Chasing Cars
I once had a 4.2 litre XJ6.
It cost about as much as a second-hand Cortina but magically commanded effortless respect. It was fast, comfortable and I managed to resist the urge either to get a sheepskin coat or join a golf club and quaff pink gins at the 19th.
‘Well, it takes a rich man to own a Jag’ said a friend as we stood admiring the beast ‘and a very rich man to own an old one.’ True words unfortunately. Never mind that as the speedometer climbed so the fuel gauge dropped at pretty much the same rate, almost every day something else fell off.
I was pulled over and had to take around a mile to come to a halt as I didn’t want the officer to notice that that day’s fault was the brake lights. In the event he had enough already - I’m sorry to stop you Sir; I was concerned that you were about to reach escape velocity and that your friends and family would be distressed if you became visible only with the aid of a telescope and then only when your orbit coincided with them being bothered – I accepted the fixed penalty, guessing that telling him the speedo had stopped working three weeks earlier and, given that I was estimating my speed from the rev counter, to be within 25mph was actually pretty good would not help my case.
We like going fast, even if we know there are fewer and fewer opportunities to do so. Tesla released an ’insane’ mode for their S model which takes the large 4-door saloon from standstill to 60 in 3,2 seconds; this has since been updated to ‘ludicrous’ mode which reaches the target in just 2.8 seconds – that’s quicker than all but a very few motorbikes let alone a car that will seat seven people, admittedly only if two are imps.
Of course in the real world unless you’re a drag racer 0-60 times are pretty irrelevant, it’s the 40-60 figure that will give you an idea of whether you will be able to nip past that truck safely. And it’s the 60-0 number that will tell you just how near that miss was.
In the pensions world speed is also important and it’s the 65-95 figures we tend to focus on. Drawdown on your pension too quickly and you’re likely to spin out of control long before you hit 95.
Markets are volatile but the good news is they recover – especially if you have a balanced portfolio. This is great news for anyone saving for retirement. If stock markets fall tomorrow IT DOES NOT MATTER! As long as you’ve five or so years to retirement you can relax, it will recover and in the meantime any new money you’re squirrelling away will be buying shares at a lower cost, so they’ll see a boost from the recovery.
The problem comes if you are drawing money from a portfolio. Money taken out when a portfolio is depressed never has the opportunity to recover – the losses are crystalised. This can decimate retirement income portfolios and is seldom taken into account by income modelling software, which tends to assume markets produce nice steady returns. Assuming consistent market returns is a bit like using the rev counter to judge your speed. It works tolerably well much of the time but it can get a bit complicated when you aren’t really sure which gear the auto-box has decided you’re in – or where in the business cycle we are.
What’s needed are retirement income strategies that take account of market volatility, managing the tension between the need for long-term real returns that are delivered by stock markets and the desire for a stable, reliable income source. Once you are drawing income from your portfolio, the underlying income strategy is likely to have at least as great an effect on your future wealth as the investment strategy.
The good news is there are a range of such strategies to help people better manage their retirement assets and overcome the behavioural biases that tend to make us either spend to quickly or avoid using our savings.