Capturing the prize – or why you shouldn’t bet money you don’t have!



Was the  football side that beat Iran 6-2 an average team that played well or was the that drew with the USA a good team that played poorly? Our view of the England’s performance in the world cup is based on our expectations and on our perception of the other teams in the competition. In other words we use past performance to manage expectations and benchmark relative performance by watching other sides.

Based on consensus among punters, England are currently fourth favorites to hoist the Jules Rimet trophy behind Brazil, France and Spain, You can get around 8 to 1 meaning there’s not much more than a 10% chance of our side winning.

I am very happy to be represented by a team considered one of the four best in this tournament. I am comfortable that the side is well managed , has prepared well and is playing with a degree of skill and confidence that makes me feel proud and excited.

But I am not going to place money on England as my investment is already made. I am an England fan because I am English and I do not have to increase my excitement at the prospect of England winning by betting on my team. Some of you may know where I am going on this!

The best way of enjoying football (for me at least) is by watching it (I was never much good at the game).

The best way of me investing for my future is also as a spectator, I am a firm believer in diversification and getting market returns. My pension bet would be not to bet but to enjoy the action. I follow very simple principles that are focussed around the duration of my investments, the longer the duration, the more I look for long-term growth, for money which I need today, I look for stability and liquidity and for income that I cannot do without, I look for certainty.

So my income I can’t do without will come from the state pension and the income from work and from my works pension. The short term liquidity comes from cash in the bank and my long-term money, the stuff I’ll need from my late sixties to replace the money I get from work, will come from an investment in shares (equities). Organising my money in this way is that I am not in for too many nasty surprises. I am 99% sure about my pensions and cash and rather less sure about my future income from my longer term investments but I live with that uncertainty. This is my personal LDI strategy and it makes common sense to me.

You might (and John Ralfe would) think that I am taking a lot of risk having 100% of my DC pension pot invested in global equities at the age of 61. But I see my pension holistically, my DC pot is only about 40% of my prospective retirement income so I am holistically invested about 60% in bonds and 38% in equities and I have some money in the bank so that I don’t have to crystallise my DC pot in emergency. With me so far?

My personal discount rate against my liabilities (the money I’ve yet to spend) is around 60% bonds, 38% equities and 2% cash.

There are some small tweaks I will make to the way I ask for my money to be managed. I have asked that none of my money is invested in fossil fuels (which is part of my charitable investment – I would like to help provide a better planet for my son and his generation). My investment is tilted towards a better Future World.  But otherwise , I am accepting the market rate. In short, I hope the way I invest – reflects me, my views and values and will ensure I have a long and happy retirement where the money lasts as long as I do.

Bending it like Beckham

There is a school of investment thinking which does not follow my thinking but follows a more bendy path to goal, like a David Beckham free kick, it looks to avoid obstacles through  magical skill.

Here I smell the whiff of the bookies shop (which I never much liked). The decision to value pension fund liabilities not by the market rate but by the risk free end of the market (the gilt return) is a bit like saying that the only bets we should be taking on the winner of the world cup are the safe bets (Brazil, Spain, France and maybe England). But of course a winner could be found elsewhere.

If you invested on  a weighted average across all teams (so you’d invest 300 times more in Brazil than Wales) then you’d expect to get your money back (less a little spread to pay Betfair – the book is 98.6% round and there is some betting commission on winnings). This is the way that passive funds should invest.

Of course, you might like to have a side bet on Wales or Australia but that would be a bit of fun, not your investment strategy. It’s a bit like me asking for a tweak in my portfolio to match my personal convictions (making my money matter).

But what has happened in the strategic thinking of pension schemes is equivalent to betting on the big four in the market rather than betting on the whole of the market. To my betting instincts, this is creating a concentration of risk around Brazil, Spain, France and England or in investment terms, a focus on a sub-set of risks (mitigated by investing in gilts). That DB pension funds are so overly concentrated in gilts is because the benchmark (the investable market) is now prescribed by the gilt rate – which measures liabilities.

This is itself a bet, a bet against the long tail of investments (the teams in the big table below England in the betting).

To make matters worse, rather than betting with money that the pension schemes have in the bank, the pension funds have bet with other people’s money, money in the investment banks. Everyone who has ever bet money to pay off their overdraft knows that it’s a brilliant strategy so long as the favorites win, but what happens if Wales were to win and you’d bet your overdraft on Brazil?

I know that that is about as likely as the outcome of the mini-budget but…



About henry tapper

Founder of the Pension PlayPen,, partner of Stella, father of Olly . I am the Pension Plowman
This entry was posted in pensions and tagged , , , , , . Bookmark the permalink.

7 Responses to Capturing the prize – or why you shouldn’t bet money you don’t have!

  1. John Mather says:

    Does this strategy give an Age Wage score of 50 or better?

  2. John Mather says:

    Would have been good to get an answer!!!

  3. John Mather says:

    Maybe you should test and find out.

    I have taken on a project to produce a short interactive illustrator of the likely income outcomes but instead of the meaningless illustrations that have not moved on from Allied Crowbar it will relate the outcome relative to a living wage so more focused on discretionary spending power which, in the final analysis, is what we are all striving to achieve. I may refrain from commenting in future until I have a solution, this constant winging Pom habit of a backward-looking industry is rather pointless

  4. henry tapper says:

    I have tested the workplace pension against the AgeWage / Hymans Robertson benchmark and it gives me a score of 88 – I think this is recently because i am invested in overseas and UK equities and the overseas equities aren’t hedged (while the benchmark’s o/s equities are – in other words, I’ve got lucky with currency). Longer term . it’s simply down to my owning lots of equities and not being hurt by having holdings in bonds and cash.

    • John Mather says:

      There are opportunities and the challenge is to turn adversity to advantage.

      I took the view that default was unlikely and falling off the floor should be reasonably comfortable 139.739574 going to 170.185796 in 43 days Not too bad

      See the indexed Gilt from 13th October to Friday 25th November 2022

      Tradeweb FTSE Gilt Closing Prices



      Gilt Name Close of Business Date ISIN Type Coupon Maturity Clean Price Dirty Price Yield Mod Duration Accrued Interest
      Type: Index-linked
      UKGI 0.75 03/34 13/10/2022 GB00B46CGH68 Index-linked 0.750 22/03/2034 94.280 139.739574 1.289412 10.890655 0.067525

      UKGI 0.75 03/34 25/11/2022 GB00B46CGH68 Index-linked 0.750 22/03/2034 113.640 170.185796 -0.425417 10.914350 0.207630

  5. henry tapper says:

    On the downside, I suspect that my not having fossil fuel stocks has cost me over the past 18 months. Reading recent TCFD statements I see that the cost is around 1.5%pa on the Beta return for the indices I invest into.

Leave a Reply