Another brilliant video James. The timing couldn't be better with what stock market news we will wake up to tomorrow. But as you say, plan your cash flow correctly and you can take more risks to build more wealth and simply ride out the short term volatility "noise" in the media. So my answer is investing is not risky if you apply the strategy you mention.
Depends what in and time frame. Personally I'm in vanguard blended funds and s&p funds for next 20 years so don't feel overly exposed. I'm 40 now so within 10 or so years I'll maybe look to more allocation of bonds and cash for my retirement planning. I have a final salary pension with matching employer contribution taken from salary gross, plus an avc ontop of my ISA investment. My risk profile I seem to come out happy with is be 5/6 out of 7
@@Bertie22222 Bert , I beg you … get an IFA … such as James …. If you have to pay £200 (maybe £300) for advice , you could save that easily ! (Probably more) Why do I say that? I’m not an IFA … but I went to the motorcycle show today with a friend. A man I think a great deal of. He told me a (frankly horrific) story of how he took his 25% tax free lump sum , then, this year withdrew another sum from his pension. He was charged “emergency tax” on this. I begged him not to make any pension wither without the guidance of an IFA. I think he listened.
James, that graph you show at 3:00 is the single greatest piece of financial planning information i have ever seen. I have always been sceptical of investing because i thought inflation would eat away most/all of the returns. I never had a consolidated visualisation of these lines and had no idea at all that the gap between them was so large. Thankyou!
Gold dust, literally. The best financial advice on UA-cam - period. Thank you James for sharing your expertise. Your commitment to financial literacy is a public good which I hope is widely recognised and rewarded.
For sure! The big problem is that young people don't understand investment risk, and how dramatically it can affect your investment returns. Most people are underinvested, not taking enough risk, and over 30-40 year time horizons the missed returns are enormous!
@George Johnson must have been so much harder a few years ago when financial advise almost felt like a scam. Well done for doing it and riding it out. Hoping you can retire soon! 😁
@George Johnson very similar story to my parents. Dad had little education, and went straight into the army. I'm sure he also had the banana lesson instead of finance 🤣 I was lucky enough to go to a better school and force my way through to uni. Now I'm trying to set my future up and trying to convince friends along the way 😅 Good job educating your daughter. If financial education doesn't come from you, no one else will teach her. Cant believe savings accounts are peoples 'go to' financial instrument in this day and age..😪
I'm one of those in the older demographic and this is still priceless! I do feel some serious bad decisions have made my own long term financial health prospects weak to say the least. But where I was short on advice in my youth your content is educating my young adult family too! Thank you for your excellent content 👍👍👍👍
Great video and many interesting ideas. Keeping 5 years worth of expenses in a cash buffer is counterintuitive as it sounds like a great cost of opportunity (the market goes up most of the time while crashes last about 5 years or less) but I guess it’s a matter of making some numbers and compare - numbers never lie! What I personally find less convincing in this strategy is the need to decide when it is the right time to stop taking money from your pension pot to start using your cash buffer, and when one should stop using the cash buffer to keep taking money from the pension pot. That sounds like a form of market timing, which is known to harm investment returns. Moreover, once the cash buffer has been used for let’s say a couple of years during a bear market, should one withdraw another lump sum from the pension pot to increase the cash buffer to 5 years of expenses again? Wouldn’t that kill the pension pot? Should one wait fue the market to recover before withdrawing money to fill up the cash buffer? Maybe I’m missing something?
Hi James, great advice. With inflation rising our money needs to work harder. I've seen loads of UA-cam videos about draw down but since investing in Vanguard lifestrategy 60 our funds have grown 2.5x our yearly pension requirements. Currently 18% so 18p for every pound accumulation. And that's compounding to try and keep in front of inflation.
Amazing video, thanks James. As a 53 yr old with 10 yrs until I even consider retirement, it’s comforting to know I have some good time ahead of me to save and invest.
Excellent presentation, James. Makes clear how much ‘risk’ there really is in index funds and how to protect yourself from short term volatility. You make a very good point about investment windows as well - even at retirement, most of our portfolio is invested long term.
Very illuminating. If i get this right - you're suggesting that having perhaps 3-5 years of cash flow set to one side and 100% of the rest in equities/index funds can be a simpler and more beneficial form of retirement strategy than traditional sliding plans which leave you with 100% bonds at retirement age? Your explanation that even at retirement age, most of the money is still invested long term is such a simple way to shine a light on this!
Don't panic - don't sell - carry on investing - Buy low and HOLD. Easier said than done when the market is dropping 20% a day and you see 5 years of investment growth disappear in front of your eyes. But those are the risks of investing. Great video James. You are right though, if one can have a backup fund that will tie one over for 5 years while the market is recovering, then there isn't really a problem. Although having money in cash and to cover that sort of period seems nuts in its own right. Cash sitting there in case of emergency decreasing because of inflation or not gaining interest is also a little pointless. Which is why investing in an ISA is actually a good idea, because if one needs to sell in a hurry and get the cash, that is possible. Not possible if the cash is invested in a pension. (unless of course the person is in drawdown).
I have a monstrosity of a pension and investment prediction spreadsheet, and this video made me pause and go play around with not tapering off the investment growth at retirement (as I had in there as the "thing to do"), and instead drawing a lump sum to cash/bonds to cover the risk of market fluctuations and leaving the rest invested in stocks. The difference is pretty mind blowing, because the fund then continues growing over the entire drawdown period. So you can draw substantially more money per month and still have it last as long. Thanks for opening my eyes to this! It's counter-intuitive, but the numbers don't lie. It's potentially an extra grand or so a month depending on the specifics. What a difference.
Yes indeed. A high stock allocation, with good cash flow management, has much more resilience and higher chances of survival. It pains people to see 3-4 years of cash sitting there or in money market funds. But the overall portfolio return is better.
@@JamesShack I don't suppose it's possible for you to look at NHS (and/or general public sector) pensions in a video at some point? My partner has one (2015 scheme, specifically) and I'm trying to wrap my head around it. From what I can see, while you work for the NHS it grows by CPI+1.5% each year, but once you stop working and/or begin recieving it that comes down to just a CPI increase with no growth whatsoever. Which puts it at a substantial disadvantage compared to your example here, where you can keep growing the pot during retirement. Is there a particular strategy that would improve the odds for an NHS pension?
It’s a great video thanks. Say one would like to withdraw monthly for their income, would one simply look at the value of the funds/indexes and withdraw as long as the value is in line or higher than in previous months? And if it’s too far down, use from cash buffer until the fund/s index/es are back to the original level or higher? If the funds/indexes are set to income, then use those divs first? But if the market is down would one use the divs to buy back in to ‘leave’ them in there? Could one just use a simple spreadsheet to track these values?
Extremely helpful video. Concise and accurate. Too often TV, magazines et al push us into stock picking when the best strategy comes from an index or life strategy fund, balanced by age, with cashflow management.
Excellent video. Over the last few months, i have changed my mindset/approach to maximise returns(high risk) while also maintaining a buffer(x years cash) so i can ride of the lows. fortunately i have around 15-20 years before i retire, so dont need to worry about in the short term, but am planning ahead
So how do you recommend someone accumulate 3-5 years of expenses for retirement James? Do you save it ahead of retirement or make a lump sum withdrawal at the time of retirement? How is this pot refilled? Should the dividends be reinvested or put into the living expenses pot?
Thanks for another great video with some nice stable advice. Cash let's me sleep at night, so I worry a little less about the volatility . For me, it's worth the trade off of lost interest.
Hi James. Love the videos. Over the past year I've learnt so much that I now feel confident in making solid financial decisions regarding my investments. I'm planning to use my ISA Vanguard index fund to supplement my company pension in 4 years time so a quick question regarding cash flow management. Where do you advise keeping your cash buffer. In a savings account with whatever the current interest may be or hold it in a premium bonds account and take a chance on winning a reasonable number of cash prizes? Or do you have another idea
Thanks great to hear! Yes, highest rate you can find. And as accessible as possible. The rate on premium bonds used to be not that great, but I’m not sure now.
Thanks for another great video. This one in particular has sparked lots of thoughts/questions for me... I really like the cash buffer concept, but 5 years worth of income seems a large portion of my overall pot to move somewhere (a standard bank account I'm assuming with
My last video covered some of these rules for how much money to take out and when. But i will need to make a dedicated video on this. ua-cam.com/video/LCYINIELH2w/v-deo.html 5 years cash is excessive, I only used it to show that you could do it. In reality you'd likely settle for 2-3 years depending on how flexible you can be with you income. If you only have 2 years, then you should expect-to have some years living off much lower income. However, the cash should not be considered in isolation. With a cash buffer, you can have a 90% stocks 10% cash portfolio. Which will get you higher long term growth than a 50% stocks 50% bond portfolio. So the cash is really there so you can get higher returns in other areas of your portfolio. Tax free cash is precious. Don't use it just to build up cash reserves outside of pensions. You could even keep some/most of the cash inside the pension and draw it out tax efficiently over time.
About "leaving money to your kids " : i'm curious if putting aside a small onr time sum Now to grow with the kids shows better math than leaving whatever is left over when we die . I never really hear any one talk about investment eggs for kids or even yet to be born kids . They have massive amounts of time on their side .
I find as I get older and do more research my bond allocation goes down and down, I suspect when I get to retirement age it will be 0%!, but as you say with 3 years of living expenses covered in treasuries or equivalent.
Another wonderful video James, thank you so much. Some of the best advice and guidance I have ever heard on UA-cam. One question please, traditionally an investor might look to dividends for income in retirement, using your approach of mostly diversified, worldwide, index funds these tend to come as Acc funds (rather than Income) so the only solution to generate cash when needed is to sell down a portion of the holdings. Am I right?
I am loving your videos. I do have a question about your example couple. $600,000 in market, $50,000 cash. To bring their cash flow up to 5 years at $40,000 per year, they would need to sell $150,000 of their market funds to bring their cash up, leaving just $450,000 invested 100% in stocks. Is this what you ran through your scenario in the other video or were you working with $600,000 invested 100% in stocks (because that is what I thought I heard)? With $450,000 stocks and $200,000 cash that would seem to be a worse return, due to the larger block of cash generating virtually nothing in returns, than their $600,000 at a 75% stock/25% bond mix plus their $50,000 cash. I hope this makes sense. Sorry for using dollars rather than pounds but I don't know where my pound symbol is hidden. I am intrigued by this idea but definitely don't want to make a misstep. Thanks!!
You are correct. I did not go into the detail of cash flow planning and how to do that. I think $200 of cash would be excessive but probably $80k at minimum. It also depends on the risk of your portfolio. Higher risk you need more cash. Lower risk less cash as bonds act as that buffer. I'll need to do a whole video on it
@@JamesShack That would be wonderful. Thank you for your time and all the great advice you are putting out there. Your videos are making me go back and look at some of my assumptions seeing that they may be/are false. I love that you use so much data and historical viewpoints to support your ideas.
Another great video James, and plenty of good advice here. I've watched a number of your videos and elsewhere you discuss the virtues of the Vanguard Lifestrategy funds and how one of them could be the only fund you need. You also talk about using a stock/bond blend to reduce volatility at the expense of some growth. I'd be interested in your views on what appears to be a contrary position? I should add that I think both approaches have their advantages: The blended approach would mean (in theory) you'd need less of a cash buffer because you need less time to recover. Anyway, look forward to your thoughts - or a video comparing the two!
Excelent video as always James, thanks. Reminded me to never forget about factoring sequence of returns. Because of inflationary times we now live in, I was wondering if you will ever discuss UK inflation linked bonds and what is the difference to investor between buying such bonds directly vs buing fund which is holding such bonds like Vanguard U.K. Inflation-Linked Gilt Index Fund.
Been waiting for your next video for so long mate. And the timing of your upload couldn't be better with way more news coming out of "the next market crash". Thanks for bringing back some logic and sanity into the forefront of our minds. Excellent advice again, backed by statistics and analysis again!
You’re welcome! Yes it always helps to take a step back and look at the long term view. The stock market is a wealth building engine, market crashes are a feature not a bug, they will come and go. Investors should focus on this things they can control, like investment risk, fees and cash flow planning. Leave the market predictions to those with the crystal balls!
I am in the HSBC Islamic as I have a very limited choice in a workplace pension scheme. I have very small fee's though so plan to leave it there and review on a 6 monthly basis. I have a very high risk tolerance though and drops do not worry me at all. I don't plan on diversifying much as I approach retirement. Maybe a few index trackers but will remain majority in equities even into drawdown. The last 5 market crashes have all recovered to their previous high within 2 years I believe. Great content on here. However much i think I know I always learn something new.
@Colin Tayler yes, there is an argument to keep some cash or bonds etc so you feel like you can be a buyer in a falling market. If it stops you selling then it will boost your returns!
As a rick taker this is music to my ears I transferred my entire pension pot into a drawdown pension and then selected higher risk funds. Its a roller coaster ride but I actually enjoy that. Sell some funds when the market is high and draw down on the cash as and when I need it, or alternatively reinvest the cash back into the market when it is down. Its fun and so far is working out well. Only exceptions are when the Chinese government moved the goal posts last year and my Asian funds tanked, but who saw that coming!
Thanks James, very interesting as always! Are you planning to do a video on Invesment Trusts and how they could be part of a portfolio? IT's seems very interesting but not discussed too much in the financial independence community . The only choice often mentioned is a balance of funds and bonds to help manage risk. So how do IT's fit in?
Would you say in theory then keeping a rainy day fund (6-12 months worth) in a high bonds fund (Vanguard etc) is much better and stable than just keeping it in the bank earning pennies? This would solve the inflation issue but also minimise risk I'm guessing?
Another great video James. I’d be interested like a few others where you would keep such a large cash buffer? 50k in premium bonds perhaps but not many places around at the moment where inflation isn’t going to take a big bite out of it.
The cash is not there to earn you a return, it's there so you can maximise growth in other areas of your portfolio. Premium bonds or other NS&I products combined with some fixed term deposits.
I have a small DB pension due this year and have been offered TFC at approx 20x ie trade £500pa for £10k TFC. My DB pension rises at RPI for 5 years and is then capped at 3%. I'm thinking that I could do better to take the maximum TFC and add it to my SIPP or ISA in a 80/20 index fund. It would also be inheritable which is a plus. Thoughts?
Hi James, so glad I came across your channel - easily top in the UK for investing advice! Looks like you're a big fan of Vanguard Lifestrategy, I was wondering what do you think about having 2 simple ETFs as an alternative: a global stock one, and a global bond one (adjusting risk as we get older)? Maybe there's a way to compare their performance (LifeStrat VS 2 ETFs)? I can't do that in the portfolio visualizer but perhaps you know of a better tool. TIA and for all your great videos which I happily binge-watch instead of Netflix 🔝
@@JamesShack Thanks, I dind't realise that. I found a way to compare them and the Global ETF beats the LS whilst moving pretty much in the same way. Decision made :) Looking forward to your next videos!
If you chose to drawdown a private pension does the money in it keep getting invested in safer options once you reach the specified retirement age or is it set aside to guarantee a safe income?
Definitely worth having a portion of total assets in Crypto. Chances are that most people are already indirectly invested in it anyways, i.e if holding shares in Tesla/Square who own Bitcoin.
This is not advice, but as long as you keep 85-90% of your net worth in straight forward proven investments, you can do what you want with the other 10%
If you already had the 5 years in cash, would you just leave it in the best interest accounts you could find, or, would you be tempted to put some, say half, in some of the well known 'wealth preservation' options like CG Absolute return, RVP etc, to attempt to keep up eith inflation at least (obviously this introduces a higher level of risk though)
I think keeping 5 years of cash is excessive. 2-3 years, cash with the knowledge that there will be years when you need to take a lower level of income. The cash should not be looked at in isolation, it's getting a great return because it allows you to take more risk and get more growth in other areas.
Great video James. I agree with everything you highlighted and have all my pensions in etfs. I have a pretty large stocks and shares isa and will be living off those for as long as I can and hopefully leave my pension to the kids. Keep up the good work and looking forward to viewing all your videos.
I think most people are obsessed with retiring as soon as possible. But as you can only access your pensions from 55, it’s often becomes the lower bound for retirement targets.
Presumably because, in the UK, it's the minimum pension withdrawal age (when you can access your personal pension funds)? Going to rise to age 57 in 2028.
I like your videos but this thing you do almost every sentence where you pause before the last word in a sentence is very distracting and makes it hard to get through the video.
You've haven't "increased the RISK of their portfolio" by allocating more to stocks; you've decreased the risk - over the longer term, of course. What you have increased is VOLATILITY - hence that is what they need to plan around during a, hopefully, lengthy retirement. Please, stop confusing risk with volatility.
Do you think investing is risky? Let me know your thoughts!
Another brilliant video James. The timing couldn't be better with what stock market news we will wake up to tomorrow. But as you say, plan your cash flow correctly and you can take more risks to build more wealth and simply ride out the short term volatility "noise" in the media. So my answer is investing is not risky if you apply the strategy you mention.
Depends what in and time frame. Personally I'm in vanguard blended funds and s&p funds for next 20 years so don't feel overly exposed. I'm 40 now so within 10 or so years I'll maybe look to more allocation of bonds and cash for my retirement planning. I have a final salary pension with matching employer contribution taken from salary gross, plus an avc ontop of my ISA investment.
My risk profile I seem to come out happy with is be 5/6 out of 7
In the short term yes, especially if you need money quickly. Investing is for the long haul. In the long term no as you even out the dips over time.
When i'm ready to retire, 2-3 years, should i take 25% of my pension in a tax free lump sum and invest it in S&S?
@@Bertie22222 Bert , I beg you … get an IFA … such as James ….
If you have to pay £200 (maybe £300) for advice , you could save that easily ! (Probably more)
Why do I say that?
I’m not an IFA … but I went to the motorcycle show today with a friend.
A man I think a great deal of.
He told me a (frankly horrific) story of how he took his 25% tax free lump sum , then, this year withdrew another sum from his pension. He was charged “emergency tax” on this.
I begged him not to make any pension wither without the guidance of an IFA. I think he listened.
James, that graph you show at 3:00 is the single greatest piece of financial planning information i have ever seen. I have always been sceptical of investing because i thought inflation would eat away most/all of the returns. I never had a consolidated visualisation of these lines and had no idea at all that the gap between them was so large. Thankyou!
Gold dust, literally. The best financial advice on UA-cam - period. Thank you James for sharing your expertise. Your commitment to financial literacy is a public good which I hope is widely recognised and rewarded.
I’m glad you found it useful Michael and thank you for the kind comment!
Michael, I agree ☝️
So glad I’m getting my head around this at 25, I hope I thank myself at 50!
For sure! The big problem is that young people don't understand investment risk, and how dramatically it can affect your investment returns. Most people are underinvested, not taking enough risk, and over 30-40 year time horizons the missed returns are enormous!
I feel like I'm the only one out of all my friends that care about pensions (I'm also 25) 😂
@@NedFlanders39 You could argue that you're smarter than your friends. Well done for thinking about YOUR future now.
@George Johnson must have been so much harder a few years ago when financial advise almost felt like a scam. Well done for doing it and riding it out. Hoping you can retire soon! 😁
@George Johnson very similar story to my parents. Dad had little education, and went straight into the army. I'm sure he also had the banana lesson instead of finance 🤣
I was lucky enough to go to a better school and force my way through to uni. Now I'm trying to set my future up and trying to convince friends along the way 😅
Good job educating your daughter. If financial education doesn't come from you, no one else will teach her.
Cant believe savings accounts are peoples 'go to' financial instrument in this day and age..😪
I'm one of those in the older demographic and this is still priceless! I do feel some serious bad decisions have made my own long term financial health prospects weak to say the least. But where I was short on advice in my youth your content is educating my young adult family too! Thank you for your excellent content 👍👍👍👍
Great video and many interesting ideas.
Keeping 5 years worth of expenses in a cash buffer is counterintuitive as it sounds like a great cost of opportunity (the market goes up most of the time while crashes last about 5 years or less) but I guess it’s a matter of making some numbers and compare - numbers never lie!
What I personally find less convincing in this strategy is the need to decide when it is the right time to stop taking money from your pension pot to start using your cash buffer, and when one should stop using the cash buffer to keep taking money from the pension pot. That sounds like a form of market timing, which is known to harm investment returns.
Moreover, once the cash buffer has been used for let’s say a couple of years during a bear market, should one withdraw another lump sum from the pension pot to increase the cash buffer to 5 years of expenses again? Wouldn’t that kill the pension pot? Should one wait fue the market to recover before withdrawing money to fill up the cash buffer?
Maybe I’m missing something?
Hi James, great advice. With inflation rising our money needs to work harder.
I've seen loads of UA-cam videos about draw down but since investing in Vanguard lifestrategy 60 our funds have grown 2.5x our yearly pension requirements. Currently 18% so 18p for every pound accumulation. And that's compounding to try and keep in front of inflation.
Amazing video, thanks James. As a 53 yr old with 10 yrs until I even consider retirement, it’s comforting to know I have some good time ahead of me to save and invest.
Excellent presentation, James. Makes clear how much ‘risk’ there really is in index funds and how to protect yourself from short term volatility. You make a very good point about investment windows as well - even at retirement, most of our portfolio is invested long term.
Very illuminating. If i get this right - you're suggesting that having perhaps 3-5 years of cash flow set to one side and 100% of the rest in equities/index funds can be a simpler and more beneficial form of retirement strategy than traditional sliding plans which leave you with 100% bonds at retirement age? Your explanation that even at retirement age, most of the money is still invested long term is such a simple way to shine a light on this!
It’s more complex than that but yes. If you can manage your cash flow well you take more risk and get more growth.
Have you considered doing a video on the 3 bucket method of retirement financial planning? I would be interested in your take on it.
Love the logic! Great video and info!
Excellent video! Sharing now
While we're getting better returns with interest rates, I hold my "might need soon" cash in premium bonds.
Don't panic - don't sell - carry on investing - Buy low and HOLD. Easier said than done when the market is dropping 20% a day and you see 5 years of investment growth disappear in front of your eyes. But those are the risks of investing. Great video James. You are right though, if one can have a backup fund that will tie one over for 5 years while the market is recovering, then there isn't really a problem. Although having money in cash and to cover that sort of period seems nuts in its own right. Cash sitting there in case of emergency decreasing because of inflation or not gaining interest is also a little pointless. Which is why investing in an ISA is actually a good idea, because if one needs to sell in a hurry and get the cash, that is possible. Not possible if the cash is invested in a pension. (unless of course the person is in drawdown).
Yes, it's all about cashflow planning and balancing that with how much risk you can take - as in how much cash buffer you want to keep.
I have a monstrosity of a pension and investment prediction spreadsheet, and this video made me pause and go play around with not tapering off the investment growth at retirement (as I had in there as the "thing to do"), and instead drawing a lump sum to cash/bonds to cover the risk of market fluctuations and leaving the rest invested in stocks. The difference is pretty mind blowing, because the fund then continues growing over the entire drawdown period. So you can draw substantially more money per month and still have it last as long.
Thanks for opening my eyes to this! It's counter-intuitive, but the numbers don't lie. It's potentially an extra grand or so a month depending on the specifics. What a difference.
Yes indeed. A high stock allocation, with good cash flow management, has much more resilience and higher chances of survival.
It pains people to see 3-4 years of cash sitting there or in money market funds. But the overall portfolio return is better.
@@JamesShack I don't suppose it's possible for you to look at NHS (and/or general public sector) pensions in a video at some point? My partner has one (2015 scheme, specifically) and I'm trying to wrap my head around it. From what I can see, while you work for the NHS it grows by CPI+1.5% each year, but once you stop working and/or begin recieving it that comes down to just a CPI increase with no growth whatsoever. Which puts it at a substantial disadvantage compared to your example here, where you can keep growing the pot during retirement. Is there a particular strategy that would improve the odds for an NHS pension?
It’s a great video thanks. Say one would like to withdraw monthly for their income, would one simply look at the value of the funds/indexes and withdraw as long as the value is in line or higher than in previous months?
And if it’s too far down, use from cash buffer until the fund/s index/es are back to the original level or higher?
If the funds/indexes are set to income, then use those divs first? But if the market is down would one use the divs to buy back in to ‘leave’ them in there?
Could one just use a simple spreadsheet to track these values?
Extremely helpful video. Concise and accurate. Too often TV, magazines et al push us into stock picking when the best strategy comes from an index or life strategy fund, balanced by age, with cashflow management.
Do you have a views on the merits of moving a large 100% growth stock pension, near retirement, to dividend etfs ?
Excellent video. Over the last few months, i have changed my mindset/approach to maximise returns(high risk) while also maintaining a buffer(x years cash) so i can ride of the lows. fortunately i have around 15-20 years before i retire, so dont need to worry about in the short term, but am planning ahead
YEs, if you're not yet retired then you should be running a small emergency fund and then putting the rest of your money to work for you.
Brilliant stuff !!!
So how do you recommend someone accumulate 3-5 years of expenses for retirement James? Do you save it ahead of retirement or make a lump sum withdrawal at the time of retirement? How is this pot refilled? Should the dividends be reinvested or put into the living expenses pot?
This will answer some of your questions: ua-cam.com/video/sRjkmxFvlZQ/v-deo.html
Thanks for another great video with some nice stable advice. Cash let's me sleep at night, so I worry a little less about the volatility . For me, it's worth the trade off of lost interest.
Would it be worth investing some of that cash buffer if there was a sharp equity sell off?
No, because you don't know how long the sell off will last.
Hi James. Love the videos. Over the past year I've learnt so much that I now feel confident in making solid financial decisions regarding my investments.
I'm planning to use my ISA Vanguard index fund to supplement my company pension in 4 years time so a quick question regarding cash flow management. Where do you advise keeping your cash buffer. In a savings account with whatever the current interest may be or hold it in a premium bonds account and take a chance on winning a reasonable number of cash prizes?
Or do you have another idea
Thanks great to hear! Yes, highest rate you can find. And as accessible as possible. The rate on premium bonds used to be not that great, but I’m not sure now.
Premium bonds up to 2.1% now.
Thanks for another great video. This one in particular has sparked lots of thoughts/questions for me...
I really like the cash buffer concept, but 5 years worth of income seems a large portion of my overall pot to move somewhere (a standard bank account I'm assuming with
Perhaps let the money work for you for now but withdraw the cash buffer nearer to the time of retirement?
My last video covered some of these rules for how much money to take out and when. But i will need to make a dedicated video on this. ua-cam.com/video/LCYINIELH2w/v-deo.html
5 years cash is excessive, I only used it to show that you could do it. In reality you'd likely settle for 2-3 years depending on how flexible you can be with you income. If you only have 2 years, then you should expect-to have some years living off much lower income.
However, the cash should not be considered in isolation. With a cash buffer, you can have a 90% stocks 10% cash portfolio. Which will get you higher long term growth than a 50% stocks 50% bond portfolio. So the cash is really there so you can get higher returns in other areas of your portfolio.
Tax free cash is precious. Don't use it just to build up cash reserves outside of pensions. You could even keep some/most of the cash inside the pension and draw it out tax efficiently over time.
About "leaving money to your kids " : i'm curious if putting aside a small onr time sum Now to grow with the kids shows better math than leaving whatever is left over when we die . I never really hear any one talk about investment eggs for kids or even yet to be born kids . They have massive amounts of time on their side .
Hi James, thanks again for another brilliant, succinct video and for sharing your advice and know-how with us. It's hugely appreciated.
Great video yet again
Cheers Sunny!
I find as I get older and do more research my bond allocation goes down and down, I suspect when I get to retirement age it will be 0%!, but as you say with 3 years of living expenses covered in treasuries or equivalent.
Excellent session. Bring on the next one.
I'm working on it!
Excellent. This video is the best simple, intuitive, explanation of risk and financial planning in retirement I have seen. Thankyou.
Thanks for watching, I'm glad you liked it!
Surely an equity portfolio would not be confined to the UK? A line on the chart for a Global index would be useful.
No, it wouldn't. But we're just using the UK as a proxy for investing in general.
10/10 vid. This information is so important (and tangeably lowers stress levels)!
Thanks for watching Jon, and all the comments!
Well explained James, it’s all about state of mind.
Yes indeed!
Best retirement planning video on the entire interweb. Nice one
Another great video, James. Thank you.
Thanks Warren!
Nice one James!
Another wonderful video James, thank you so much. Some of the best advice and guidance I have ever heard on UA-cam. One question please, traditionally an investor might look to dividends for income in retirement, using your approach of mostly diversified, worldwide, index funds these tend to come as Acc funds (rather than Income) so the only solution to generate cash when needed is to sell down a portion of the holdings. Am I right?
Excellent
Thank you! Cheers!
Really enjoyed the video James. The information is very reassuring and priceless.
Glad to be of service!
Great presentation and analysis again, James.
I did not understand very well because I do not speak English but good video
Brilliant as ever, you had me at dating is risky 🤣
I am loving your videos. I do have a question about your example couple. $600,000 in market, $50,000 cash. To bring their cash flow up to 5 years at $40,000 per year, they would need to sell $150,000 of their market funds to bring their cash up, leaving just $450,000 invested 100% in stocks. Is this what you ran through your scenario in the other video or were you working with $600,000 invested 100% in stocks (because that is what I thought I heard)?
With $450,000 stocks and $200,000 cash that would seem to be a worse return, due to the larger block of cash generating virtually nothing in returns, than their $600,000 at a 75% stock/25% bond mix plus their $50,000 cash.
I hope this makes sense. Sorry for using dollars rather than pounds but I don't know where my pound symbol is hidden. I am intrigued by this idea but definitely don't want to make a misstep. Thanks!!
You are correct. I did not go into the detail of cash flow planning and how to do that. I think $200 of cash would be excessive but probably $80k at minimum. It also depends on the risk of your portfolio. Higher risk you need more cash. Lower risk less cash as bonds act as that buffer.
I'll need to do a whole video on it
@@JamesShack That would be wonderful. Thank you for your time and all the great advice you are putting out there. Your videos are making me go back and look at some of my assumptions seeing that they may be/are false. I love that you use so much data and historical viewpoints to support your ideas.
Another great video James, and plenty of good advice here. I've watched a number of your videos and elsewhere you discuss the virtues of the Vanguard Lifestrategy funds and how one of them could be the only fund you need. You also talk about using a stock/bond blend to reduce volatility at the expense of some growth. I'd be interested in your views on what appears to be a contrary position? I should add that I think both approaches have their advantages: The blended approach would mean (in theory) you'd need less of a cash buffer because you need less time to recover. Anyway, look forward to your thoughts - or a video comparing the two!
YEs good point, I'll get around to them too.
Excelent video as always James, thanks. Reminded me to never forget about factoring sequence of returns. Because of inflationary times we now live in, I was wondering if you will ever discuss UK inflation linked bonds and what is the difference to investor between buying such bonds directly vs buing fund which is holding such bonds like Vanguard U.K. Inflation-Linked Gilt Index Fund.
Hi Piotr, I'll get round to it at some point!
Been waiting for your next video for so long mate. And the timing of your upload couldn't be better with way more news coming out of "the next market crash". Thanks for bringing back some logic and sanity into the forefront of our minds. Excellent advice again, backed by statistics and analysis again!
You’re welcome! Yes it always helps to take a step back and look at the long term view. The stock market is a wealth building engine, market crashes are a feature not a bug, they will come and go. Investors should focus on this things they can control, like investment risk, fees and cash flow planning.
Leave the market predictions to those with the crystal balls!
I am in the HSBC Islamic as I have a very limited choice in a workplace pension scheme. I have very small fee's though so plan to leave it there and review on a 6 monthly basis. I have a very high risk tolerance though and drops do not worry me at all. I don't plan on diversifying much as I approach retirement. Maybe a few index trackers but will remain majority in equities even into drawdown. The last 5 market crashes have all recovered to their previous high within 2 years I believe. Great content on here. However much i think I know I always learn something new.
Would it be advantageous to buy shares with reserved cash a year or two into the crash?
Hi Ian, you don’t know how long the crash will last so better to keep that cash incase you need it!
@Colin Tayler yes, there is an argument to keep some cash or bonds etc so you feel like you can be a buyer in a falling market. If it stops you selling then it will boost your returns!
As a rick taker this is music to my ears I transferred my entire pension pot into a drawdown pension and then selected higher risk funds. Its a roller coaster ride but I actually enjoy that. Sell some funds when the market is high and draw down on the cash as and when I need it, or alternatively reinvest the cash back into the market when it is down. Its fun and so far is working out well. Only exceptions are when the Chinese government moved the goal posts last year and my Asian funds tanked, but who saw that coming!
Thanks James, very interesting as always! Are you planning to do a video on Invesment Trusts and how they could be part of a portfolio? IT's seems very interesting but not discussed too much in the financial independence community . The only choice often mentioned is a balance of funds and bonds to help manage risk. So how do IT's fit in?
Well an IT is a closed ended fund. So it can act in exactly the same way as any other fund. It just depends on what the trust is investing in.
Great content, as always. Nice to have a UK voice of reason. Keep it up.
Cheers Aaron, I will!
These videos are so damn good.
Cheers josh! Glad you liked it.
I second that
Would you say in theory then keeping a rainy day fund (6-12 months worth) in a high bonds fund (Vanguard etc) is much better and stable than just keeping it in the bank earning pennies? This would solve the inflation issue but also minimise risk I'm guessing?
Another great video James. I’d be interested like a few others where you would keep such a large cash buffer? 50k in premium bonds perhaps but not many places around at the moment where inflation isn’t going to take a big bite out of it.
The cash is not there to earn you a return, it's there so you can maximise growth in other areas of your portfolio. Premium bonds or other NS&I products combined with some fixed term deposits.
I have a small DB pension due this year and have been offered TFC at approx 20x ie trade £500pa for £10k TFC. My DB pension rises at RPI for 5 years and is then capped at 3%. I'm thinking that I could do better to take the maximum TFC and add it to my SIPP or ISA in a 80/20 index fund. It would also be inheritable which is a plus. Thoughts?
Is this a final salary scheme?
@@JamesShack yes it is
Hi James, so glad I came across your channel - easily top in the UK for investing advice! Looks like you're a big fan of Vanguard Lifestrategy, I was wondering what do you think about having 2 simple ETFs as an alternative: a global stock one, and a global bond one (adjusting risk as we get older)? Maybe there's a way to compare their performance (LifeStrat VS 2 ETFs)? I can't do that in the portfolio visualizer but perhaps you know of a better tool. TIA and for all your great videos which I happily binge-watch instead of Netflix 🔝
You’re welcome! I think that’s what many people do. Especially if you don’t like the UK overweight that comes with the LS funds.
@@JamesShack Thanks, I dind't realise that. I found a way to compare them and the Global ETF beats the LS whilst moving pretty much in the same way. Decision made :) Looking forward to your next videos!
For the couple wanting to retire on 40K pa, was their state pension factored in when it was due or just their original pot?
If you chose to drawdown a private pension does the money in it keep getting invested in safer options once you reach the specified retirement age or is it set aside to guarantee a safe income?
Definitely worth having a portion of total assets in Crypto. Chances are that most people are already indirectly invested in it anyways, i.e if holding shares in Tesla/Square who own Bitcoin.
James what are your thoughts on a small allocation to Bitcoin maybe 5% of the pension pot?
This is not advice, but as long as you keep 85-90% of your net worth in straight forward proven investments, you can do what you want with the other 10%
@@JamesShack Cheers, I'm off to Vegas so ;)
If you already had the 5 years in cash, would you just leave it in the best interest accounts you could find, or, would you be tempted to put some, say half, in some of the well known 'wealth preservation' options like CG Absolute return, RVP etc, to attempt to keep up eith inflation at least (obviously this introduces a higher level of risk though)
I think keeping 5 years of cash is excessive. 2-3 years, cash with the knowledge that there will be years when you need to take a lower level of income. The cash should not be looked at in isolation, it's getting a great return because it allows you to take more risk and get more growth in other areas.
Great video James. I agree with everything you highlighted and have all my pensions in etfs. I have a pretty large stocks and shares isa and will be living off those for as long as I can and hopefully leave my pension to the kids. Keep up the good work and looking forward to viewing all your videos.
👍
The trouble I am having is I don’t think we are ever going back to way the world was so all data we have is not going to hep
I think it would be hasty to cast away a 100 years of historical data because 'this time looks different' - we've seen that before.
Why is everyone obsessed with retiring at 55?
I think most people are obsessed with retiring as soon as possible. But as you can only access your pensions from 55, it’s often becomes the lower bound for retirement targets.
Presumably because, in the UK, it's the minimum pension withdrawal age (when you can access your personal pension funds)? Going to rise to age 57 in 2028.
“Taking a vaccine is a risk ! “….. 👍😀
Beautifully assembled video James. The best (U.K.) financial channel bar none.
I like your videos but this thing you do almost every sentence where you pause before the last word in a sentence is very distracting and makes it hard to get through the video.
War .
You've haven't "increased the RISK of their portfolio" by allocating more to stocks; you've decreased the risk - over the longer term, of course.
What you have increased is VOLATILITY - hence that is what they need to plan around during a, hopefully, lengthy retirement.
Please, stop confusing risk with volatility.
We’ve increased their exposure to market risk and decreased their risk of running out of money.
You lost me at "taking a vaccine is a risk"
It is, just like taking Aspirin is a risk. A tiny risk compared with the benefits, but a risk all the same!
Hes right though. Taking a vaccine is not worth the risk to me so I dont have them x