When looking for a ‘Steady Eddie’ approach to long term savings or investing for retirement, most folks chose a mixed asset fund* which contains a mix of equities (i.e. stocks or shares) and bonds (i.e. government/corporate) and traditionally this conservative strategy often followed the 60:40 rule* in terms of allocation to stocks and bonds respectively.
*These mixed asset funds can also include a mix of other asset classes in some instances e.g. cash, property, commodities etc but these are usually a smaller ‘defensive’ portion of the fund strategy.
So today we ask the question?
Should your pension investment fund be in shares exclusively rather than bonds….and other ‘safer’ assets? Who has been the best equities-focused fund over the last 10 – 15 years?
Get your own pension review by using the online form below
You can choose to get a review on an existing pension and/or enquire about setting up a new plan.
Compare the above to a more general mixed asset fund performance over the same period
Does the 60:40 – stocks to bonds – ‘rule’ make sense for you right now?
The usual 60:40 allocation between stocks and bonds by age up until retirement is a general guideline used by many financial advisors and investment professionals.
The idea behind this allocation is that younger individuals with a longer investment time horizon can afford to take on more risk by investing a larger percentage of their portfolio in stocks, while older individuals nearing retirement should have a more conservative portfolio with a larger percentage of bonds to protect their investments from market volatility.
Here is a table showing the typical 60:40 allocation between stocks and bonds by age:
| Age Range | Percentage in Stocks | Percentage in Bonds |
|---|---|---|
| 20s | 80% | 20% |
| 30s | 70% | 30% |
| 40s | 60% | 40% |
| 50s | 50% | 50% |
| 60s | 40% | 60% |
It’s important to note that this is just a guideline, and individual circumstances may vary. Some individuals may choose to have a more aggressive or conservative allocation based on their risk tolerance, financial goals, and other factors. It’s always a good idea to consult with a financial advisor before making any investment decisions.
The Past Performance Heuristic Folly
You might well feel under a propaganda pump with the repeated warnings re ‘past performance not being indicative of future outcomes’ messaging but however not only are we subject to those regulatory requirements, it behoves any ethical financial adviser to parse what might seem like an obvious investment thesis predicated on past performance with due care and attention to a client’s goals (and needs – which may be a confounding input into an investment decision).
Bond yields generally underperform equities
This may not have been the case in 2022/2023 albeit!
| Country | Bond Yield (2010) | Bond Yield (2011) | Bond Yield (2012) | Bond Yield (2013) | Bond Yield (2014) | Bond Yield (2015) | Bond Yield (2016) | Bond Yield (2017) | Bond Yield (2018) | Bond Yield (2019) | Bond Yield (2020) | Bond Yield (2021) |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| US | 3.29% | 2.89% | 1.78% | 2.98% | 2.17% | 2.27% | 1.83% | 2.41% | 2.69% | 2.07% | 0.91% | 1.57% |
| Germany | 2.95% | 2.98% | 1.48% | 1.93% | 0.95% | 0.60% | 0.19% | 0.44% | 0.59% | 0.00% | -0.37% | -0.24% |
| France | 3.31% | 3.18% | 1.98% | 2.25% | 1.26% | 0.75% | 0.18% | 0.77% | 0.89% | 0.12% | 0.06% | 0.07% |
| Italy | 4.17% | 6.67% | 6.05% | 4.16% | 2.52% | 1.56% | 1.89% | 2.01% | 2.71% | 1.45% | 0.54% | 0.67% |
| Spain | 4.02% | 5.48% | 5.30% | 4.24% | 2.62% | 1.68% | 1.40% | 1.45% | 1.63% | 0.45% | 0.15% | 0.30% |
| UK | 3.65% | 2.95% | 1.95% | 2.99% | 2.12% | 1.69% | 0.89% | 1.17% | 1.41% | 0.81% | 0.20% | 0.83% |
Final thoughts…and action point
We are living in somewhat strange and uncertain times (but was it ever otherwise??). With the benefit of hindsight equity funds blew the roof off over the last 15 years or so but not so much in the last couple of years as inflation reared it’s ugly forgotten head.
If you would like a quick check of your own personal pension, just contact us below and we can do a no-obligation quick review of same. Of course if you would like to start a pension, you have come to a good place too.
