I'm 50 years old and in that band of citizens who have been told they would be receiving their state pension at 68. I have an AVC fund which currently stands at €131,000 with and additional €7500 per year going in. This will obviously greatly inflate my occupational pension, although there's no certain way to know by how much. 100% of this AVC is in the Irish Life Exempt Consensus Fund Series S. Right now, I'm aware, shares are high because basically, there is nowhere else for money to go, deposit rates being rubbish. However, I'm wondering if I should be spreading some of this money around the other Irish Life funds and, if so, which ones? Any advice?
Spreading the funds
- Thread starter Wren100
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Steven Barrett
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What are you trying to achieve and what level of risk are you willing to take to get it?
Steven
www.bluewaterfp.ie
Steven
www.bluewaterfp.ie
Brendan Burgess
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I presume that the objective of a 50 year old who does not expect to retire until age 68 is to maximise the fund size over the next 18 years. In fact, on retirement, they will probably still be in an ARF so maybe the investment horizon is longer than 18 years.
I have roughly the same problem. I too am worried that stockmarkets may be too high due to QE and low deposit and bond rates. I remember having the same worry a few years ago but I didn't cash out. Had I switched to cash and bought back in after the falls, then I would be far better off today. But I would have had to be right twice. I would have had to sell close to the top and I would have had to buy back in close to the bottom. I stayed 100% invested in equities. I "lost" a good percentage of my investments but it has come back again. So I am staying 100% invested in equities. I will probably regret it if there is a stockmarket crash, but then be happy again after 5 years.
Brendan
I have roughly the same problem. I too am worried that stockmarkets may be too high due to QE and low deposit and bond rates. I remember having the same worry a few years ago but I didn't cash out. Had I switched to cash and bought back in after the falls, then I would be far better off today. But I would have had to be right twice. I would have had to sell close to the top and I would have had to buy back in close to the bottom. I stayed 100% invested in equities. I "lost" a good percentage of my investments but it has come back again. So I am staying 100% invested in equities. I will probably regret it if there is a stockmarket crash, but then be happy again after 5 years.
Brendan
Steven Barrett
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Warren Buffett in his shareholder letter last month
Pick a strategy and find out the potential ups and downs of it. If you know there is a potential 40% loss and that won't keep you awake at night, then equities are fine. If the thoughts of losing 40% of your money gives you the shivers, you will have to sacrifice growth for security. 18 years is still a long investment term though, there will be at least 2 more crashes before the OP hits retirement.
Even sticking with the current strategy may be alright. The Consensus fund isn't the greatest fund around but it does make you money in the long run.
Steven
www.bluewaterfp.ie
Brendan Burgess
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That is a very good way of looking at it. And there is usually a big increase in prices before the crash.
Brendan
To be fair less than 80% of the Consensus Fund is allocated to equities and it is otherwise highly diversified (although I personally think the fund's allocation to Irish equities is still too high).
Yields on fixed-income investments are obviously at historical lows but one (relatively conservative) rule of thumb is that you should "hold your age in bonds" so that, in your case, 50% of your investments would be allocated to bond funds and/or cash. Asset allocation decisions ultimately depend on your risk tolerance level but if you wanted to very gradually reduce your allocation to equities, you could consider switching future contributions to the Consensus Cautious Fund (or something similar with a higher allocation to fixed-income investments).
Like the OP I'm reaching that age where similar decisions need to be made. So can I ask, if funds are switched now to lower risk assets, bonds etc, are these then locked into low returns long term? or if bond yields improve, will such funds benefit also. My concern is around the impact of inflation, which I fear we will experience before too long.
I know of no way of reliably predicting market movements , does that not go for predicting two crashes in 18 years !
I like buying monthly a crash is not the worst thing in the world get to buy cheap , I never worry about weather stocks or currency's or any liquid market will go up or down it is what it is , I don't look at equities and think they are over valued I trust an efficient market
FYI, admin delete if its a problem.
This echoes much of the Active Fund info on this forum.
http://mymoneycounselor.com/active-fund-managements-record
This echoes much of the Active Fund info on this forum.
http://mymoneycounselor.com/active-fund-managements-record
Steven Barrett
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No, they are not locked in. Bonds have an inverse relationship with interest rates though. So if rates go up, bond prices go down. You have to then look at the duration of the bonds you are in. Longer term bonds are affected more e.g. if interest rates go up by 0.25%, a short term bond with one coupon payment left will only underpay once by 0.25%. If it has 7 years left, it will underpay by 0.25% 7 times.
If you are still looking at a 10 year + investment term, you will get ups and downs. Transferring to a bond strategy now would be a mistake as you won't make any money.
Steven
www.bluewaterfp.ie
Steven Barrett
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Your welcome.
One of my retired clients rang me yesterday concerned about what he heard on the radio about bonds and stock prices. He is 70 this year and I told him if he lives another 20 years, he will probably see another 3 crashes before he dies. The thing to remember though was that an investment strategy that was put in place to suit his risk tolerance, so while there will be ups and downs, it shouldn't be much more than he was comfortable with and it wouldn't have an adverse affect on his lifestyle.
That should be the same for everyone, know the risks you are exposed to (history can be a good indicator) and make decisions based on that. If you want more risk, at least you know what you are getting yourself into.
Steven
www.bluewaterfp.ie
One of my retired clients rang me yesterday concerned about what he heard on the radio about bonds and stock prices. He is 70 this year and I told him if he lives another 20 years, he will probably see another 3 crashes before he dies. The thing to remember though was that an investment strategy that was put in place to suit his risk tolerance, so while there will be ups and downs, it shouldn't be much more than he was comfortable with and it wouldn't have an adverse affect on his lifestyle.
That should be the same for everyone, know the risks you are exposed to (history can be a good indicator) and make decisions based on that. If you want more risk, at least you know what you are getting yourself into.
Steven
www.bluewaterfp.ie