new investor

knottbay

Hello
I am a complete novice investor. I have just been persuaded to open up a sipp by my accountant. So I have started to find out about investing. What I want to do is invest a couple of thousand in some funds and end up getting a better return than I could get by off setting my mortgage rate of 4 %. So after a quite a lot of research I have come up with 2 seemingly well run funds with good reputations Invesco Perpetual Income and M&G corporate bonds. The problem is, the maths doesnt seem to add up. There is an initial charge of 3%, then a management charge of 1%. Take this off the expected yield and I am left with something very modest of between 1 and 2%. Then take off the commision charge by my sipp provider and I find there really is nothing left. Now am I missing something simple here? If my maths is correct, Why would anybody want to risk their money investing in these types of funds?

turbobob

The yield is basically the level of income the fund pays - i.e. dividend income from an equity fund like the IP Income or interest from bond funds. There is also the potential for capital growth. If a share you own (or unit in a fund) increases in value from £1 to £2, that is capital growth. Yield is relative to the price of the security - some more info about yield here http://www.investopedia.com/terms/y/yield.asp

Something I'd be looking at is whether a SIPP is really the best way to go for what you want to do. A SIPP's main advantage is that it allows a wider choice of investments than a normal Personal Pension Plan, but I think they tend to have higher costs. For example, you can invest in individual shares, investment trusts or ETF's through a SIPP. For investing in a few funds I would have thought a PPP would be the cheaper option (although this is just what I've picked up here).

dunstonh

I have just been persuaded to open up a sipp by my accountant.

Is the accountant FSA authorised to give such advice. Your first sentence suggests that advice would be a mis-sale is the accountant is authorised. If the accountant isnt authorised then they have breached their remit and are giving you are bad advice.

"I am a complete novice investor" equals not suitable for a SIPP.

SIPPs are the most expensive pension product when buying funds. Stakeholders and personal pensions are typically cheaper.

There is an initial charge of 3%, then a management charge of 1%. Take this off the expected yield and I am left with something very modest of between 1 and 2%.

As TB says, the yield is only part of the return. It is not all of it.

Now am I missing something simple here? If my maths is correct, Why would anybody want to risk their money investing in these types of funds?

Returns are normally shown net of charges. You are also looking at charges which appear to be on an expensive commission product with no discounting (so I assume you are getting financial advice from an expensive source).

Reaper

My first thoughts match those above. A SIPP sounds wrong for you. Look at a stakeholder pension instead.

As for fees - there is no need to pay those expensive upfront fees. If (and that's a big if) you know which pension to go for then get it via a discount broker who refunds the fees such as Cavendish Online.

knottbay

Many thanks for all the help and suggestions. I will have to spend a bit more time considering them!