Advice sought for pension investment for 24 year old

DiggerUK

jamesd wrote: »

scotsbob, you probably missed the point of dunstonh's calculations.
Say you decide that a pot of £463,928 is a good target. You then have to choose how to get there.
If you choose the NS&I certificates it costs the £700 a month.
If you choose a cash ISA it costs £880 a month.
If you choose a low volatility mixture of investments in a S&S ISA it costs £485 a month.
If it's done in a pension with basic rate tax relief without salary sacrifice (that boosts it more) it costs £388 a month.

scotsbob, notice how they never say those magic words "you may not get back all you invest" and just go on and on, as though it is all guaranteed to happen?

Seems your thread has been swarmed by the Cyber Sisters, you have held your ground admirably. Well done.

DiggerUK

bendix wrote: »

I'm with property.advert on this. What is it about today's young that their mummy and daddy's have to think this stuff through for them?
It's kinda sad. And not a little pathetic.

Why is it not something for a parent to do?
Taking care of family and friends is a tradition from time immemorial.
How is going to an IFA any less pathetic.

Property.advert and you are just being abusive, and you should both do the right thing.

jamesd

jamesd wrote: »

Say you don't want a shortfall and you think that your low risk investment mixture might be down 20% at the time you retire.

DiggerUK wrote: »

scotsbob, notice how they never say those magic words "you may not get back all you invest" and just go on and on, as though it is all guaranteed to happen?

Except that one of us not only wrote about the markets going up and down, but also how you diversify (only 50% in shares) and add a safety margin to deal with that sort of thing.

If you don't want much risk you just buy UK government bonds inside the pension that have maturity dates around the time you expect to retire and hope that the UK government doesn't default. That'll get you about as much safety as available from NS&I and a bit more than available from a bank. Then you get the pension tax relief without adding to the chance of trouble.

Still not as much safety as a diversified mixture of investments that would take lots of different defaulters from all over the world before you suffered greatly. This is a more prudent approach, but does take some willingness to use something other than bank accounts and NS&I.

bendix

DiggerUK wrote: »

Why is it not something for a parent to do?
Taking care of family and friends is a tradition from time immemorial.
How is going to an IFA any less pathetic.

Property.advert and you are just being abusive, and you should both do the right thing.

Ahhhhhh . . . a good contribution from MSE's very own pension expert. Earlier in this thread i suggested the OP advising his son was the epitome of the blind leading the blind. I was wrong. I should have factored in your words of wisdom to add another dimension.


And for the record, I never suggested going to an IFA. I suggested the son should get curious, interested and educated himself by reading.

Linton

DiggerUK wrote: »

scotsbob, notice how they never say those magic words "you may not get back all you invest" and just go on and on, as though it is all guaranteed to happen?

Seems your thread has been swarmed by the Cyber Sisters, you have held your ground admirably. Well done.

Sure, nothing is guaranteed. What is your althernative?...

Gold - well that is highly volatile. Suppose you had wanted to retire in 2001 - at that time gold was at its lowest price relative to inflation for 30 years, having halved in 5 years. See http://goldprice.org/inflation-adjusted-gold-price.html

Index linked bonds - the government could stop these or reduce their returns. IMHO not likely but certainly possible - some posters appear to believe the UK government/economy will collapse in the relatively near future.

Both these allegedly safer options have the disadvantage that their returns are relatively low - protecting against risk costs money. This increases the risk that if you are forced, for example by health problems, to stop work early you could have insufficient funds for even what you would consider a minimal standard of living.

So what should the average person - someone with income available after payment of necessities and the need/wish to stop working at some point in time - do?

IMHO the sensible strategy is...
1) Plan to retire early - if things dont work out you have the fall back option of continuing to work
2) Maximise your savings by minimising your tax
3) Use a broad range of savings assets so that you are not wiped out by a single event. Sure there is the risk of global armeggedon, but there is not a lot you can do about that.
4) Have some of your savings in a low return non-volatile asset so that should the worst happen you can support a minimal standard of living. Have the rest in higher risk high return assets. You again need a broad range of such assets so that the failure of one doesnt have a major impact.

The key part of the stategy is appropriate diversification. The proportion of wealth held in "safe" assets as opposed to growth assets depends on your wealth, your personal attitude to uncertainty and your age. Whilst young you can be more adventurous as, if things go badly, you have time to recover the situation.

All this is pretty basic stuff, though there are some people who seem to have problems with the concepts.

DiggerUK

Linton wrote: »

Gold - well that is highly volatile. Suppose you had wanted to retire in 2001 - at that time gold.....halved in 5 years.

Index linked bonds - the government could stop these or reduce their returns. IMHO not likely but certainly possible - some posters appear to believe the UK government/economy will collapse in the relatively near future.

If you had retired in 2001, you could have retired after buying gold for 40 years.
Guess how much gold was in 1961? Less than 15 pound an ounce.

As you would have not spent all your gold in the intervening 9 years, you would now find, that what was worth an average 188 pounds an ounce in 2001, is today worth 850 pounds an ounce.
Will you please think your arguments through before you make them.

As to NSI IL, it appears that you are seriously suggesting Armageddon is on it's way. You are halfway to being a gold bug.

Best of fortune scotsbob, stand by your family.

Linton

DiggerUK wrote: »

If you had retired in 2001, you could have retired after buying gold for 40 years.
Guess how much gold was in 1961? Less than 15 pound an ounce.

As you would have not spent all your gold in the intervening 9 years, you would now find, that what was worth an average 188 pounds an ounce in 2001, is today worth 850 pounds an ounce.


Will you please think your arguments through before you make them.

As to NSI IL, it appears that you are seriously suggesting Armageddon is on it's way. You are halfway to being a gold bug.

Best of fortune scotsbob, stand by your family.

Like I said, gold is highly volatile. If you chosen to retire in 1980-82 on the basis of your valuable pot of gold you would perhaps have been a little disappointed as the real price of gold subsequently halved.

Unless you are very wealthy an investment that can rise and fall by say 50% after inflation several times during the payout lifetime is perhaps not the best basis for a stress-free retirement, especially if you have sacrificed so much during the accumulation phase to stay in something you were told was safe.

As I said clearly in my posting, the sensible answer is to diversify and to adjust your diversification over time to reflect your need for a stable retirement payout. For the young Scotsbob lad with a lot of spare cash, in the early years this is not an issue. What is a greater need is the rapid growth to protect against the risk of enforced early retirement and the reduced deposits as his living expenses increase .

Aegis

DiggerUK wrote: »

If you had retired in 2001, you could have retired after buying gold for 40 years.
Guess how much gold was in 1961? Less than 15 pound an ounce.

Over the past 50 years, equities have offered a real return in the region of 5.7% p/a (i.e. the nominal return less inflation was still an average of nearly 6% - sourced from the Barclays Equity Gilt Study 2009). Investing in 1961 and selling in 2001, therefore, offered a real return of 818%. In the same time frame gold returned less than 100%.

Stepping it forward to 2010, the figures are somewhere in the region of:

Equities: 1,412% real return
Gold: 400% real return (being generous)

So, if you could have retired after 40-50 years of buying gold, you could have retired a lot richer if you'd invested in a diversified basket of equities instead.

Remind me why this would have been a good thing?

DiggerUK

Linton wrote: »

Like I said, gold is highly volatile. If you chosen to retire in 1980-82 on the basis of your valuable pot of gold you would perhaps have been a little disappointed as the real price of gold subsequently halved.

Your retirement has now moved from 2001 back to 1980/82, and my answer is the same.
If you had retired in 1980/82 you would presumably have had opportunity to buy gold in the preceding 10/20/30/40 years. Difficult in the war years granted, but still available at under 15 pound an ounce.
Averages between 80/82 were 263, 226 and 215. And is still 850 pound today.

Stop shooting yourself in the foot, and think your arguments through.