Confused over investment options!

honeybird_83

I've recently joined a pension from AON Consulting and the policy comes with the following investment options:

50/50 Global Equity Index Tracker Fund
DC 50/50 Global Growth Fund
UK Equity Index Tracker Fund
DC European Growth Fund
DC American Growth Fund
DC UK Growth Fund
DC Index-Linked Gilt Fund
DC Global Bond Fund
DC Cash Fund
DC Japanese Growth Fund
DC Pacific Growth Fund
DC Institutional Emerging Markets Fund

This is the first pension I've ever joined so any ideas on which funds I should be looking into or avoiding would be appreciated. Many people have suggested the emerging markets fund?? If its any use I'm 24 and therefore (hopefully) have a fair few years ahead of me before retirement!

Thanks in advance!

Day_Trader

Depends on your risk profile really and what income you'd like in retirement.
The premise is the greater the risk the greater the potential returns.
The institutional emerging markets fund is classed as a 'very high risk' fund so has the best *potential* returns but capital values may well fluctuate a lot. As you're 24 you've a long investment horizon which would give time for these short term movements to level out.

jamesd

You might consider this split:

70% 50/50 Global Growth Fund
5% DC Global Bond Fund
25% DC Institutional Emerging Markets Fund

That's a high emerging markets percentage but given your age it's likely to be fine so long as you don't mind ups and downs in value over the years.

Now is likely to be an exceptionally good time to be buying equities.

During the next boom you might gradually shift a higher percentage to the DC Global Bond Fund, to lock in some of the profits so they don't get lost during the downturn that will eventually follow. Having 40% in bonds and 10%+ in cash before the downturn would be good, but you can't ever time things perfectly to do that. Then you gradually switch them back from the bonds to the equities during the following downturn. Sell high, buy low, repeat and gain from the business cycle volatility ten times before you retire.

Day_Trader

jamesd wrote: »

You might consider this split:

70% 50/50 Global Growth Fund
5% DC Global Bond Fund
25% DC Institutional Emerging Markets Fund

That's a high emerging markets percentage but given your age it's likely to be fine so long as you don't mind ups and downs in value over the years.

Now is likely to be an exceptionally good time to be buying equities.

During the next boom you might gradually shift a higher percentage to the DC Global Bond Fund, to lock in some of the profits so they don't get lost during the downturn that will eventually follow. Having 40% in bonds and 10%+ in cash before the downturn would be good, but you can't ever time things perfectly to do that. Then you gradually switch them back from the bonds to the equities during the following downturn. Sell high, buy low, repeat and gain from the business cycle volatility ten times before you retire.

I'd beware of sticking in recommendations however generic. See the articles about advice etc. Some of the funds are really not up to par. You also suggest trying to time the market which is nigh on impossible. Can I ask what qualifies you to peddle this out as there is nothing in your signature.

EdInvestor

Day_Trader wrote: »

Can I ask what qualifies you to peddle this out as there is nothing in your signature.

There are no qualifications required to post information on this website.

Nothing posted on the site is "advice" in the regulated sense.

Posters are reminded that the site has no idea who posters are and does not verify statements made in their signatures.

jamesd

Day Trader, your apparent endorsement of going with 100% emerging markets merited a more explicit counter-proposal with reduced risk through greater diversification and some explaining of how you use sector allocation and rebalancing to make money out of volatility.

My own risk tolerance is pretty high but it doesn't include only using one sector.

You might consider assisting honeybird_83 by saying which of the funds you believe are not up to par and how, from the range available, it's possible to cover that sector. If you're feeling more generous you might even consider providing some sample Watson Wyatt or other allocations for various risk levels.

My competence is sufficient to provide a gentle introduction to the well proved techniques of sector allocation and rebalancing for investment newcomers.

Your comment about advice suggests that you may be unclear about what's meant by advice in the forum rules, so here's a rather large digression to clarify.

"4.10 Deciding whether a person giving advice must be authorised by the FSA is determined by applying four tests:
• Is the provision of advice carried on in the UK?
• Is the advice given by way of business?
• Does the advice relate to a specified investment?
• Does the advice relate to a specified activity?
4.11 All four tests must be met to require FSA authorisation.."

Source: Annex 4 of the Thoresen Review of Generic Financial Advice: final report - March 2008, Annex 4. The report has an excellent discussion of the regulatory issues.

I don't work in financial services and am not commenting by way of business, so I can't meet the four point test criteria. Not being specific is something that those who could be found to be commenting in the way of business might do to avoid meeting the test. It may also be prudent for you if you think that there's any prospect of your posts here generating business, though your compliance officer is probably the way to go for clarification on what you should and shouldn't do in that case.

If you have any concerns about the interpretation of the word advice here and in the forum rules, please seek clarification by writing to [Removed by Forum Team] instead of relying only on my answer. You may find it helpful to review the many very specific descriptions and recommendations on the main site and consider that our host is a journalist and not a regulated individual before doing so.

I note that your signature doesn't say that you're an IFA, just that you work for one. Are you a regulated individual and, if so, which qualifications and authorisations do you have in your own name?

Day_Trader

jamesd wrote: »

I note that your signature doesn't say that you're an IFA, just that you work for one. Are you a regulated individual and, if so, which qualifications and authorisations do you have in your own name?

I'm DipPFS, FSA registered of course and also hold the IMC.

I think it should be noted that what some people read they may interpret to be a good idea. Many clients I've dealt with have come hearing about great investment tools they've heard of in the press off journalists (who are a menace), or from a neighbour/friend. You could in about 20 yrs time, I expect, extend this to what has been taken from an internet forum.

In the case here I think it is prudent to state what the investments are and the implications on investment.

I don't want to fall into an argument over nothing so here are my thoughts:

I know nothing about honeybird apart from their age. They need to decide what their target income in retirement will be. They need to decide if these funds will be key then we can start profiling risk attitude etc. I don't think AON are particularly great in terms of choice and I wouldn't expect the funds in there to achieve the best of the sectors they represent.

I think my first answer sums it up fine in the sense that there is no immediate right or wrong answer here.

The funds should all be listed for honeybird to see including benchmarks, past performance and blurb about the aims from the fund manager. I'm not going to state which funds to avoid but would state that it is important to do some background reading before plunging in.

I've no interest in tapping business from this place. I am here to give basic guidance to those who have little no understanding. Apologies if you misinterpreted my comments.

In terms of your comments about Martin Lewis it is intriguing that as a journalist he is in a position of power as a lot of people hang off his every word. He has caveated himself to a good degree, those who get it wrong do so because they haven't read them. People need to take more responsibility for themselves as look at where relying on other people has got them :rolleyes:. I realise this goes against my profession in slight ways but I'm not interested in the basics full time. I take a great interest in helping people with complicated pension transfers, IHT strategies and trusts.

When I get offered those great financial reviews in banks I'm almost half tempted to go and see what rubbish they'll try to flog you. Banks are now just another retail shop I'm afraid and it is the most annoying thing when you are lumped in that bracket as most people think that's what an adviser constitutes. /rant

jamesd

Yes, there's no one right or wrong answer, but I do like to at least try to introduce the idea that using a few funds and maybe not all in one of the highest risk sectors around may be sensible.

Hopefully honeybird_83 will come back with some indication of a level of interest in learning so we can point to more educational resources and/or suggest seeking the advice of an IFA.

honeybird_83 might even find that her scheme lets her do regular partial transfers out into a place with more choice. My fairly large one does, though I'm only the second person to say that they want to do it. Better than being the first...