where to invest, with a focus on capital protection over outright growth.

2. The alternative I am considering is the Lifestrategy 20% Equity. Does anyone have an opinion about the merits (or not) of this simple low cost option?



1. Yes here too !!!
This for us is a major concern after the 35 year Bond Bull Market now driven to yet further extremes by Central Bank buying (QE).
While institutions such as Insurance Co's and Pension Funds seem obliged to buy Bonds at any price, we the retail investors are not so obligated if we feel the risk/reward ratio is not to our advantage.
1.1 -ve correlation ('flight to safety') of longer term Bonds may not show up when needed?
1.2 Sub-inflation yields result in loss of purchasing power over time ?

If it sheds any light which might help the OP, the immediate poster and possibly others including critics, our non-stock, or as recently coined here 'Less (Stock) Correlated' Assets, are split across Bonds and the now so-called 'Alternatives', designed overall to provide sufficient income to match inflation.

Bonds Gov't Short Term (UK & US)
Bonds Investment Grade Short Term (UK & US)
Ground Rents
Real Estate (REITs & Co's)
Renewable Energy
Infrastructure

Quite how this mix will respond during a Stock downturn is uncertain, which is why ample Cash is held in addition, since we regard all Asset Classes today fully valued.

2. Is this a permanent or temporary allocation (awaiting better days) ?
Lifestrategy rebalances perhaps rather too frequently. Suggested by some as in effect daily. This is a minor inconvenience, but can result in some underperformance over a market cycle by constantly selling the rising Asset Class and transferring the proceeds into the falling Asset Class. The advantages probably outweigh the drawback.

Depends how it fits in with total portfolio, or would it be total portfolio ?
Mr Helpful
Posted: 21 June 2017 10:31:07(UTC)
#23

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jac79;47867 wrote:

1. I am new to investing, and am in the process of setting up a SIPP for retirement.

2. having read 2 books on investments

Jon



Hi Jon

1. How far off retirement are you ?
2. Which books were those ?

All Best (retiree)
King Lodos
Posted: 21 June 2017 17:38:15(UTC)
#22

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Keith Cobby;48130 wrote:
I cannot see a big downside to equities while interest rates are so low. And how can they be raised when global debt is 325% GDP. I also cannot see QE being reversed and bonds being returned to the market. It's no good now comparing equity valuations with historical norms. This time is different and unless the debt is inflated away (hard to see how this can happen in a deflationary world with average ages increasing) then interest rates will be low as far into the future as any of us can see. In this new environment stocks are not over valued and have further to go. I am 100% in equity ITs as always.


Still although the trend's not robust, inflation in the US and UK has been rising since about 2015, and rates have been creeping up.

We're not very good at predicting rates or inflation, so there may be a vulnerability to surprises – and debt may be the real worry if perhaps we see a banking crisis spreading from Asia/Europe.
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