Warning re Stakeholders/Personal Pension vs SIPPS

dunstonh

kittie wrote:

I am comparing my sipp with my (ex) sw fund

ie like with like

ie my money with my money, whether in a stakeholder or a sipp

So, you have exactly the same funds in the SIPP as you had on the stakeholder? In that case, the stakeholder should beat the SIPP due to lower charges. Apart from charges, the performance should be almost exactly the same.

EdInvestor

Glad to hear things are going well, kittie

ReportInvestor wrote:

Yes kittie, even I am going to follow ed's line in 2006/7 after sitting on the sidelines for a year or so.

:eek: Blimey I thought it would never happen.:D Not that I go around pushing my colleagues to follow investment strategies I like,you uderstand, but if you knew just how sceptical my colleague RI is, you'd know that this is a pretty serious plaudit for the HYP concept.;)

I met a bloke a few days ago who has managed to lose over £60k in 18 months from trading within his SIPP, over a period when stock markets rose quite dramatically. He is employed as a trader, and is apparently very successful at work, so no idea how he managed it!

Let me explain Pal.

If you trade a lot, you incur substantial costs in dealing fees and stamp duty.These costs eat into your investment returns so that rather than making profits, you break even or make losses. Excessive trading is common in some managed funds ( it is known as "churning the portfolio") and is a major reason why fund investors often don't make money, because the hidden costs of all this trading - which of course they can't control - is charged against their portfolio ( in addition to the AMC.)

The beauty of the HYP strategy is that once you buy the portfolio, that's it.You then just leave it - only on very rare occasions do you do any trading.Thus you incur extremely low costs - all the investment returns are pocketed by you alone .

It's quite easy really.

A Sipp is just a tax wrapper like any pension, as mentioned earlier, there's nothing inherently risky about it.It's what you do with the money inside the wrapper that counts, as ever.

[Deleted User]

My stakeholder yielded x pounds into my sipp. I paid £58 set up fee. I invested in 4 high yielding stocks to date and the rest is cash

I went onto the sw website today and obtained the latest fund prices. If I had stayed with sw then my fund would be worth £1671 less than my sipp today

This evening should be interesting as I will perform the same calculation.

UKX (ftse 100 ) has broken support and this will impact on funds. Nice to have most in cash at the moment and of course this can be the case in a sipp

whiteflag_3

kittie wrote:

Nice to have most in cash at the moment and of course this can be the case in a sipp

Is this not possible in a PP/Stakeholder ?

Pal

EdInvestor wrote:

Let me explain Pal.

If you trade a lot, you incur substantial costs in dealing fees and stamp duty.These costs eat into your investment returns so that rather than making profits, you break even or make losses. Excessive trading is common in some managed funds ( it is known as "churning the portfolio") and is a major reason why fund investors often don't make money, because the hidden costs of all this trading - which of course they can't control - is charged against their portfolio ( in addition to the AMC.)

The beauty of the HYP strategy is that once you buy the portfolio, that's it.You then just leave it - only on very rare occasions do you do any trading.Thus you incur extremely low costs - all the investment returns are pocketed by you alone .

It's quite easy really.

A Sipp is just a tax wrapper like any pension, as mentioned earlier, there's nothing inherently risky about it.It's what you do with the money inside the wrapper that counts, as ever.

I know all of that. My point is that neither you nor I have any idea whether that individual overtraded or not. He may have bought single stocks following a buy and hold HYP strategy for all we know.

You are also completely wrong to suggest that HYPs are somehow less risky than other types of stock market investment. They still rise and fall in value along with the rest of the market, and the entire reason most HY stocks are HY, is that the market does not rate them very favourably. Low growth prospects, low dividend cover, risky business fundamentals. I.e. Lloyds TSB became a HY stock for a combination of these reasons. That does not make it suddenly a "safe" investment.

I have no problem at all with SIPPS and if people want to use them then that is fine. My only objections are that SIPPS are often recommended on this board to people who clearly have no idea what they are doing, and they are frequently recommended as good places to invest in funds when they are quite clearly one of the most expensive ways of doing so - exactly what this website is supposed to be helping people avoid.

Pal

kittie wrote:

My stakeholder yielded x pounds into my sipp. I paid £58 set up fee. I invested in 4 high yielding stocks to date and the rest is cash

I went onto the sw website today and obtained the latest fund prices. If I had stayed with sw then my fund would be worth £1671 less than my sipp today

This evening should be interesting as I will perform the same calculation.

UKX (ftse 100 ) has broken support and this will impact on funds. Nice to have most in cash at the moment and of course this can be the case in a sipp

Kittie - you have missed my point. I have no reason to doubt that the performance of your investments since you changes strategy may have been better than if you had stayed where you were previously invested.

My point is that it is entirely irrelevant because you have not retired and cashed in your investments yet. You may have done well so far, but will you still be ahead in a year? or five years? 10 years? When your relatives finally decide to put you in a home and make you buy and annuity to meet the fees?

I have no idea and neither do you. What if the fund you were in previously rises by 50% tomorrow? How will you feel then? Would it matter?

Please try not to get seduced into thinking that you have somehow "done well". You won't be able to tell that until you cash in the last investment for good. In the meantime good luck to you!

[Deleted User]

Pal wrote:

They still rise and fall in value along with the rest of the market, and the entire reason most HY stocks are HY, is that the market does not rate them very favourably.

sorry to disagree pal but that statement is nonsense

Rise and fall correlation to the market depends on beta and is nothing to do with yield.

EdInvestor

Pal wrote:

I know all of that. My point is that neither you nor I have any idea whether that individual overtraded or not.

I understood you to say he was a trader.Trading is not IMHO a great way of making money in the stockmarket.

You are also completely wrong to suggest that HYPs are somehow less risky than other types of stock market investment.

An HYP is a self select equity income fund and these are widely understood to be a less risky way of holding equities ( compared with growth funds or trackers, say).That is why they feature in many pensioner portfolios.

They still rise and fall in value along with the rest of the market

Not necessarily.An HYP does not necessairly follow the index..But it does indeed carry equity risk and anyone who wants a "safe" cash- type investment should steer clear.

the entire reason most HY stocks are HY, is that the market does not rate them very favourably. Low growth prospects, low dividend cover, risky business fundamentals. I.e. Lloyds TSB became a HY stock for a combination of these reasons. That does not make it suddenly a "safe" investment.

There are some stocks which have high yields which are risky as mentioned above.But these have no place in a HYP and would not pass the filters attached to the concept.Lloyds TSB is not a risky share.

EdInvestor

My point is that it is entirely irrelevant because you have not retired and cashed in your investments yet.

The whole point about income drawdown is that you don't ever do this. You stay invested and take an income until you depart this mortal coil. It's a quite different concept.There is no accumulation/decumulation mechanism involved.

dunstonh

HYP are similar to Equity Income funds, albeit on a smaller scale.

In 1995-2000 growth beat income (large cap was best then). in 2000-2005 Income beat growth (large cap was worst). Currently all indications are that growth is beating income again (and swinging a little to large cap). In which case, if you invest in just the HYP strategy and do not have a diverse portfolio, then you stand to be potentially the worst performing UK equity sector in the coming years.

Had Kittie been in a spread of the scot widows european, property and equity income funds, she would have beaten her SIPP investments.

You have to stop looking at the wrappers and look at whats inside. Kittie cannot compare the SIPP to the stakeholder as the investments are different. The SIPP is no better because it has performed higher as the funds are different. The stakeholder could have easily performed better and in different timescales it probably will do.

Investing in HYP only is just like sticking all your money in one UK equity fund but with a bit more risk. That is old fashioned investing.