The investment horizon as mentioned is 7-8 years:
I would take issue with this and have explained my reasoning elsewhere.At 54 you should probably keep a meaningful portion of your assets in “safe” investments (cash/government bonds).
Then after 7 or 8 years rebalance the portfolio and have it more geared torwards cash and bonds and less shares.
Dont really agree. Pension pot currently at 500k. Maxing out and wants to stay working for another 10 years. Should have a tidy sum by retirement. Upon retirement lump sum plus for the sake of debate 4% draw down I would consider to be in real terms my cash/bond to live on. Dont know but if state pension is also in the pot that also would add to the position. Single no debt. Additional funds I would still go equity route.IMO a 54 year-old man doesn’t have an investment horizon of anything like 30 years.
For planning purposes, he should assume that he will start spending down his retirement savings within 10 years. We don’t always get to choose our retirement date.
I personally wouldn’t invest in equities with an investment horizon of less than 10 years - the returns over a shorter time horizon are just too variable. Hence, I plan to have around 10 years’ worth of anticipated expenditure in cash/government bonds at retirement and I would build up this reserve gradually over the 10 years prior to my expected retirement date.
I would also want to ensure that all appropriate housing upgrades are completed prior to retirement and that all debts are cleared in full.
But my main point is to check how the pension pot is invested. I’d bet that the pension has a substantial allocation to cash/bonds given the OP’s age. So by simply increasing the allocation to equities within the pension - and retaining the after-tax savings in cash - the OP gets to the same place, without the tax headaches.
Of your total amount available for investment (160k) you are investing 18.75% in property (i.e. improvement of your home); 37.5% in equities (American and global large cap); and 43.75% in euro fixed income (i.e. cash and euro gobernment bonds).All,
I have about 160k cash to invest in the medium term 7-8 years (I’m 54 years of age, home owner with no mortgage, single, no outstanding debt, no credit card debt and pension contributions already maxed out (pension pot is currently at ~500k). I like the job (~85k/year) so if all goes well I still plan to be working in 10 years from now.
I was thinking of this investment strategy
- 30k home improvement (better insulation etc.)
- 30k cash left in the bank for a rainy day
- 100k lump sum: I have transferred it to Degiro and sitting on cash at the moment but thinking of the following:
- 30k Vanguard FTSE All-World IE00BK5BQT80
- 30k iSHARES S&P Core 500 IE00B5BMR087
- 40k Vanguard Eurozone Gvt. Bond ETF IE00BH04GL39
Thanks a lot PMU for the time that you took to explain all this. I will take in consideration your suggestions. Im the meantime I wish you a happy 2023Of your total amount available for investment (160k) you are investing 18.75% in property (i.e. improvement of your home); 37.5% in equities (American and global large cap); and 43.75% in euro fixed income (i.e. cash and euro gobernment bonds).
On the equities, the fact sheet for the Vanguard FTSE All-World Intl_Share_Class_Fact_Sheets – IrishETF_GE2 (fundinfo.com) says that 60% of this product is invested in USA equities. Also, the top 10 shares, which make up 15% of the fund are also American. In total, the All-World product is 60% invested in American equities, so if you buy both the All-World and the S&P products you are allocating 30% of your funds to USA equities. If you are happy with this fine, but you may possibly be duplicating investment in equities that are common the both funds.
You have no EUR equity investments so you could consider dropping the All-World ETF; increasing your allocation in the S&P 500 product (or in other foreign developed market equities); and also buy an EFT that tracks domestic (i.e. EUR-denominated) equities. Or just drop the All-World and substitute an EUR-equity ETF for it.
As you will leave 30k in the bank for a rainy day fund, you are allocating (30+40) 70k i.e. 43.75% of your total funds to fixed income products., which is more than you are investing equities. This implies you are placing a high importance on the preservation of the [nominal] value of your savings.
In this regard, the factsheet for the bond EFT Intl_Share_Class_Fact_Sheets - IrishETF_GE2 (fundinfo.com) shows that 60% of the bonds have a maturity of greater than 5 years; with 12% having a maturity of greater than 20 years. Many would regard this as a risky product, i.e. a product with a high risk of price volatility. As bond prices are sensitive to interest rate risk, i.e. bonds prices and interest rates move asymmetrically, a rise in interest rates will cause the price of bonds with a coupon lower than the interest rate to fall in value. As central banks are mandated by their governments to maintain inflation at around 2%, this is typicality achieved by interest rate policy (e.g. increasing interest rates to ‘drive out’ inflation). And inflation currently is a problem. So bonds, particularly long duration bonds, may not at this point in time, provide the stability you seek for your portfolio. Equities should provide the risk in your portfolio, and bonds stability. If you wish to invest in a bond ETF, it would be prudent to look for an ETF that holds / tracks EUR-denominated short duration government bonds.
[The above is comment / observation and is not a recommendation to follow any particular investment strategy or to buy / not buy any particular fund or stock.]
I agree in generalFocusing on the performance of any asset class over 1, 5 or even 10 years is a mistake. When it comes to investing, you really have to think long-term. As in decades, not years.
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