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Chapter 1: What is the main topic discussed in this episode?
Just quickly before we get into the episode, at the minute we're really trying to understand how people in the UK are saving for their futures. We hope that we can turn it into something really useful, maybe a rapport or a video on my channel. We'd love your input, it would take about five minutes, it's completely anonymous and if you're up for it you can find a link in the description.
Look, I know how equity works. There are periods of incredibly good returns, but then you get these 40% peak to draw falls. I know it will happen. I don't know when.
Ramin Nekisa from PensionCraft is back. Like me, he's spent years explaining why investing 100% in global equities works. But recently, he's changed his portfolio, cutting his exposure by almost half. What changed? And what might make him change his mind again?
There are certain things which are toxic for bonds and equity. What worries me is that these kind of situations where we get inflation spikes seem to be becoming more frequent.
How have you worked out that number? But I really want to ask you is how have you worked out what you want in life? Because I'm still trying to figure that out myself. And it's like, give me some wisdom, please. So a bit like me, your philosophy, as far as I could gather, was always 100% equities. But you've recently changed that.
And that's the reasons behind that, what we're going to go into today. I want to ask first of all, though, what was your justification for being 100% equities up until this point?
Well, I think a lot of the research I did just showed that equity just does really well if you're willing to hold it for the long term. So I think I was pretty cautious when I started investing and then I moved towards 100% equity eventually because the stats are just overwhelmingly impressive. If you look at its returns above inflation, it's what, 5%, 6% over the last 120 years.
This is the Dimson Marsh Staunton numbers. So I just thought, well, I just want the extra return. I'm comfortable with the risk. I don't need the money anytime soon.
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Chapter 2: Why did Ramin Nakisa change his investment strategy?
So I just thought, yeah, that would make it really simple as well. Because I had a member of my community who said, look, you've got these different regional allocations. Because when I first started, it was just, you know, really complicated, my portfolio. And he said, look, what's the point? You could have done something much simpler. and probably got better returns.
And I realized he was right. So that's why I switched. And it was a simplicity, I think, which also was very helpful for me because I was never second guessing myself and thinking, you know, I should put more into this, less into that. It's just one thing I can use. Kind of like your red button, you know, it's just one button to press, more money in, and that was the only choice.
Yeah, every time I've ever tried to experiment or have a portfolio that does something a little bit different, I always tinker with it to my own detriment, individual stock picking. I recently tried to put together a little bit of a dividend portfolio because I was thinking, oh, this might be fun to do. And every day I was looking at it thinking, should I buy that? Should I sell that?
Whereas a VWRL or a global broad index has always been just really simple, really easy for me to stick with.
Chapter 3: What factors contribute to the decision to invest in bonds?
I've never been tempted to mess with it, basically.
Yeah, I just find it's just psychologically it's easier to live with because you know what you've got. It's easy to track. You can just say, if someone says what's in your portfolio, you can just say, oh, this is it.
Chapter 4: How does inflation impact investment choices?
And I know exactly what's in it. I'll never forget that. So, yeah, I think it was just better from a behavioral point of view. That was the biggest... reason for me, I think. So why has the behaviour changed? I think my circumstances changed. I think that was the big reason. I reached my number, so I knew I had enough.
And of course, the three things you're thinking about when you think about your allocation, when you have a portfolio is, have I got the risk of appetite for this? You know, am I happy taking a loss? What's my emotional reaction to a loss? And then you've got your risk capacity, which is your economic ability to take a loss. If it goes down 10%, 20%, is it going to affect my quality of life?
And then the third thing is the investment horizon. So the investment horizon is still long. So that wasn't the reason. The risk capacity, again, I've still got income from PensionCraft and it's doing very well. So I don't really need the money. So it wasn't because of that. It was purely the risk appetite. I just didn't like having 100% equity.
It's just not something that sits comfortably with me. Sorry, go on, mate.
I was just going to say, so before you changed your portfolio, you were just one fund, is that correct?
Well, I mean, I was just one global equity exposure. But because I had different platforms, I had different things on different platforms.
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Chapter 5: What is Ramin's philosophy on risk and investment?
So I just usually go for the cheapest fund, which gives me roughly the right exposure on the platform.
Stylistically, you were Global Index, but you just had a few different versions of it. Exactly.
And they're all pretty much the same. They're highly correlated and there's not much between them. So on Vanguard, you've got to use their funds. So I had VHVG, which is developed only. But then on other platforms like InvestEngine and Trading212, I could have Acqui, which is a very cheap global equity fund that tracks the MSCI All Country World Index. So, I mean, those were my choices.
FWRG was another one, which is a FTSE all-world tracker. But if you plot them against each other, almost indistinguishable.
Even when you, like I'm global all cap on Vanguard. I've got FWRG and then VWRL because I like to reinvest the dividends myself. Most people would go VWRP, which is the accumulation. But like you say, even ones where it's like, so the all cap will include smaller companies, all capitalization, all sizes. They're still pretty big businesses, but whereas VWRL won't.
And then you've got your one that's only developed. So it doesn't include the emerging market economies, But if you plot them on a chart, they all basically look the same. So it does... Maybe there's points in time where there is a difference. You would need a significant emerging market outperformance for a period of time because they're all a feature of the fact the American market's done well.
That's why they've all... It's such a dominant theme in their funds. That just dominates everything. Yeah.
And the concentration that you get right now. So it's a kind of fun experiment. If you build your own little... portfolio, a global market cap portfolio, and just build from the biggest to the smallest. So start with one, the biggest, Nvidia, Apple, whatever, and then work down to number 10. And you plot that portfolio's returns versus one of these MSCI global indices. Again, it's really close.
You don't need that many to track. I mean, obviously, it gets better the more you add. But that's why, you know, once you get to EM, which is like 10% of the market cap of the world, it's not going to move the needle that much. You know, maybe for you too, because you're going to live a lot longer than I am.
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Chapter 6: How does Ramin assess his risk appetite?
Where you represent the meaning of something. It could be an image, it could be a sentence. And now that's exactly what these AI models use, these embeddings and this idea of meaning. So, you know, all of this stuff, it's all connected together. It's just so beautiful. And that's what I mean by filling your intellectual bag as you go along. A lot of this stuff resurfaces.
And I just think that's fascinating.
And you continue to do that now, right? You've said openly, I'm in my retirement. This is my retirement job, basically. So was it as binary as I've hit the number or was there like a catalyst or a moment where you thought, oh, it's time now to make this change?
I think the market kind of made up my mind. I mean, I'd written a lot of tools for our community members to work out their number, like Monte Carlo simulation, where you kind of work out, given the randomness of markets, am I going to hit my target? If I've got a certain amount of money, how long is it going to last if I draw out this amount using these rules?
So I knew, based on those tools, of course you try your own
uh situation out when you're building the tools so i knew i was i was getting close uh and then i actually reached it because there was just an unbelievable equity rally and it happened almost precisely at the time when i put you know gone full into equity um after that it just kind of went crazy and then you know i reached the number and and at that point i kind of realized that
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Chapter 7: What are the benefits of diversifying between equities and bonds?
that was enough. I mean, there's never enough, right? It can always have more. But it's a question of, if I stop today, could I pay my bills and live a lifestyle which I'm comfortable with? And that's the point where I just thought, yeah, I'm there.
How did you calculate your number that you needed? And when did you come up with it?
Well, for me, it was, you know, what income do I need to live based on the lifestyle that I want? So that's the starting point. And then you think about, well, do I want to die with zero? In which case I can withdraw more every year. Your withdrawal rate can be higher. Or do I want to leave money for my kids when I die?
In which case your withdrawal rate is lower because you've got to keep the pot constant in real terms. So inflation can't eat away at it. So for me, I thought probably die with zero. Although, you know, if there's money left over for my kids, good. People use the 4% rule, which is like a very, very approximate thing. The way to think of it is imagine you've got a tank of water, right?
And if you're pouring in 5% of the tank every year through equity returns or bond returns... and then you're draining four, well, on average, the size of the pot, the size of the tank will remain constant. So that's where it comes from. It's based on the returns people expect.
But the tank is on a boat that's going like this, and sometimes loads sloshes out.
And sometimes lots sloshes in as well. I mean, that's the other weird thing. So there's volatility, yeah. So that's why you have an excess. You have to build in an excess.
um and obviously the sequencing risk you have to think about that but there are nuances but that's a good starting point so i knew i was about there based on the income i needed and based on the four percent rule and then i had all of these simulation tools like the monte carlo simulation so i knew from that that i'd be fairly confident that i'm not going to run out of money and i had the income from pension craft which meant that i probably wouldn't need it at all right so that's
Because I don't want to retire. I enjoy what I do. I think for some people, they hate what they do. And I think it is unfortunate that we are in this kind of situation where they hate their life, essentially. You just think, I don't want to get out of bed every day. And I'm really lucky in the sense that, you know, I love what I do. And that is a privilege. You know, I love it. But, yeah.
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Chapter 8: How often should one rebalance their investment portfolio?
And again, we've got an inflationary shock. So it seems as if the world is moving towards one in which these supply shocks are more frequent. And if that's the case, then the bond equity correlation isn't as reliable, being negative and being a good diversifier.
It always seems after a shock as well, it takes a while for the inflation to kind of work its way out of the system. We have that kind of sticky core component in the UK that was the after effect, plus further shocks afterwards.
So I feel like even if there wasn't the shocks, we would still have a higher baseline inflation rate right now than we would have had prior to the big surges, the 10% that we saw. It seems to be we're in a higher inflationary environment just in general.
I think that's true. And if you look at the numbers for services inflation in the UK, you're right, it didn't come down. Chocolate inflation, 17%. That never came down. I was really upset about that. So is Laura.
Well, they just took all the chocolate out of it. You're just eating palm oil now, aren't you? Every time I go on to see a Cadbury's advert, the comments are amazing. Like, boycott these bastards. LAUGHTER
They ruined our chocolate. You're so right. I mean, the services inflation has been very high in the UK and it was just coming down. That was the beauty of it. If you listen to the monetary policy meetings, which of course I do, it was so exciting because you were finally seeing the bank saying, oh, we've finally licked it. You know, services inflation is coming down. Wage growth is slowing down.
It's still positive in real terms, but... So it was like we were finally getting there and growth was improving. And then suddenly you get this straightforward thing. And if there was one thing that would scupper the UK economy, it's oil. Because to first order, we ship in oil, we ship out services. That's the UK economy. China's the workshop of the world. We're the office, right?
And the worst thing you could have done is... switch off the oil supply. And that's what happened. So it's going to have stagflationary effects in the UK. We'll have higher inflation. We'll have lower growth. And it's really awful. But it will be temporary. I think eventually we will recover. But like you say, it's going to be an impulse, a shock.
But even if you went back to the previous oil prices today, it works through the economy. And it's going to be higher for a while.
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