Newbie question: Pensions and declining share values

hozepipe

Hi

I'm after some advice about pensions in the current economic climate, hope you can help.

I'm 37 and self-employed and had a previous pension for 2 or 3 years which I put on hold while I turned around my business. Things are now looking good so I want to restart the pension. However I'd like to understand a bit more about how the decline in the stockmarket will affect a new pension?

Should I wait until the market stops declining before investing or is it always the case that the sooner you start a pension the bigger the retirement fund will be regardless of the market?

My IFA told me that although stocks decline in value it also means that you get more of them in each chunk you buy so it balances out in the end, is that right?

As I'm self employed my income comes in random large chunks not a monthly dribble so I was wondering if there is significant benefit to paying large amounts as soon as I have it rather than small amounts monthly? Its just sitting in my business current account doing nothing otherwise.

thanks

(PS - having read the Pension section I am considering ditching my IFA and using a discount broker because I feel the advice I get is pretty weak and general and doesn't seem to reflect my less-than-usual circumstances.)

dunstonh

I'm after some advice about pensions in the current economic climate, hope you can help.

Current climate really has little impact on retirement provision for those more than 5-10 years away.

I'm 37 and self-employed

Which means you only qualify for the basic state pension and not the second state pension. Most self employed dont realise this. Full qualification for you means £4700 a year.

Should I wait until the market stops declining before investing

By the time you know that you will have missed the bottom and units will be more expensive again.

is it always the case that the sooner you start a pension the bigger the retirement fund will be regardless of the market?

That is also correct assuming that you wouldnt pay extra to make up the lost time.

My IFA told me that although stocks decline in value it also means that you get more of them in each chunk you buy so it balances out in the end, is that right?

Yes. Which is why now is great news for those paying into pensions. Units that cost say £1.00 two years ago may only cost 60p now. So, you are getting more units for your money. When the units go up again it will be these cheap ones that make the most.

As I'm self employed my income comes in random large chunks not a monthly dribble so I was wondering if there is significant benefit to paying large amounts as soon as I have it rather than small amounts monthly?

Probably a combination. Make sure you have enough emergency fund and plan round that.

(PS - having read the Pension section I am considering ditching my IFA and using a discount broker because I feel the advice I get is pretty weak and general and doesn't seem to reflect my less-than-usual circumstances.)

Nothing you have said about your circumstances are unusual and its clear you dont really know much about investing and pensions. By all means DIY but remember that if you dont know what you are doing you can do far more damage than good. Your IFA seems to have given you correct info so they must be doing something right. Although it does seem you have a lack of trust.

hozepipe

dunstonh wrote: »

Nothing you have said about your circumstances are unusual and its clear you dont really know much about investing and pensions. By all means DIY but remember that if you dont know what you are doing you can do far more damage than good. Your IFA seems to have given you correct info so they must be doing something right. Although it does seem you have a lack of trust.

Hmm, thanks. I think. You're right I don't know much about investing and pensions, that's why I'm asking. :rolleyes:

The info I have been given by my IFA I had to press for. When you don't know a lot about something its difficult to know the right questions to ask you know. And no, I don't generally trust salespeople which seems to be born out having read on this site about the affect the IFA commission has on the fund.

Baz_2

Get investing into your pension now. This is the best time to pay in as much as you can comfortably afford to.

Your basically buying at the bottom, or as close to it as you will likely get without a crystal ball.

Sure what you pay in now may lose another 20% -30% in the next year or two but when prices rise again to 2003 levels those payments paid in now will have doubled in value if not trebled. It may take 5 -10 years for that to happen but you have the time on your side.

As you have time on your side, investing now is a good thing. If you feel you have the money to do so.

dunstonh

And no, I don't generally trust salespeople which seems to be born out having read on this site about the affect the IFA commission has on the fund.

Dont use a salesperson and use an IFA instead.

IFA commission doesnt have the effect on pensions as much as you think. Martin's article is very out of date and a specific mono charged contract which ceased to be available in Feb 2008. If Martin was authorised by the FSA, he would be facing disciplinary action now for misleading people.

Use of any professional costs money. You are self employed so should realise that. Anyone can do your job and save money. However, they may not be able to do it as well as you and the result could be the case of saving a few pennies but costing a few pounds.

Bringing that back to pensions, which provider is best for you? How are you going to build your investment portfolio? Which pension contract is best for you (stakeholder, mono charged PPP, multi charge PPP, SIPP, ISAs or a combination?)

If you are paranoid of commission then go on fee basis.

hozepipe

dunstonh wrote: »

Bringing that back to pensions, which provider is best for you? How are you going to build your investment portfolio? Which pension contract is best for you (stakeholder, mono charged PPP, multi charge PPP, SIPP, ISAs or a combination?)

If you are paranoid of commission then go on fee basis.

So Martin's advice is not to be trusted then? This is what I find annoying with 'experts' - if you just go in blindly you have no idea who to put your faith in, which is why I want to learn as much as I can myself. You're an IFA, but how do I know whether to trust your advice since it contradicts Martin's for a start....:money:

Haven't heard of PPP yet, was thinking stakeholder plus ISA so far, plus property. I will likely be a higher rate tax payer this year so I need to work out the best options regarding that, and I'm considering incorporating but I haven't come to a conclusion yet, I'm still discussing things with my accountant

Lokolo

hozepipe wrote: »

So Martin's advice is not to be trusted then? This is what I find annoying with 'experts' - if you just go in blindly you have no idea who to put your faith in, which is why I want to learn as much as I can myself. You're an IFA, but how do I know whether to trust your advice since it contradicts Martin's for a start....:money:

No Martin was right.... last year (before Feb!) lol. He just hasn't updated it. Whereas Dunston has to have the right info otherwise he gets the boot if someone ends up blabbering etc.

And yes I agree with you, why not learn as much as you can yourself, get books out and read around the subject. Others on this site do this and get more 'advice' from Dunston along the way, and some from Ed...

bendix

dunstonh wrote: »

Dont use a salesperson and use an IFA instead.

IFA commission doesnt have the effect on pensions as much as you think. Martin's article is very out of date and a specific mono charged contract which ceased to be available in Feb 2008. If Martin was authorised by the FSA, he would be facing disciplinary action now for misleading people.

Use of any professional costs money. You are self employed so should realise that. Anyone can do your job and save money. However, they may not be able to do it as well as you and the result could be the case of saving a few pennies but costing a few pounds.

Bringing that back to pensions, which provider is best for you? How are you going to build your investment portfolio? Which pension contract is best for you (stakeholder, mono charged PPP, multi charge PPP, SIPP, ISAs or a combination?)

If you are paranoid of commission then go on fee basis.

Your posts are why so many people dont like IFAs . . . . a continuous stream of patronising platitudes interspersed with implicit assumptions that if you don't use IFAs, you're an idiot.

Lokolo

bendix wrote: »

Your posts are why so many people dont like IFAs . . . . a continuous stream of patronising platitudes interspersed with implicit assumptions that if you don't use IFAs, you're an idiot.

Its not quite like that, Dunston doesn't have a go at me for not using an IFA and I am investing and ask him plenty of questions!

If you have a plumbing problem and don't know how to fix it you can either;

a) Learn how to do it properly (with a chance of doing it wrong and making things worse) or
b) Get a plumer.

If you have a car problem you can either;

a) Learn how to fix it properly (with a chance of doing it wrong and making things worse) or
b) Go to a mechanic

If you have a computer problem you can either;

a) Learn how to fix it properly (with a chance of doing it wrong and making things worse) or
b) Go to computer repairer

If you have money and want to do something with it you can;

a) Learn how to do it properly (with a chance of doing it wrong and making things worse) or
b) Go to an IFA

Do you see the point hes making? He's not trying to be patronising, just saying things honest. Soooo many people on here complain about bank 'advisors' so it kinda gets annoying lol.

dunstonh

So Martin's advice is not to be trusted then? This is what I find annoying with 'experts' - if you just go in blindly you have no idea who to put your faith in, which is why I want to learn as much as I can myself. You're an IFA, but how do I know whether to trust your advice since it contradicts Martin's for a start....:money:

Martin's advice on financial matters has been poor at times. Its been remarked on the forums a number of times by many people. The typical problem is lack of product provider coverage and a focus on the simple and at lowest cost rather than quality and value for money.

DIY investing is just like DIY home decorating. You may be able to DIY and do a very good job. You may do a passable job or you may make a pigs ear.

I would have thought as a self employed individual, you would understand that (although you dont say what you do).

I dont really give two hoots whether you trust me or trust Martin. If you act on any information on this site you have no consumer protection if you do the wrong thing. Its your choice what you do.

Haven't heard of PPP yet, was thinking stakeholder plus ISA so far, plus property. I will likely be a higher rate tax payer this year so I need to work out the best options regarding that, and I'm considering incorporating but I haven't come to a conclusion yet, I'm still discussing things with my accountant

PPPs are higher quality generally and can often be cheaper than stakeholders. At your age a multi-charge PPP would come out cheaper than a mono charged stakeholder. (Martin's article only covers mono charged contracts and doesnt even mention mulit-charge contracts).

Your posts are why so many people dont like IFAs . . . . a continuous stream of patronising platitudes interspersed with implicit assumptions that if you don't use IFAs, you're an idiot.

Where have I said that?

Please dont make things up as an excuse to have a go at IFAs. Especially when your implicit assumption does not reflect the facts. If you dont like what I post, then add me to your ignore list. I dont see you adding anything useful to this thread.

purch

Should I wait until the market stops declining before investing

Unless you are very clever, or very lucky the first rule of investing should be:

Don't buy when the market is falling, and don't sell when it is rising.

That really refers to lump sums, rather than monthly or periodic investing over a sustained period, but it is relevant to a degree.

Unless you are comfortable with what you are doing, you shouldn't be considering investing either a lump sum or monthly. It's very easy for people to recommend the old pound cost averaging stuff, but that only really works in a broadly rising market. Pound cost averaging into a broadly falling market won't make you sleep any easier.