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  • FIRST POST
    • stoozie1
    • By stoozie1 12th Mar 17, 2:10 PM
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    stoozie1
    Savings position for advice and comments please, SIPP investment imminent
    • #1
    • 12th Mar 17, 2:10 PM
    Savings position for advice and comments please, SIPP investment imminent 12th Mar 17 at 2:10 PM
    Hi,

    Long time lurker, and have learnt a lot from the posters here, but would be grateful for some more tailored advice.

    Background detail: Me 42, OH 41, usually cautious approach to risk.

    Have accrued approx £35k in cash earning 3-5% in a slow stooze against 0% debts.

    Just reaching the point where I would like to start using stocks and shares instead of just cash. Due to the risks involved I will stooze into cash accounts, and put 'clean' savings into a mix of cash and S and S.

    I need to begin 2 SIPPs before the end of this tax year, and our research is not getting us to decision point rapidly enough, so I could do with some help. We intend to invest a maximum of 5k p.a in these.

    Normally we are quite risk averse, but for these 2 SIPPs we are considering 2x VLS 100.

    The reason for the higher risk-taking is that any inevitable market losses seem to be ameliorated by:

    1) The grossing up of the cash at entry, which is not an allowance we would be exploiting any other way
    2) The SIPPs not being accessible for at least 14 years which as far as I have read on here implies a higher risk strategy can be employed
    3) A buffer of 'safe' cash already established
    4) My OH is opening the SIPP to contribute earnings which would otherwise lose c.85% of salary and the benefits of doing this seem to offset the sting of losses to some extent.

    However, we are both noobs and are not sure if this thinking is sound.

    I imagine I won't have included all relevant detail so will amend the OP as needed.

    Thoughts welcomed, and many thanks in advance.
Page 1
    • masonic
    • By masonic 12th Mar 17, 2:30 PM
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    masonic
    • #2
    • 12th Mar 17, 2:30 PM
    • #2
    • 12th Mar 17, 2:30 PM
    That doesn't sound unreasonable, and the downside protection of over-inflated bonds may be less now than it has been in the past. So, providing the balance between cash and equities remains within your comfort level and view any losses within the SIPP in the context of your overall capital, then the situation would not be too far removed from going with a lower risk VLS fund.
    • AnotherJoe
    • By AnotherJoe 12th Mar 17, 2:31 PM
    • 6,544 Posts
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    AnotherJoe
    • #3
    • 12th Mar 17, 2:31 PM
    • #3
    • 12th Mar 17, 2:31 PM
    First of all just open the SIPPs and put cash in you don't need to invest any money straight away so you've no need to wait.

    Second, VLS100 is a very high risk option. I have similar funds, but you said you were normally risk averse. If this is a conscious decision to go for risk, then it's as good as any, though there are alternatives that have a much lower U.K. component. VLS100 has about 25% UK equities whereas there are global funds that have UK represented by its global contribution to the world economy of about 7%.

    With Brexit in mind you might determine that having a truly global fund rather than one more "artificially" biased toward the UK might be a better plan. But each to their own, there's also a view you should have a weighting towards your home country. Not a view I share but it's a valid POV.
    • stoozie1
    • By stoozie1 12th Mar 17, 2:56 PM
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    stoozie1
    • #4
    • 12th Mar 17, 2:56 PM
    • #4
    • 12th Mar 17, 2:56 PM
    Thank you both. Yes, it's a conscious decision to take more risk than normal, because we would lose 85% of the monies anyway under other circumstances, and we also have gained the benefit of the grossing up. I am hopeful this will help me take a more relaxed approach to losses.
    • bowlhead99
    • By bowlhead99 12th Mar 17, 3:12 PM
    • 6,408 Posts
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    bowlhead99
    • #5
    • 12th Mar 17, 3:12 PM
    • #5
    • 12th Mar 17, 3:12 PM
    4) My OH is opening the SIPP to contribute earnings which would otherwise lose c.85% of salary and the benefits of doing this seem to offset the sting of losses to some extent.
    Originally posted by stoozie1
    conscious decision to take more risk than normal, because we would lose 85% of the monies anyway under other circumstances.
    Originally posted by stoozie1
    I'm curious how you would lose 85% of salary if investing other ways. Would that be from high rate tax plus loss of very high levels of child benefit that would be clawed back because of the specific level of income your OH has?

    Or maybe your OH is opening up the SIPP as he is running his own limited company and would otherwise be paying employers NI, employees NI and then a marginal rate of 60% income tax on the salary he received because he's in that awkward band of £100-£122k salary where you have a pound of your annual personal allowance taken off you for every two pounds of extra earnings you get. But that still doesn't add up to as much as 85% relief I don't think.

    So, not sure where the "earnings would otherwise lose 85% of salary" comes from, because that is a massive tax rate. But most other people are quite happy to contribute to personal pensions when only getting 40% relief so if your relief is effectively 85% it is clearly a no brainer to invest in a pension and hold on to as much of your earnings as possible without losing them to the taxman.

    Of course, being a 'no brainer' to use a pension product to gain a tax advantage does not necessarily mean you need to invest in the riskiest thing you can find as if it was 'free money'. Even if it is 'free money', you still get that free money when investing in lower risk products.

    You mention 'a buffer of safe cash already established'. But you owe that buffer of safe cash to someone, because it is not really your money, it has been stoozed from a loan or credit facility. The real buffer which you could afford to use to top up your high risk pension assets if they fell in a major market crash, is really just your 'own' real cash savings that you are making each month alongside the pension.
    Last edited by bowlhead99; 12-03-2017 at 3:15 PM.
    • stoozie1
    • By stoozie1 12th Mar 17, 4:41 PM
    • 203 Posts
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    stoozie1
    • #6
    • 12th Mar 17, 4:41 PM
    • #6
    • 12th Mar 17, 4:41 PM
    I'm curious how you would lose 85% of salary if investing other ways. Would that be from high rate tax plus loss of very high levels of child benefit that would be clawed back because of the specific level of income your OH has?
    Originally posted by bowlhead99

    Yes. But it seems absurdly high to me too, so I'm very happy to be corrected if it's wrong. We lose 32% in child benefit, 40% tax, my marriage allowance, NI and some tax credits. I can't work out the exact % taper for the tax credits, but by mapping 5 different income figures between 45 and 55k earnings this was how far I'd got.
    • stoozie1
    • By stoozie1 12th Mar 17, 4:45 PM
    • 203 Posts
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    stoozie1
    • #7
    • 12th Mar 17, 4:45 PM
    • #7
    • 12th Mar 17, 4:45 PM
    Bowlhead thank you for your points about risk and the tax relief, I agree and will think further.

    I think it was a belief that if I could get beyond our risk aversion it would be somehow better (by telling ourselves there were no 'real' losses) and therefore have a higher chance of bigger gains. But I will consider what you have said.

    Also thanks for the thoughts on the stoozed cash. My OP is slightly unclear, and my safe cash buffer will be being built at the same time as the SIPP investments.

    We have c. £2000/month spare so we can look at a few options.
    • stoozie1
    • By stoozie1 12th Mar 17, 4:48 PM
    • 203 Posts
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    stoozie1
    • #8
    • 12th Mar 17, 4:48 PM
    • #8
    • 12th Mar 17, 4:48 PM
    First of all just open the SIPPs and put cash in you don't need to invest any money straight away so you've no need to wait.
    Originally posted by AnotherJoe

    Good point.

    I am just awaiting news of minimum pot size with the various providers and will just open one with cash until I'm clearer.
    • AnotherJoe
    • By AnotherJoe 12th Mar 17, 11:07 PM
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    AnotherJoe
    • #9
    • 12th Mar 17, 11:07 PM
    • #9
    • 12th Mar 17, 11:07 PM
    Good point.

    I am just awaiting news of minimum pot size with the various providers and will just open one with cash until I'm clearer.
    Originally posted by stoozie1
    Again, why wait ? once you've determined which one you prefer based on reviews, charges, whatever, go through the opening process and you'll determine in 2 minutes if it's above your limit, but I'm confident it won't be.

    Are you subconsciously looking for reasons to delay opening one? Paralysis by Over Analysis ? If you don't like it a year or two down the line you can transfer. Tick Tock Tick Tock ......
    • stoozie1
    • By stoozie1 13th Mar 17, 9:39 AM
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    stoozie1
    yes, you're right!

    For OH I am concerned about this SIPP taking him above the lifetime allowance, but I realise that's a question for a different sub-forum.

    We'll most likely open 2x Fidelity SIPPs today.
    • stoozie1
    • By stoozie1 25th Mar 17, 8:57 AM
    • 203 Posts
    • 85 Thanks
    stoozie1
    Update: opened 2 sipps and deposited cash (to delay choosing a product until I know more.)

    Enrolled on the futurelearn course with the OU mentioned on here to learn about investments.

    Calculated how much is needed for the children's university as per Martin's article - one of the main reasons for the savings. It came to just under 90k. My sipp can fund my younger 2 for their loan shortfall based on current govt. expectations of parents. This does however leave me without much pension in my own right, though combined with my spouse's pension from OH is probably ok.

    I'm thinking aloud and haven't got a full strategy yet, but it's an update.
    • mark88man
    • By mark88man 25th Mar 17, 11:19 AM
    • 3,049 Posts
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    mark88man
    well done for just starting.

    everyone will have a different view on asset allocation but given you overall situation I don't think a 100% equity, but widely diversified fund is too risky.

    Someone once said investment is the art of getting comfortable slowly - so don't try and force it.

    Personally, post Brexit - even as a remainer - I'm not avoiding Britain - I think the currency fall is largely done, and I trust British business (not so much the government) to do well both inside and outside the 2 year leave period.

    The only country I am not invested in is US - as I cashed out my index fund there following the Brexit currency appreciation and the initial Trump surge. I figure if America does well then the rest of world and UK will do well.
    Things happen for a reason. Often the reason is we are stupid & make bad decisions.
    Weight 2/15 125.7 Kg : 31/12/16 - 105.5Kg : Targets - 100Kg by 3/17 then 200lb by 31/12/17
    1/17: CC:7524@0% - Car Loan:14K@3.4% - Mort:156K@2.9% - Savings:1k@4.5%
    Decrease in Total Debt for 2016 - £13.4K
    • stoozie1
    • By stoozie1 25th Mar 17, 1:23 PM
    • 203 Posts
    • 85 Thanks
    stoozie1
    Thank you mark88man.

    I was thinking I should add that we have paid off our mortgage and have approx £2k/month to invest or save.

    Our outgoings are low (a mean this last 5 months of £1115/pcm) so the cash buffer we need to have is relatively small. I also should have noted that the cash saved against the stooze is now £10k higher than the borrowed cash.

    Not sure if this changes the advice. (I think I'll add this to the OP)

    I also wonder if I actually can't adot my initial higher risk strategy, as despite having had cash in the sipp for 10 days I can't make myself click to invest! (in VLS 100)
    • mark88man
    • By mark88man 25th Mar 17, 5:59 PM
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    mark88man
    Studies have shown that over a long enough period the market increases so in theory its best to put it all in - however there are many who prefer pound cost averageing - effectively spread your investment over the time period. Most people do monthly investment so thats all the choice they got

    I would suggest split your lump sum into 12 equal portions (12 * A), then add this to your regular forever savings amount (B) and for the next 12 months invest A+B and after that invest B.

    That way you will have a years experience, and if you really dont like the feeling you can bail without putting too much at risk

    Pound cost averaging works (so long as you hold to your strategy) because if/when the market goes down you buy more. It costs as a strategy when the market goes up over the period as you would have been better off buying up front
    Things happen for a reason. Often the reason is we are stupid & make bad decisions.
    Weight 2/15 125.7 Kg : 31/12/16 - 105.5Kg : Targets - 100Kg by 3/17 then 200lb by 31/12/17
    1/17: CC:7524@0% - Car Loan:14K@3.4% - Mort:156K@2.9% - Savings:1k@4.5%
    Decrease in Total Debt for 2016 - £13.4K
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