Retirement Game-Changer: Has Vanguard Got It Wrong?

In this video, I show you new evidence that a 100% stock portfolio offers better diversification, wealth at retirement and recovery from market crashes than a target date fund that gradually reduces the stock allocation over someone's lifetime.
✔️ Become a PensionCraft Premium member and get access to our savings & retirement simulator. To find out what else our membership offers and how you can join our friendly community click here www.pensioncraft.com/investor...
This video is for educational purposes only and is not financial advice. If you need financial advice then please seek the help of an independent financial adviser. Unbiased online directory will match you to a local independent financial adviser that meets your needs. If you use our link to register with Unbiased, your first consultation with a financial adviser is free. imp.i337888.net/c/4012142/193... (This link provides you with a special offer and we will also earn a small commission)
What Else PensionCraft Offers:
💡 Book a coaching session with Ramin so he can answer your questions in a one-to-one video call via Zoom: pensioncraft.com/power-hour/
📰 Sign up for our free weekly market roundup to get news and views about what's going on in the stock market and wider economy pensioncraft.com/market-roundup/
📖 Understand investment in more depth with my online courses pensioncraft.com/courses-we-o...
❓ Join PensionCraft on KZbin and you’ll be supporting me to make more content and I will answer your questions and respond to your comments on KZbin as a priority kzbin.info...
🎧Check out our free weekly podcast "Many Happy Returns" on your podcast provider of choice or here many-happy-returns.captivate....
I Use The Following Data Sources To Help Me Create My Videos
(These links provide new users with a special offer and may also provide me with a small commission)
✔️ Stockopedia - New users of Stockopedia get a special 25% discount on any annual plan if they use this link stk.pe/pensioncraft
✔️ Koyfin - New users of Koyfin get 15% off when signing up through this special link koyfin.com/?via=pensioncraft
✔️ Sharepad - sharescope.co.uk/pensioncraftsp 2nd month free for monthly subscribers & Additional free 13th month for annual subscribers
✔️Cbonds - provides you with a high quality and comprehensive source of bond market data and up to 50% off their private investors’ dedicated plans when you use this link bit.ly/47nekIM
Where Else You Can Find Me
🌐 Website - pensioncraft.com/
📱 Twitter - / pensioncraft
👨 Facebook - / pensioncraft
🔗 LinkedIn - / pensioncraft
Take A Look At Some Of My Other Videos & Playlists
📹 Investment Strategies playlist • Investment Strategies
📹 Income Investing playlist • Income Investing
📹 Investing With Vanguard playlist • Investing with Vanguard
📹 Portfolio Building Blocks playlist • Portfolio Building Blocks
DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.

[@goober-ll1wx]

I think things like these targeted retirement date funds are "derisking" people waaaaaaaay too early and doing them some real harm...

[@rogerathome6980]

Hi Raman, it would be helpful if you could put in a link to the paper you are mentioning for those wanting to do some further reading

[@Pensioncraft]

Hi @rogerathome9680 here it is: papers.ssrn.com/sol3/papers.cfm?abstract_id=4590406 Thanks, Ramin

[@fredgoul1150]

Thanks for the video. I have seen the lifestyling approach from numerous providers. I assumed it was industry wide. Why single out vanguard? This seems a bit unfair to vanguard. Wouldn't it be better to question whether the industry has it wrong?

[@amjster]

Thanks for sharing your thoughts Ramin, another great video. Takes me back to my undergraduate dissertation on International Portfolio Diversification which came to a similar conclusion, so pleased to hear it here. Well done.

[@__Rum-Ham__]

Interesting video Ramin. I personally like the idea of global diversification, purely due to the unpredictability of the markets and the pitfalls of an 'eggs in one basket' approach. You see a lot of people advocating for 100% S&P 500 but that approach would make me a bit uneasy! A 50:50 domestic:international split is an interesting idea but I'd be reluctant to commit 50% to the FTSE 100, so that approach would probably be better-suited to US investors (at least historically). The gradual increase in % bonds is a really interesting point. Fortunately I have a couple of decades until I need to start thinking about retirement but the idea of being 100% stocks at age 60 sounds risky, given the unpredictably of the markets. It would suck to take a huge hit due to a financial crisis at your time of retirement!

[@supernumex]

The traditional glide path of increasing bonds is only useful to limit the sequence of returns risk in the first few years after retirement. Increasing the glidepath by increasing stocks makes sense after the first few years of retirement. Perhaps there can be a more heuristic approach to this. Have your main "invested" portfolio allocation be unchanged e.g 90% stocks 10% bonds and never change this throughout your lifetime or retirement. However, as you approach retirement you build up a buffer of cash-like investments (e.g money market funds, certificate of deposits, or even high interest savings accounts) to be able to cover 5 years of spending to reduce your sequence of returns risk. Depending on your wealth, this could result in different overall allocations. Then during your retirement you periodically sell from the 90% stock portfolio to top-up the cash buffer. If there is a heavy crash in stocks, then you can wait it out a few years before selling more stocks.

[@boombustinvest]

a.k.a the bucket strategy... 2-3 years expenses in cash and cash-like investments (bucket 1), 2/3 years in bonds or maybe 60/40 portfolio (bucket 2), the rest in stocks, or whatever you're comfortable with (bucket 3), top up bucket 1 from bucket 3 if stocks do well and maybe bucket 2 of bonds go on a run. This serves to protect your portfolio against SoR risk through out the life of the portfolio, not just at the start of retirement/FI.

[@fredatlas4396]

These lifestyling funds are aimed at people who want to buy an annuity at retirement, not usually for those that want a drawdown strategy. So they are linked, aligned to annuity rates. The idea according to Aegon is to protect your annuity rate. Aegon also does other default funds for those who intend to do a drawdown at retirement, with a different strategy obviously. But it looks like Aegon does provide access to other funds, like Vanguard, HSBC and fidelity etc So funds like HSBC ftse all world index fund, fidelity index world p fund, vanguard lifestrategy etc etc

[@sebfox2194]

Hi Raman, love your spectroscopy. Thanks for all your hard work.

[@__Rum-Ham__]

I prefer his Japanese noodle soup

[@sebfox2194]

@@__Rum-Ham__ His noodles are also excellent! 😂

[@blackbaron0]

Thanks Ramin I've always held equity over bonds because of the returns and for having actual ownership, albeit indirectly. This vindicates my approach, at least broadly and as I approach retirement I will largely keep it going.

[@byteme0000]

Same. Bonds are just not the place to be… at least for me. I’ll be retiring very soon, perhaps as soon as this year, but I have no intention of dumping more than 10% of my holdings into bonds. The only bonds I have now are in SGOV, a short-term treasury ETF.

[@bornfree8487]

Fascinating discussion. Papers I read by Javier Estrada & Wiafe, Basu and Chen reached ostensibly similar conclusions that is stock heavy portfolios do better on several metrics than TDFs Estrada in particular has a number of papers out looking at different aspects of this issue

[@jan2000nl]

I must say this hasn’t come as much of a surprise. Been looking for a justification to add bonds to my portfolio and yet to see one. Well maybe as a way to take short term advantage of a suppressed Bond market and/or inflated Equity market. But thats market timing which doesn’t usually work out well.

[@danguee1]

I love your intelligent, contextual, highly knowledgeable take on all these issues for us, Ramin. Very good stuff!

[@Pensioncraft]

I appreciate that! @danguee1

[@meibing4912]

Have said it for years 100% stocks is the way to go in retirement. Just be ready to wether the storms.

[@johnristheanswer]

* weather

[@thomask.2926]

Thanks for the link to the study. Very interesting to read and a very helpful video.

[@Pensioncraft]

Glad it was helpful! @thomask.2926

[@MarkCW]

Thanks Ramin, I've always liked having a mixture of US and World ETFs.

[@hamsterecology]

Looking forward to the follow up. Possibly life changing

[@Techno_Rama]

Thank You for the video, Ramin. Did i understand correctly that US stocks 30% greater at death(than target date) vs 50/50 US/International was 32% (greater than target date) at death?

[@GhostPrefix]

That actually makes a lot of sense albeit controversial. The rebound affect of stocks in particular. Bonds seem to have more inertia since they are bound to a particular Governmental strategy.

[@DPTrainor1]

Thank You.

[@wrincht1]

I noticed the £-$ crash hedge a couple of years ago and now mainly invest in 45-20-20% US-EU-UK stocks (individual companies), with small components in US medium treasures (IEF) and gold.

[@LITTLEbigREG]

This video has come at a good time for me as I have been considering a target retirement fund to consolidate my pensions into but I was unsure whether or not to go with something like the FTSE GLOBAL ALL CAP.

[@spartacus4929]

Or FTSE Dev World Ex Uk if you consider the UK and Emerging Markets a drag on performance. 0.14% fees too vs 0.23% GAC.

[@shirleysanchez1866]

My target account sucks. I don’t have much in it but it has been a looser in the past five years.

[@ianschofield8259]

Hi Ramin, great video as usual sir! I retired two years ago. I combined two personal pensions in to a sipp and put it all into global stock funds. I use my cash isa(s) as ‘shock absorbers’. That way if the market crashes I just use the cash until stocks recover. I watched a couple of your videos about buying bonds individually, rather than funds, but decided that it was too much trouble. I find cash and stocks and share isa(s) to be an integral part of investing for retirement.

[@kimwarburton8490]

thats my plan too! tho im just starting to invest XD I did think to do some portion to REITs though instead of bonds, but ive got to learn more about them. Currently, im only doing £10/mnth into invesco's mid n large cap all world in a stocks n shares ISA and mostly focused on saving up emergency fund and seasonal/annual expenses in 2 separate savings accounts, so i can buy car ins etc in 1 lump sum, cos cheaper that way. Once im self-employed, hopefully spring 2026, i'll open a SIPP and just do another all world index/ETF inside it.

[@russdavey1919]

Hi Ian, very interesting. Where do you invest in bonds, your S&S ISA? Which bond fund do you buy? Thanks

[@ianschofield8259]

@@russdavey1919 Hi Russ, I don’t actually hold any bonds (other than a tiny, tiny amount in a global fund just as an experiment). All my stock holdings are in global equities (predominantly global mega cap ex uk, and a smaller proportion of global all cap). The ISAs are cash with most generating 4% ish or there a-bouts. I also have some stocks and shares ISAs again in equities. These ISAs are what allowed me to retire early. I use these to bridge the gap between now and when my government OAPension ‘should’ begin to pay out.

[@georgemcnally4473]

Excellent and thought provoking piece. Seems like I will have to reassess allocations on this evidence. Kinda annoying, I had thought that I had it worked out relatively well until now.

[@blhlow4904]

I just listened to Scott C's podcast and must say that Ramin has done an excellent summary of the podcast

[@oceansunsetak]

I started investing in 1997 with an advisor who picked stocks 10 years of negative returns. 2007 sold all stocks I put all my money on a Vanguard and Fidelity balanced fund plus a Target date I was 55 then. when I was 60 I decided to invest any new money in equites. I had great Returns on the stock funds for the past 10 years but not so great Returns on the target date fund

[@minshum]

Thanks Ramin. I was the one who asked about stocks vs bonds (vs commodities) weightings analysis on your Live Q&A a couple of months ago (i had already seen the video you refered to). I'm always interested to see Benjamin Graham's portfolio management thesis being tested. Personally, I compromise between Ben Graham, Ray Dalio's AWP and your 100% stocks policy. My stocks vary between 60-80%, broad commodities (inc precious metals) are 10-20% with the rest in bonds. My stocks, however, are individual companies. I always have something cheap (relative speaking) to buy each month.

[@Pensioncraft]

Hi @minshum thanks for the question and for your comment. I've spoken to a few people who allocate between strategies rather than asset classes which is easier nowadays with platforms offering things like pies (Trading 212) and portfolios (InvestEngine) that can easily be rebalanced with one click. Thanks, Ramin.

[@frederickwoof5785]

As I only retired 18 months ago I'm in the process of consolidating my pensions. I just transferred into one (vanguard). But now wondering about the bond/equities allocation, currently 14.5% bonds. Also whether funds should be accumulation or dividend.

[@gabrielbruhnr]

yeah that's a good path, focus on a good ETF, relax back and watch it compound within the years. In good time you'll see returns.

[@MadderPrinciple]

Very interesting, did not appreciate the longer relative draw-down periods for bonds.

[@Pensioncraft]

Glad you liked it! @MadderPrinciple

[@brookrichardson1373]

Considering currency risk, I sometimes think about the difference between Vanguard's VAFTGAG mutual and their VWRP ETF. The former is global and the latter is developed world, but another key difference is that the global fund is traded in GBP and world is USD. I find this interesting to think about because stock performance and currency performance are both factors that should be considered for growth and stability.

[@twig3288]

Reviewing your coaching service T&C's I notice that the Limitation of Liability and Indemnification conditions are quite onerus. Would you consider toning them down a bit?

[@johnscully9328]

Hi Raman - in the UK I feel we have poor access to bonds other than through a fund or through gilts, and its difficult to learn and understand about them and that there are two fundamentally different approaches to using them, which I would describe as 'the certainty method' i.e. hold to maturity e.g. bond ladder, and the 'uncertainty method' i.e. bond funds and not holding to maturity. These two very different approaches are often both described as investing in 'bonds' but can have very different outcomes. You may have covered this topic already and I have missed it (sorry), but if you haven't I think a lot of UK based viewers would find it very useful. Bad analogy: Bonds are a tool, and there is more than one way of using them, just like you can use a screwdriver to open paint cans and tighten screws 😊

[@laarm888]

I would also love to see a video about this. I went for a gilts ETF out of convenience but I’m not sure that was the right decision - does it matter in the long term? Fund/ETF vs individual gilts or a ladder?

[@jauld360]

@@laarm888 Totally different beasts. Search for "Sterling Non-Gilts Over 15 Years ESG Screened Index Sub-Fund" as an example. The FT site shows a graph; look at the performance over the last three years. If you buy gilts and hold to maturity you are essentially guaranteed to receive the coupon price and the yield to maturity is knowable. The outcome is not predictable with a fund or ETF.

[@Pensioncraft]

Hi @johnscully9328 I have produced videos about bond ladders, bond funds, etc. Here is my playlist for Bonds and Money Market Funds kzbin.info/aero/PLlqeAQqQK7TfsDjD20MjQ50-YjDuKGiM7 Thanks for watching!

[@johnscully9328]

@@laarm888 Yes, they can have very different outcome as far as I understand. I read "The Sterling Bonds and Fixed Income Handbook" which explains so much and gave me the confidence to make my own investment decisions

[@user-sm9ms6yw9p]

Thanks you

[@Pensioncraft]

Thank you too! @user-sm9ms6yw9p

[@scut92]

Really great content to be flagging up an avant-garde investment strategy like this. I've gone on to read the paper and do find it a very interesting read.

[@Pensioncraft]

Glad it was helpful! @scut92

[@seanbyrne2220]

Really good video.

[@djayjp]

Wonder how these strategies (and the results) compare to the Sharpe and Sortino ratios...?

[@monabri7387]

As soon as the words "Monte Carlo" are mentioned then you know it is all a complete guess (GIGO) and the reliability of such techniques goes through the window.

[@MattMcQueen1]

As someone who has lost part of my pension fund in the past few years, due to it being invested in a lifestyle fund (at my age, over 60% of the fund was in bonds), I tend to agree with Vanguard. At least, about not investing in bonds. Financial Advisors routinely describe lifestyle funds as moving your money into safer investments as you approach retirement. This clearly isn't true. However, stocks are rather volatile if you are, say, five years from retirement. I'm not sure what the solution is - I wouldn't like to risk a 50% loss in my fund just before I retire.

[@djayjp]

Consider that your retirement period could last 25+ years and imagine one of those 50% equity crashes during that period and being forced to sell in that state.

[@MattMcQueen1]

@@djayjp Yes, that's the problem. However, bonds aren't the solution, since they can also crash (as they did not so long ago).

[@stevegeek]

You could hold say 3 years worth of cash and perhaps some gold, rather than bonds, as a safety net to allow equities to recover if there's a crash. Having said that, I understand the combination of factors that led to the recent bond crash was unusual and unlikely to happen again any time soon. For that reason I now have some of my pension in gov bonds.

[@kimwarburton8490]

im thinking REITs and/or 1-5years living costs in cash ISA or limited withdrawal high interest savings account instead of bonds. Another is dividend bonds, but i dont like that the dividends can stop suddenly and nor do the stocks grow at same rate

[@stevegeek]

@@kimwarburton8490 I've considered REITs (for their good diversification) but most that I looked at had very high ongoing fees (1%+).

[@jonroberts2820]

Isn’t this approach driven from the historic strategy to buy an annuity at the point of retirement and thus “cash in” the entirety of the pension at a single point in time. This would of course make you very sensitive to a price drop.

[@fredatlas4396]

That's why you need more bonds closer to retirement if you're are planning to buy an annuity. That's usually what these default lifestyle funds are aimed at. They are supposed to be aligned to the annuity rates, so as to try and maintain your annuity income you receive. So now the bond part has tanked, but you can now get say 6% annuity rate at 65 yrs old to compensate for that. If the scenario was different and equities tanked the bonds would rally as interest rates went down to help boost the economy, as they did in 2009. Bond prices go up when yields go down and vice versa. And because equities usually go down a lot more than bonds in a crash so the bonds would help protect your portfolio in that situation. And now bond yields are up quite a lot so bond prices down significantly. So in the future these government bonds should work well with equities to protect your overall portfolio.

[@barryallen9635]

I also wondered if it is a domestic/international split for UK investors or if the findings were more to do with the US/ international proportions due to the US market being the most dominant. I don't have the knowledge however it would be interesting to see if the same back test could be run on funds based on a 25% UK bias (like lifestrategy 100%) vs 50/50 US/international developed markets Vs the same 50% split but global Vs off the peg developed markets funds but 50/50 US/UK hedged (to see if it's more currency effect) and the same but for global funds. Pity we in the UK can't just buy a world ex US fund like in the US to make it much easier to adjust the US percentage. Anyway, thank you for sharing Ramin.

[@barryallen9635]

Sorry for being a little late in viewing this video and apologies for any misunderstandings. As mentioned in the comments vanguard lifestrategy 100% has a home bias of around 25% and is much maligned but would it potentially work based on the papers findings? Or would UK investors require more or less based on using say l&g international trust (ex uk) matched with a certain home bias percentage FTSE allshare fund/etf? Or is it better for the UK just going for VWRP (no home bias but more globally diverse)? Or does having a developed world (no emerging markets) portfolio with a UK bias appear better due to developed market currency exchanges? Very interesting however lots of questions to understand it a little better. Thank you for sharing.

[@george6977]

Advisers recommend holding some bonds so that clients are not tempted to sell stocks when they decline 50%, but they know 100% stocks produces the best return over the long term.

[@johnristheanswer]

Knowing something and acting on it are two different things.

[@XORTION]

What happens if you go towards bonds and miss out on a stock market rally.. swings and round abound 😊

[@AlessandroBottoni]

Very interesting paper and excellent video. Congratulations!

[@Pensioncraft]

Thank you! Cheers! @AlessandroBottoni

[@rafaelf6994]

brilliant Ramin !

[@Pensioncraft]

Thanks @rafaelf6994

[@yourcheapdate4564]

nice video, I like the international diversification aspect.

[@Pensioncraft]

Glad you liked it! @yourcheapdate4564

[@kevinu.k.7042]

Great video. I have retired and currently don't take an income from my investments. I have some 20% of my funds in the money market. I am giving consideration to having 100% in lower risk index funds. It does not make sense to me that a retired person does not want to grow their investments at the best rate possible. After all I am looking toward building a legacy for those who come after me. So - This Vanguard paper seems wrong footed to me.

[@Pensioncraft]

Hi @kevinu.k.7042 the paper wasn't by Vanguard it was "Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice" by three academics. I don't think it means everyone should switch to 50% domestic US stocks / 50% international stocks in the US. I think it shows that that strategy has historically produced better outcomes in retirement i.e. it's an empirical observation. Whether people would have the risk appetite for that kind of portfolio is what I'd doubt. But I find it fascinating because it runs contrary to what I've believed and contrary to many of the assumptions built into many financial products and adviser portfolios. I thought it would be worthwhile sharing my thoughts about it. Thanks, Ramin

[@kevinu.k.7042]

@@Pensioncraft Thanks for coming back Ramin. Understood and thanks for the correction. I do hope you will do something for investing after retirement at some point. Currently I have been broadly following your information and it is yielding good results. Just I switched out Vanguard World for iShares Edge World Quality for 50% of my portfolio of three ETf's. Thank you to you and the team for all of your hard work.

[@davem.4003]

There are contradictory statements in your comment: you don't understand why a retired person wouldn't want to grow their funds at the best rate possible, yet you have 20% in the money market and you are considering lower risk index funds, which won't maximise growth. This sounds like a defensive approach. If you don't need to take income then a) you are very fortunate and b) you may be able to accept greater risk and volatility than most pensioners but if you also wish to maximise the wealth that you pass on, then unless you have some certainty over your own longevity (that in itself would be worth a fortune) then you will also want to reduce risk and volatility in order to ensure that, when the time comes, your beneficiaries don't suffer from inheriting in the middle of a major slump in your investments. Wealth preservation becomes a higher priority than growth. Investing during retirement is complicated!

[@kevinu.k.7042]

@@davem.4003 Thank you for posting a reply. No, no contradictions in my post. I am considering changing my position. Low risk Index funds for me are things like Developed World ETFs. 'Buy and stay'. Rather than active trading and trying to beat the market. Yes, it is complicated and though I have the mechanics of the matter I have not been around long enough to gain the market experience I really need. Graphs of previous performance are not quite enough. I have taken your advice on board and will consider it. Thank you.

[@jacc88888]

I’m presuming a 50/50 domestic-international allocation wouldn’t work for U.K. citizens? Eg Vanguard the LS100 fund has about 25% in U.K. equities but this fund has already been maligned by the majority of KZbin finance channels I’ve seen because they all say investing in the U.K. is a bad idea and 25% is far too high a proportion.

[@jmcmob608]

Thank you very much...

[@Pensioncraft]

You're most welcome @jmcmob608

[@djplt1240]

Viewing this with the risk/return model, does this mean the risk/return on bonds/stocks and their correlations look different depending on your time frame? So stocks have a high risk month to month but decade to decade they have a lower risk. The correlation/ covariance of stocks/bonds is positive over there long term, so over long time periods combining them gives you a lower return/risk ratio.

[@dontuno]

Pretty much as I suspected and to be honest I had formed the opinion that the strategy approach was somewhat guarded given even in retirement one might have another 20 or even 30 years to invest. Actuaries would suggest a life span of circa 85 for men and that's nearly 20 years of investing whilst in retirement!. My approach is now fair and square index funds and whilst interest rates are still good, a fair slice of the pie is in cash.

[@spartacus4929]

Absolutey, equities and cash is the way.

[@lesterlau2011]

What about the standard deviation of the stock portfolio. I am thinking it should be on average better return, but the extreme returns also come more than u holding bonds

[@djayjp]

Yes this is what I'd like to know too.

[@user-el2dn4zz3d]

Hi Ramin, fine work!! So it’s a passive global index, who knew. These lifestyle type funds are outdated and geared towards buying an annuity at retirement. With pension freedom now it makes sense to be in 100% stocks and remain invested throughout retirement.

[@davem.4003]

😊Yes, if you choose drawdown over an annuity but annuities are now more cost-effective than they have been for many years. The majority of ordinary people (i.e. excluding Ramin's audience) would still probably prefer the guaranteed income of an annuity over managing their own investments and drawdown.

[@Bryanj869]

Financial planning is like navigation. If you know where you are and where you want to go, navigation isn't such a great problem. It's when you don't know the two points that it's difficult

[@JohnHogan197]

Now with the recent economy, To get Financial FREEDOM you have to be making money while you're asleep.

[@boombustinvest]

Only see bonds as worth holding when they are behaving in 'uncorrelated' mode to stocks which they have just about returned to since the Fed announced rate cuts were on the cards. Bonds for me are now a decent asset allocation choice and should do fairly well as rates come down over the coming years.

[@suresureYT]

VWRP all the way then! :)

[@Englishman-Abroad]

Ha ha ha😂. I guess I’m just unlucky. My returns have always been lower than inflation. UK bonds have dropped around 30% since 2020.

[@kyungshim6483]

As an early retiree (retired at 43 back in 2019), I only hold a small amount of cash for daily expenses and only about 8% of portfolio in cash equivalents. The rest is in stocks (most of which are high dividend yielding and/or dividend growers). I am managing to reinvest the bulk of those dividends each year. My plan at 65 is to hold only 5 years worth of expenses in cash equivalents and the rest in stocks (again dividend payers). The reason is exactly what is mentioned in this video. The average lifespan is about 85 years which gives another 25 to 20 years of investment returns. Why put 40% or more in bonds? That doesn't make sense.

[@davem.4003]

It doesn't make sense for you because you have the confidence to manage your own investments. You are very much in the minority with your level of confidence, experience and ability that allows you to retire at 43 and to continue living entirely on your investment income.

[@jenny01317]

One reason: risk which will become apparent mid this year

[@spartacus4929]

Couldn't agree more, stocks all the way provided you have self control and discipline (and a cash buffer for down times) well done for what you have achieved so far.

[@timetraveller3063]

Buffett advises 90/10 Equity to short term bonds....and apparently it holds up

[@jeffwicklund9643]

waste of time like any invester does not know this

[@timetraveller3063]

@@jeffwicklund9643 that's just your opinion like..

[@dave8204]

@@jeffwicklund9643 I think it's fair to say that Buffett has done quite well our his investing strategy but I'm sure he'll read your comment and realise that he could have done better.

[@robweinberg9396]

as aconcept, not as a rule. remember warren has always looked for opportunity when to and when not to

[@johnhaug1747]

Hmmm, need to consider the idea that bond rates were unfavorably low from the 2007 Great Recession until recently. Only folks with a huge amount of capital could afford to place monies at 1% or less. And those folks already had enough money to retire. Believe this period 2007-2021 of near zero bond/bill yields forced many folks to invest in the stock market to get better yields.

[@bultvidxxxix9973]

The data sample should be big enough that the recent past doesn't effect the outcome: "These data include monthly real returns for domestic stocks, international stocks, government bonds, and government bills for 38 developed countries. The data cover the period from 1890 to 2019, but the sample periods for individual countries vary based on data availability and the timing of economic development (i.e., a given country is included in the sample only for the period after it achieves developed status)." However older data has other problems. That data includes periods where the gold standard was still active and central banks didn't (and couldn't) act the way they are doing now and probably will in the future. But there's really nothing you can do about it, sadly we have just one past to look at.

[@Radictor44]

I'd say transitioning majority weighting from stocks to bonds over time and age is wrong. Look at the bond market crash with the Liz Truss gov, a lot of people would have lost money in the bonds market due to the sudden crash. Yes, bonds are "less risky", it does not mean there's no risk. I'd hover around 50/50 as you get older, and weighted higher in stocks when you're younger.

[@martindimbleby1439]

Hi Raman, if you can access either a hedged and unhedged passive 100% global stock tracker in your pension, which should a UK person choose? Do you have a video on this topic? Thanks

[@mk91-vz1oj]

Unhedged but gbp denominated, for fixed income get hedged

[@martindimbleby1439]

@@mk91-vz1oj thanks but why is that better?

[@danguee1]

I'm hoping to have enough at retirement that a 2-3-5 year depression of stock values won't much affect me or my spending. But I also know that I can tighten my belt more than significantly and actually feel little impact on my quality of life. Cutting your cloth when things go a bit belly-up can soften the impact on your retirement savings...

[@pistopit7142]

Looks like there is less and less reasons to ever hold bonds. I think that investors who decided to keep their portfolio at 100% stocks alocation, should still consider temporary bonds/cash allocation as they get closer to their choosen retirement date and in the first few years of retirement. This is necessary to avoid sequence of returns risk.

[@sid35gb]

Bonds are for short term 2-5 years in retirement you’d use them to fund retirement when equities crash so you’re not forced to sell off equities at a reduced price. Hence the big deal about mitigating sequence of returns risk.

[@fredatlas4396]

It looks like we have been in a bull market for bonds for about 30 yrs long. So bond prices were in effect at record highs. So when inflation started to rise rapidly bond yields went up a lot and so the value of the bonds went down a lot depending on the bond duration. But it appears bond prices are significantly lower now and yields higher so bonds should work better now at providing downside protection, reducing the standard deviation and recovery times when stocks crash or go down significantly just like in 2009

[@BaileyMxX]

Just have a few years retirement savings in cash, only to be used in the case of a recession, if none then continue drawing down equities, if a recession comes hold out the storm with the cash

[@spartacus4929]

But bonds may crash as well, cash doesn't, setting aside inflation hit @@sid35gb

[@brianmccorry9186]

So William ("When you've won the game, stop playing") Bernstein is wrong?

[@rickdunn3883]

What about a mix of equities and bonds, was that in the paper? What about Modern Portfolio Theory?

[@goldkirby]

That was the target date fund; 50/50 stock/bond allocation by 65 In an interview with Scott, the writer of the paper, on Rational Reminder, he said that anytime he introduced bonds into the portfolio, it ended up with worse performance

[@helixvonsmelix]

with the 50/50, was the 50% US finds the same used in the 100% US?

[@jamesgiles2676]

Hi Ramin, last year I gathered together my various investments, and on the advice of family, went with St. James Place. Since then, I've been educating myself through videos like yours and discovered that I've made a big mistake. Is there any advice you can give on getting out of for e.g. St. James Place, and avoiding their big penalty charge? Best regards.

[@BaileyMxX]

There was an article about St James Place on this is money the other day. "In October, it was forced to overhaul how much it charges customers after years of accusations that it was operating an unfair fee structure. It will scrap exit fees for new bond and pension investments for the 'vast majority' of accounts. The move is set to cost the group around £150million when the shake up comes into effect in 2025" Might be worth looking deeper into as might help your situation

[@kw8757]

Do you feel you were mis-sold? Did you fully understand the fee structure when you signed up? It might be worth putting your concerns to the FCA. My mum was mis-sold a corporate bond ISA which was totally unsuitable for her, we took it to the FCA after the Halifax rejected our claim that it wasn't suitable for her risk profile, the FCA upheld her claim and awarded her the full amount of initial investment (which had fallen in value), simple interest on the capital for the time it was invested and she kept the income from the bond for the time it was invested. All in all she did very well. I've nearly always had good service from the FCA. Good luck.

[@mk91-vz1oj]

Turns out investing in a bond with a duration of 10 when yields are at zero is not low risk

[@giuliotoffano4763]

Strange light.. very sci-fi... Maybe we should interrogate ourselves about the color of the light as for the color of the tie of jay powell 😂

[@MattieGorman]

I am 50 years old If I was to put £50-£100k in a index fund what sort of returns could I expect?

[@helixvonsmelix]

The VUSA KIID says its in USD!??

[@jimbojimbo6873]

Investing in bond funds just seems like nonesense, the liquidity issue negates any benefit for me.

[@cb7560]

Excellent video. Weirdly, I have followed something akin to this strategy for some 20 years with what is now my SIPP, mainly because I never could fully understand the bond market, and did not like the UK Gilt ETFs. I had a 100% share allocation in a global EFT - now Vanguard VWRG. Thinking that was too risky, I've recently put 15% of my portfolio in a minimum volatility EFT, so still 100% equities, but trying to de-risk. I'll have to read the paper. Thanks!

[@paulturner4419]

I think this kind of historical back testing is basically worthless going forward in time. Would they have come up with the same strategy in 1950, 1970 2000, 2010?

[@andyasia]

I never bought into the nonsense that bonds for retirement made sense except if you look at it from the point of view of a defined benefit pension scheme paying out known amounts to people over a relatively short period of time and at a point in history when people would be retired for only a few years before death. To everyone else, it makes no sense.

[@spartacus4929]

Correct, if you have a DB pension then the case for bonds alongside this is very tepid.

[@paulbo9033]

There is nothing new in this study. Leading investors like Lynch and Buffet have been saying this for decades. The problem is that the wider industry has come to confuse "Risk" with "volatility" - they are not the same. Stocks are labelled as high risk when in fact buying a cross section of stocks is one of the most riskless decisions you can make. They are however, volatile. And Bonds are not low risk either, you can lose plenty of money on bonds.

[@josepha9313]

Might be better off in stocks. If you jack up your income with bond and money mkt funds you're just getting a higher tax bill. Well, no one invests based on taxes but it's worth thinking about if you're in retirement. Stocks don't get taxed until you sell, assuming a capital gain.

[@James-zu1ij]

My 61 year old Ex is as poor as can be, but has managed to save £40000 in an ISA. I recently moved this for her from A Barclays ISA at 1.66% to a Postoffice ISA, 2 years locked at 4.8%. She is hyper cautious, but im thinking I should have opened a SIPP for her. My thinking is that once the 2 years is up, I can put £3600 per year (earnings may be below tax threshold) into her SIPP and claim tax relief. Am correct in thinking that if she does pay tax, she can put the whole £40000 in and get the tax relief. What would be the best choices for her do you think? Im thinking 1. minimal risk 2, compounding interest, beating inflation or thereabouts, for a good 7 years. Its the only money she has; i dont want to put it at risk.

[@munhl]

What's her salary? l don't think she can put more in a SIPP, than she earns in a year, unless you claim allowance for previous years. You could put some of the money in the SIPP before the end of this financial year and the start of the new financial year. Also, if this is all she has, might want to separate maybe 3 months worth of living expenses and put in to an easy access savings account that pays out monthly interest, as an emergency fund.

[@James-zu1ij]

About £12000 - £13000 a year, and you are right. I also put £10000 into an accessible cash ISA or her. I just need advice on extracting the maximum out of the government in tax relief including investing preferably beating inflation. I just want to enable her to eat, put the fire on and pay her bills when shes 67.She may not even get full state pension, but I did manage to buy some years to maximise her state pension.@@munhl

[@davem.4003]

Search for "sipp pension contributions limit" for full details. For someone with no earned income, the contribution limit is £3600 including the tax relief, so £2880 plus a 25% tax rebate. If you earn more than £3600, then the annual limit is 100% of earnings. Remember that SIPP investments can only be accessed from age 55 (rising to 57 in 2028) and there is very little to choose when withdrawing funds, between an ISA (where withdrawals are tax free) and a SIPP, unless the SIPP drawdown, plus earned income, is mostly within the personal allowance. Another thing to check is whether it would be worthwhile paying NI contributions in order to boost the state pension when it becomes due. You are normally only allowed to pay NI for the previous six years.

[@anjux3673]

As I approach retirement, I’d be interested in what you and others think of what I intend. I’ll be looking at approx 50% ETFs (VEVE, VUKE, VUSA or similar), and then 50% best quality dividend stocks I can find. The idea is not to hold bonds, benefit from market growth during good years, but still have dividends for the lean years…I realise I’d have to watch the dividend stocks carefully.

[@kimwarburton8490]

Im only starting out, but i've been thinking that instead of bonds or dividend stocks, i might go for REITs, or just have 1-5 year's worth of living costs in a cash ISA/high interest acc as my buffer. Im torn between n might do both. I also know that 2% of my intended pension pot would suffice to meet my needs if necessary, if i reach my goal.

[@anjux3673]

I have one REIT but worry that commercial property is experiencing a dip, with rapid changes in building regs and materials, I also worry about the attractiveness of older properties for rental.

[@kimwarburton8490]

@@anjux3673 offices and shops, yes due to everything moving online, and maybe student housing due to cost of living. The strongest from what ive gathered to date is warehousing, at least in uk (big box was named, amazon pays rent to them). but im still in the research phase and havent committed. Again diversity of type and a global approach is recommended. I havent yet seen a REIT which does this that is accessible within my Trading212 S&S ISA

[@davem.4003]

While you are currently still relatively young and you have a great interest in actively managing your investments, you may find that, as time progresses, you no longer have the same keen interest in self-managing your pension and would prefer a simpler, unmanaged (by you), solution.

[@kimwarburton8490]

@@davem.4003 speaking for myself, im a cheapskate XD not gunna pay anyone to manage my money. At best i'll get the odd financial advisor appointment and pay them per job. Fees are the only thing we CAN control :D

[@mmabagain]

When interest payments drop, I will go to stocks and MM instead of 100% MM I have right now.

[@jan2000nl]

If interest payment drops wouldn’t it late getting into stocks as they would already be priced upwards?

[@mmabagain]

Probably yes but that should be at the beginning of an upward trend. As a retiree, I won’t invest heavily in stocks anyway.

[@on_the_mooch2708]

Are you saying to buy more bonds over equity only when younger?

[@Pensioncraft]

Hi @on_the_mooch2708 this is not my opinion or advice, in the video I discuss the results of the paper "Beyond the Status Quo: A Critical Assessment of Lifecycle Investment Advice" which suggest that bonds aren't necessary at _any_ stage of lifecycle asset allocation. International stocks produced a better average outcome for investors than stock/bond portfolios. Personally, I don't think this would be appropriate for many people because the portfolio will be very volatile. But I think the backtests are fascinating as they fly in the face of so many products and accepted wisdom amongst advisers and investors (including my own beliefs!). Thanks, Ramin

[@kevinu.k.7042]

Other way around.

[@jan2000nl]

I think the paper Ramin is referring to suggests Diversified Equity at what ever age. But as others have suggested perhaps a limited money market fund close to retirement to manage sequence risk.

[@culmore170a]

With the low interest rates how can bond makes sense? Worse when interest rates rise bonds fall. Disaster. It was a dogma.

[@daverichardhadley]

If I understand correctly, "Domestic Country" in this paper does not specifically mean US. It means a generic domestic country as simulated by the MC model. So, if the model is correct, the conclusions apply to all investors in all countries, not just the US. Given that, a more shocking conclusion than 100% stocks beating a target retirement date fund, is that a 50-50 domestic-global weighting seems to be preferred. That's fine if your home market is the US. That's quite a deviation from market weights if you are a UK investor.

[@onehiccup]

I've not read the paper, but in order to produce the statistics, surely the researchers would need to select a country/region for the domestic part, which in this case does sound like the US.

[@daverichardhadley]

@@onehiccup no. The block bootstrap Monte Carlo method uses historical returns from many countries to generate new returns sequences for simulated countries.

[@larsenb4803]

The reality is the average person through their retirement doesn't spend the majority of their investments, they'll spend 20% maybe. Say that person retires at 60 and dies at 90... that's 30 years! That's long term investing so why rush to buy bonds as they approach retirement? It sounds sensible in theory but for most people the perceived wisdom of de risking isn't the way to go and they're better off keeping their money in equities.

[@person.X.]

I have always been skeptical about bonds because they seem so vulnerable to inflation and it looked like interest rates were already as low as they could go. However about three years ago I upped my allocation to 30% bonds as I will retire in a few years and wanted to reduce sequence of returns risk. It was the worst possible timing of course! 🙄 However despite that the SoR issue is still a serious one. Maybe cash would be a better option?

[@shellyperera2010]

Yes our plan is to save 2 years worth of cash for first couple of years of retirement. I don't understand bonds apart from low coupon single gilts which seem a good option for CGT free gains outside of an ISA.

[@person.X.]

@@shellyperera2010 I think this sounds like a good idea. Have a couple of years or so of expenditure in a cash "bucket" to prevent the need to sell equities in a bear market.

[@theboltonradiocorp]

So you're saying Vanguard has got it wrong because this paper calls for 50% domestic exposure - whereas LifeStrategy only has a 20% UK domestic exposure?

[@boyasaka]

I don’t have any bonds Their very poor I have 100 percent stocks And stopped my pension provider slowly moving from stocks to more bonds Im stocks all the time And if they is a crash in stocks They will reviver within a few years Even when I retire I’ll have my pension left in 100 percent stocks I’ll draw 25 k a year And if the stock market drops and my pension pot drops I’ll just keep drawing 25k a year and within a few years the makert will go up Eg I’m all stocks my pension went up over 2 percent this week was 104k on Monday 106 k today My woke college whos is same pension but chose low risk ( 80 bonds 20 percent stocks ) His pension has went up 0.1 percent this week

[@GavinLawrence747]

How's Laura's Nvidia position looking ? 😁

[@Pensioncraft]

I'm very happy @mccready7479 I should start my own channel :-) Thanks Laura

[@apc4884]

Wouldn't go near Vanguard since they refuse to allow their US customers to invest in the Bitcoin ETF.

[@neilcook1652]

😂

[@apc4884]

​@@neilcook1652 jokes on you. You've probably spent zero time educating yourself on it. Sure, get left behind. Talk to me in 5 years.

[@neilcook1652]

@@apc4884 😀😀😀

[@MagicNash89]

The "from 1900" comparison problem is that the so so many things were different in 1900 than is today and expected to be in the next decades. I disregard this, past performance during times of high birth rates, high growth and different geopolitical challenges does not guarantee future returns. These numbers are not very useful.

[@Pensioncraft]

Hi @MagicNash89 I agree with your point about returns from 100 years ago, but at least this is a properly structured back test i.e. it's better than an opinion without a backtest. I think what's interesting is how using long-term returns rather than monthly returns came up with different results for the optimal asset allocation. I suspect a shorter back test period would have come up wtih similar results, but then you run into the problem that if you're using 30 year periods then there aren't many 30 year periods since 1970. Thanks, Ramin.

[@MagicNash89]

@@Pensioncraft Yeah, you're right, backtesting is definitely worth it, I'd still rather just own a diversified fund, preferrably by assets class, but at least by country and sector if its only stocks regardless if backtesting showed it not be as good of an idea.

[@fengjikangqiang]

Why not buy blackrock instead which also own vanguard n just about everything old n news

[@chrish3305]

🎉👍

[@djayjp]

Americans realizing being the reserve currency isn't such a great thing after all 😂

[@thane816]

My vanguard REITs index fund is 25% down. Never will buy an index fund again!

[@fredatlas4396]

@thane816 Nothing to do with the Vanguard or index fund. You just chose the wrong index. Perhaps you should just wait for it to recover. You only lose money if you sell at a loss

[@thane816]

@@fredatlas4396 Thanks for the feedback. I hope there will be rate cuts that will help recovery in the fund. I hate these painful lessons.

[@skmirch]

Or when people start getting back to the office

[@thane816]

@@skmirch By that time, we'll all by replaced by AI. haha

[@roakes1956]

This is not such a new idea. The reason it is finally getting some attention is that the traditional model is failing the empirical test applied to a generation of retiring baby boomers...

[@bluegtturbo]

If you're nearing retirement you really don't want to be heavily into stocks because a market crash can take 15 years to get back to where it started even discounting inflation. Nobody wants to lie awake at night worrying about losing their investment. There's no such thing as a free lunch!

[@dubsdolby9437]

Dont be a vanguard muppet 😁 there's plenty of better performance funds out there do your homework.

[@kabhussain3113]

Like?

[@dubsdolby9437]

@kabhussain3113 like I said do your homework 👍

[@jonandrews3528]

VXUS - Vanguard Total International Stock Index Fund ETF Shares V SPY. SPY appears to beat VXUS ALL THE time since 2013