Pension fund performance - do you monitor yours, how is it doing, do you actively change it?

[danlightbulb]

Its really not a good example you have got there since it can be clearly demonstrated how its value changes the moment you decide to liquidate it early and suck up the penalty.

But so does the bond! The bond's value is £105 if you hold it to maturity, and £95 if you liquidate it now. What's the difference?

In choosing to liquidate the bond you choose to take £95 over £105. You have a choice over what return you get from the bond, depending on when you choose to liquidate it.

Sucking up the penalty is the same as sucking up the loss on the bond. In both cases you're choosing to exit before maturity.

 

[danlightbulb]

You are contradicting yourself in my mind.

even thought if you liquidated it it would be lower.

Here you say 'if you liquidated it would be lower. So would the cash account, you'd lose £100.

So are we talking about valuing on liquidated value, or not? It seems to me you choose one way for one asset and the other way for another asset.

Would you value BP shares at $0.25 or £4 today? Apply the same mind set to your bonds.

There's no guaranteed return on a share, there is on bonds. If you had a guaranteed share value of £4 in a year's time, then to you those shares are clearly worth £4 each in a year. In choosing to sell it, you'd consider that future guaranteed value in its worth. You wouldn't sell it (unless forced to) for less than this would you?

I'm really starting to think your trolling now.

Im not trolling, what I cant understand is why you can't see what Im trying to say even if you don't agree with it. There is logic to what Im saying, even if its not compliant with normal accounting standards.


If I cast iron guarantee £10 to you in five minutes time, in your mind you have a tenner don't you. You may have already decided what to spend it on. Its essentially an IOU which you can include in your assets can't you?

The bond is the same. The bond is an IOU for a guaranteed value. Why not count the IOU as the current value of the asset?


Another example is a supplier owing you money. If your business was to be valued, you'd count the cash and its assets, and you'd also include what was owed to the business from others, wouldn't you? This is a future cash that is promised, just like a bond is.

 

[danlightbulb]

To be fair you can be right if you want to dan. An accountant/someone competent in Excel won't be saving the product of a calculation.

They'll list the asset as currently valued 100 and the liability to pay (5) - and then you can play tunes as you wish.

It seems like you are now arguing to store 95 in the example above - which is how on one dimension of my excel I managed my LISA. On the house buying dimension I stored 100.

Either way they were both driven by source data.

In my latest excel I've removed any pots which are protected to cover balance transfers from all my spreadsheets and manage them in zopa pots. Out of sight out of mind!

I dont care about being right or wrong, I want to put across the logic of what Im saying. Im coming at this from a perspective of simple logic.

Im actually saying that there are multiple values of a portfolio depending on your need/assumptions at that point in time. I think we're in agreement on this because you did the same thing in your LISA.

This all started because 200sols said that people panic sold their bonds because they saw a paper loss. I said there is no paper loss, because all they had to do was hold the bonds till maturity and they'd have got back exactly what they signed up to getting back. No more, no less. All it would have taken for those people not to panic sell is realise there is no loss!

From my limited knowledge - assets need to be under your control to be on the balance sheet. The promise to receive 10 could be considered but it's probably not legit as it isn't under your control till it is receipted (I.e. once youve got it in your control).

I don't know how IOUs are treated in business valuation. I suppose it again depends on the assumptions and need for the valuation. If your in a firesale situation, then probably can't count them (actually might be wrong on this because if a business goes bust the administrators will still go after the creditors). But if its a routine valuation then why wouldn't you, that money is accrued and is coming at some point.

In my workplace we use accruals all the time to deal with the timelag between receiving a good and paying for it. The same can be done in reverse, sending out a good and receiving the money for it later you can add an accrual to your balance sheet for that future transaction.

Also re the point about control - well the bond is completely in your control! if you hold it, it has a guaranteed redemption. Its the most in control thing you have other than raw cash?

 

[danlightbulb]

This is how I would value my entire portfolio today if I was asked to and it wasn't a firesale situtation:

Cash - not locked up - easy, its just the value of the cash.
House - market value estimate because future value is unknown.
Debts - today's value of the cost to repay the debt, plus things like early repayment charges or other fees.
Stocks - today's value of the share price as future value is unknown.
Crypto - as stocks.
Locked up savings - the value I will get back on maturity of the term.
Bonds - the guaranteed value I would get back on maturity of the term, or the current value of the bond if its higher than this (in which case I'd instantly sell it and it would be cash anyway).
Objects I own (like cars etc) - the market value estimate.
Pension - the value given on the providers website (which is all funds so that's as per stocks).


The only thing Im not valuing like a normal thing is anything that's locked up or guaranteed. In these cases I locked up for a reason, because Im willing to hold till maturity, and so I would count the value upon maturity. Completely logical to do so (I could also do the same thing with the debt value actually and not include the fees).

 

[danlightbulb]

That is the definition of a paper loss, i.e. you lose if you sell today vs holding to maturity.

Your arguing about definitions, thats what a paper loss is, once you take the paper loss it becomes a real loss, you are arguing a paper loss is not a real loss, yes, thats why its called a paper loss.

Not quite. Im arguing its not a paper loss at all because the future redemption value is guaranteed. All you have to do is hold and your guaranteed to get this minimum value back. Im saying you should set the future bond value as its minimum value, so in this case its impossible for it to be worth less than the redemption value (you might just have to wait for the term to realise this value, which is ok because you knew that when you bought it).

This is different to everything else. There's no guaranteed future value with anything else, so you can't value it any other way than its current market value. With something guaranteed like a bond, there's another option.

 

[danlightbulb]

It would really depend on certainty. If you added a £10 IOU into a set of accounts then the accounts auditors would want to see documentary evidence on that its really due and would need to assess whether thats likely or misleading.
Eg Dans Bonds valuation methodology they would say would be misleading.

This is the crux isn't it. The bond is certain, so why would the auditor say its misleading? You can count an IOU return in your assets if its certain, but not a guaranteed bond return?


I accept its the way its done, but its not logical to treat these things differently.

I'll stop posting now as Ive made my point.

 

[danlightbulb]

I was referring to the £10 IOU not the bond.

Dear god it's like pulling teeth here. Why don't you think outside the box a little. I know you were referring to the IOU.

I'm saying that the IOU is exactly like the bond in practice. An IOU from a supplier is a promise to pay X on a date in the future which you can count in your current valuation even if you don't have the cash yet.

A bond is also like an IOU. It guarantees to pay you X on a date in the future. Yet you're saying you can't count this is your current assets, only it's current tradeable value.

Listen to my words: I accept it's the way it is in the accounting standards but it's not logical.

 

[danlightbulb]

Its completely logical to people like me as I wouldn't want an over stated asset valuation.

You're following the rules, accepted accounting practice. That's fine I understand that.

I'm just pointing out the inconsistency that's all.

I'm perfectly happy that people might want to value something on what it currently can be sold for. Especially a third party may want it this way.

If you're the asset owner though, and you've bought something that has a guaranteed future return specifically for that reason - to be guaranteed, zero risk as long as you hold to maturity - then I think it's perfectly reasonable for that value to be the value you think of first and what you assign.

I don't think it's an overstated valuation, it's simply a 'wait until maturity' valuation. As long as the premise of the valuation is understood by all parties there should be no issue. Problems may arise if the premise of the valuation is concealed and parties make incorrect assumptions about the valuation.

Would you value your stock in a business as what you paid for it, or what you could sell it for?

I'd value a stock at what I could sell it for because it doesn't have a guaranteed future value. The word guaranteed is the key difference here to me.

If you're guaranteed something why wouldn't you include it?

Example - you win the set for life lottery. £10k a month for the next 30 years. Your worth includes this IOU even though you don't have the cash in hand. It's future guaranteed income and you can (surely) count this in your valuation of your assets?

In principle only, why is this different to a future guaranteed income from a bond?

Debating this sort of thing with you is like some in the crypto thread who take real world meanings and come up with some semi crypto version and argue they are the same.

We argue a lot because I see things a bit differently and perhaps take these arguments too far. It's nothing personal I hope you realise this. I don't think it's reasonable to label me as thick as you have done. I'm questioning things because I'm curious and I see things differently sometimes. And I don't like inconsistency in rules.

 

[danlightbulb]

So i guess I am just going to have to "exchange" the Multi Asset 3 units for what I had before, then change the future contributions to match.

Yeah that's right. If your scheme is like mine it's really easy and goes through in a few days. And you can make changes to allocation anytime you want.

 

[danlightbulb]

You aren't questioning like a smart person. You are questioning like a know-it-all that knows nothing and refuses to understand when given expert insight. You behave the same in H&G.

Well I know enough to be dangerous. And I don't trust 'experts' at face value most of the time. How many times do the so called experts get things wrong? Whether it's health, finance, building maintenance - you can't trust anyone even paid for advice quite often can you.

So I question and challenge things until it's clear to me what the right answer is and I've exhausted all options. I appreciate this may be over the top on occasion. It's easy to get carried away on an internet forum.

I don't mind being wrong but I do have to be convinced and sometimes that takes time. But I learn something every time from that knowledge gained.

 

[danlightbulb]

You don't need to "trust" it, but you could at least be courteous and listen to it and play through your scenario with their input.

Well to be fair I think the conversation did start like that, with me putting across a view, and then I simply got told no that's wrong without any indication that my argument has been heard and understood. So it escalated from there.

 

[danlightbulb]

Even now you don't seem to get it, lol.

Clearly I don't.

I've been courteous the whole way though? Ive explained my justification several times? I've tried to respond with examples (which have been shot down as unrealistic)?

What I see is akin to ganging up because my idea/suggestion was against the norm.

Do me the courtesy, if you would, of explaining clearly what you think is wrong with my approach? I would appreciate that as I'm not a troll and will take it on board.

Its dodgy IMO TBH but in some industries it happens.

Perhaps my approach is not so wild after all. I'm sure there are far worse things happening in some firms books than assuming a future value of a bond.