Pensioner Cash in Bonds & move to LS?

For investors outside the US. Personal investments, personal finance, investing news and theory.
Sister forums: Canada, Spain (en español)
---------------
Post Reply
Topic Author
kancell10
Posts: 29
Joined: Thu Jan 09, 2020 3:21 pm

Pensioner Cash in Bonds & move to LS?

Post by kancell10 »

Hi,

My 70 year old mother has decided to cash in some fixed rate bonds and wishes to move her finances into something more liquid to allow her to do some home improvement and take a few nice holidays.

Her headline strategy is to cash in the bonds, put the cash into a general investment account then put £20k each year into an ISA. I have never had a fixed rate bond, just Vanguard Lifestrategy 80, so have no prior experience but from a top level strategy, is this achievable and makes sense?

On the basis that it may, I was thinking Vanguard LS 20 or 40 may be an appropriate low cost global index fund which relatively low risk outlook, what would you advise?

Thanks,

Kevin
Valuethinker
Posts: 48947
Joined: Fri May 11, 2007 11:07 am

Re: Pensioner Cash in Bonds & move to LS?

Post by Valuethinker »

kancell10 wrote: Fri Jul 16, 2021 8:25 am Hi,

My 70 year old mother has decided to cash in some fixed rate bonds and wishes to move her finances into something more liquid to allow her to do some home improvement and take a few nice holidays.

Her headline strategy is to cash in the bonds, put the cash into a general investment account then put £20k each year into an ISA. I have never had a fixed rate bond, just Vanguard Lifestrategy 80, so have no prior experience but from a top level strategy, is this achievable and makes sense?

On the basis that it may, I was thinking Vanguard LS 20 or 40 may be an appropriate low cost global index fund which relatively low risk outlook, what would you advise?

Thanks,

Kevin
1. yes it makes sense to have the money in a current account (or 1 year bonds) for the home improvements and the holidays

2. with the rest of the money LS 20 should work fairly well. I would worry about LS 40 because of the volatility. What if the stock market drops 50%? (It dropped around 35% when Covid hit in Feb to early April 2020).
Topic Author
kancell10
Posts: 29
Joined: Thu Jan 09, 2020 3:21 pm

Re: Pensioner Cash in Bonds & move to LS?

Post by kancell10 »

So, after a bit more digging, appears she is already in VG LS60 (much to my surprise, and hers ha) so it should make things relatively simple to set up a GIA and transfer her existing ISA all to Vanguard.

I was thinking we should perhaps notch down the risk level for 1 - 3 year money to LS20 and 3 - 5+ year money to either keep LS60 or derisk to LS40.
Valuethinker
Posts: 48947
Joined: Fri May 11, 2007 11:07 am

Re: Pensioner Cash in Bonds & move to LS?

Post by Valuethinker »

kancell10 wrote: Tue Jul 20, 2021 4:12 pm So, after a bit more digging, appears she is already in VG LS60 (much to my surprise, and hers ha) so it should make things relatively simple to set up a GIA and transfer her existing ISA all to Vanguard.

I was thinking we should perhaps notch down the risk level for 1 - 3 year money to LS20 and 3 - 5+ year money to either keep LS60 or derisk to LS40.
3 year money should definitely be LS20. (Lifestyle 20% equity)

I would derisk or combine (LS 60 + LS40 at 50% each = LS 50). That's what I have done with my spouse (somewhat younger).
Valuethinker
Posts: 48947
Joined: Fri May 11, 2007 11:07 am

Re: Pensioner Cash in Bonds & move to LS?

Post by Valuethinker »

Valuethinker wrote: Wed Jul 21, 2021 6:28 am
kancell10 wrote: Tue Jul 20, 2021 4:12 pm So, after a bit more digging, appears she is already in VG LS60 (much to my surprise, and hers ha) so it should make things relatively simple to set up a GIA and transfer her existing ISA all to Vanguard.

I was thinking we should perhaps notch down the risk level for 1 - 3 year money to LS20 and 3 - 5+ year money to either keep LS60 or derisk to LS40.
3 year money should definitely be LS20. (Lifestyle 20% equity)

I would derisk or combine (LS 60 + LS40 at 50% each = LS 50). That's what I have done with my spouse (somewhat younger).
Beware of how likely someone is to panic if we have a 50% stock market fall -- or even the 30-35% which is the "normal" bear market. Panic back into cash, watch the market recover and miss it.

It took nerves of steel to ride out times like the Financial Crash from Sept 2008 to March 2009, or March 2020 and the Covid crash. Rebalancing? That's even harder to do.

So probably aim off "reasonable" equity percentages (ie aim down). For someone who has not traditionally invested in the market.
Topic Author
kancell10
Posts: 29
Joined: Thu Jan 09, 2020 3:21 pm

Re: Pensioner Cash in Bonds & move to LS?

Post by kancell10 »

It appears my mum rode through both of them without even blinking an eye, the benefit of having enough cash invested and savings in the bank, a very low spend rate and no interest whatsoever in finances and politics.... The power of doing nothing in action!
Valuethinker
Posts: 48947
Joined: Fri May 11, 2007 11:07 am

Re: Pensioner Cash in Bonds & move to LS?

Post by Valuethinker »

kancell10 wrote: Wed Jul 21, 2021 2:53 pm It appears my mum rode through both of them without even blinking an eye, the benefit of having enough cash invested and savings in the bank, a very low spend rate and no interest whatsoever in finances and politics.... The power of doing nothing in action!
But did she have stock investments at that time?

I had the impression she did not.

2008-09 was unique in the sense that (in my 30+ years of investing) there was never a time before when one felt one's savings were not safe. I.e. current account + Higher Rate account. 2008-9 really was (I hope) the only time in my life when that was ever in question.
Topic Author
kancell10
Posts: 29
Joined: Thu Jan 09, 2020 3:21 pm

Re: Pensioner Cash in Bonds & move to LS?

Post by kancell10 »

That was my impression too, however the more digging i've done i've discovered more, i didn't realise she already had an isa in addition to the bonds i referred to in my initial post.
User avatar
Eagle33
Posts: 2383
Joined: Wed Aug 30, 2017 3:20 pm

Re: Pensioner Cash in Bonds & move to LS?

Post by Eagle33 »

kancell10 wrote: Thu Jul 22, 2021 5:17 am That was my impression too, however the more digging i've done i've discovered more, i didn't realise she already had an isa in addition to the bonds i referred to in my initial post.
But based on your earlier statement did she know she had a isa during the major market drops?
So, after a bit more digging, appears she is already in VG LS60 (much to my surprise, and hers ha)
Topic Author
kancell10
Posts: 29
Joined: Thu Jan 09, 2020 3:21 pm

Re: Pensioner Cash in Bonds & move to LS?

Post by kancell10 »

She knew but didn't have a clue what it was in as a financial advisor, who has since been struck off from doing business with my family due to a terrible service, had been 'managing' it for her.
Valuethinker
Posts: 48947
Joined: Fri May 11, 2007 11:07 am

Re: Pensioner Cash in Bonds & move to LS?

Post by Valuethinker »

kancell10 wrote: Thu Jul 22, 2021 3:42 pm She knew but didn't have a clue what it was in as a financial advisor, who has since been struck off from doing business with my family due to a terrible service, had been 'managing' it for her.
It might be worrisome if she now takes an interest.

I would be careful to make sure that the first couple of years of spending are in really low risk. Even just notice bonds. Something that *cannot* lose money. Then, whatever happens, you can always say "but the next 2 years are guaranteed".
Topic Author
kancell10
Posts: 29
Joined: Thu Jan 09, 2020 3:21 pm

Re: Pensioner Cash in Bonds & move to LS?

Post by kancell10 »

Hi guys,

Just coming back to this now. So I executed the trades last year and eventually put full years S&S ISA contribution into LS60, then for the remainder chose 50% of funds into LS60 and 50% of funds into LS20 in her GIA. Rationale as above discussion was to have some safe funds for short term (LS20) and hopefully some continued growth for long term (LS60).

As things stand, LS20 is down ~10% and LS60 down ~8%, not quite how I anticipated things would turn out but never mind. I'm now ready to take another 20k out of GIA and invest it in S&S to take advantage of tax free, the remainder will be left until next financial year when I'll repeat, and continue to do so each year until all money is in S&S ISA and none left in GIA.

My intention was just to sell 20k of LS60 in GIA and transfer it into S&S ISA LS60. I'm just concerned with volatility in market right now and trade timing. Would it make sense to do the 20k in one, or perhaps spread it out over 5k blocks over a few months. I think I'm thinking to deeply into it actually but just want to make sure I'm not doing something silly or missing an important point.

Thanks,

Kevin
Topic Author
kancell10
Posts: 29
Joined: Thu Jan 09, 2020 3:21 pm

Re: Pensioner Cash in Bonds & move to LS?

Post by kancell10 »

Hi guys,

Coming back to this thread a couple of years on... So I did per below...

"put full years S&S ISA contribution into LS60, then for the remainder chose 50% of funds into LS60 and 50% of funds into LS20 in her GIA."

Of course, the timing couldn't have been worse, and the safe choice of LS20 turned out to be quite the opposite and now sitting on a £6k loss.

Unfortunately now my mother, who has never paid one iota of interest in her finances, is now acutely aware of the £6k paper loss and is fretting, plus likely regretting the decision to listen to her son...

I'm at the point where we're now transferring money from her GIA to her ISA to use up her 2023-24 allowance. I've transferred the remaining £8k of her LS60 into her ISA and now just have the LS20 left, from which I need to take £12k.

I understand that the future for bonds has improved, but what I don't know is how LS20 works, although I have checked the portfolio contents. Is she locked into many long terms bonds which will be unlikely to prosper from improved yields, or will there be a mix of short and medium term bonds which are likely to improve returns going forward?

Vanguard Global Bond Index Fund GBP Hedged Acc 19.4%
Vanguard FTSE Developed World ex-U.K. Equity Index Fund GBP Acc 13.3%
Vanguard Global Aggregate Bond UCITS ETF GBP Hedged Accumulating 12.1%
Vanguard U.K. Government Bond Index Fund GBP Acc 11.8%
Vanguard U.K. Investment Grade Bond Index Fund GBP Acc 7.7%
Vanguard U.K. Inflation-Linked Gilt Index Fund GBP Acc 6.8%
Vanguard U.S. Government Bond Index Fund GBP Hedged Acc 6.4%
Vanguard U.S. Investment Grade Credit Index Fund GBP Hedged Acc 6.0%
Vanguard Euro Government Bond Index Fund GBP Hedged Acc 5.1%
Vanguard FTSE U.K. All Share Index Unit Trust GBP Acc 5.0%
Vanguard Euro Investment Grade Bond Index Fund GBP Hedged Acc 2.8%
Vanguard Japan Government Bond Index Fund GBP Hedged Acc 2.2%
Vanguard Emerging Markets Stock Index Fund GBP Acc 1.6%
Total 100%

I guess I'm hoping for improved yields on LS20 which will hopefully recover the paper loss in the coming 3 - 5 years, of course nothing guaranteed. If she's stuck with long term bonds, and that yield won't improve and potentially never recover the paper loss in her lifetime, I may consider another option.

I genuinely believe this has been a lightbulb moment and this is a change in strategic allocation, having lived through the last 5 years I think LS60 gives all the defence needed for a portfolio and going forward I do believe this is the right option for my mother and even myself in the future when I start to move to a more defensive position (currently I'm LS100). I'd hope LS60 would give improved future returns to recover that paper loss sooner, 1 - 3 years.

However, I'm very reluctant to sell LS20 and purchase more LS60 in case of a stock market contraction which could further increase the paper loss and my mothers confidence to breaking point. At least if she sticks with LS20, I'd hope her losses will not further increase dramatically.

In summary, would someone be kind enough to please explain a little more in detail what LS20 contains, and any food for thought on asset allocation would be appreciated.
Post Reply