A pensions warning - Do not put your eggs in one basket.

cumulus.james

We have all heard the phrase " don't put all your eggs in one basket" and I feel this is especially true with pensions. Especially with the current climate. Pension horror stories are two a penny. Financial companies are dangerous people to trust. Indeed we nearly saw some of the worlds biggest banks go under, if that can happen then how safe is a pension fund? In addition to the possibility a fund could be wiped out, there pensions are as I am sure you know VERY complicated and a great many people want a piece of your pension pie.

Now I am not saying don't have a pension, but don't have it as your ONLY source of income for your retirement. I know savings are not a good prospect right now, but have a savings account, preferably with the post office as it is secured by the government, and one with a penalties or notice period for withdrawing to stop you dipping into it.

Gold is a good investment. It is unlikely to devalue much. When i say gold I am not talking jewellery, you can buy gold bars (these come in all sizes for all budgets) and keep them in a safety deposit box or invest in a home safe and insure them. Any gold you buy is likely to have at least doubled in value over a decade.

Property is the best way to go. If you can buy a place to let this is good way to a great retirement. Yes property will go up and down. But this does not matter until you come to realise that capitol. The good news is that in most areas a small pokey ex-local authority 1 bedroom flat will rent out at more than £500 per month and this will go some way to off-set any risk. he bad news is you really need at least £40% deposit to make it worth your while. There are many estate agents who will manage the property and some even offer you a deal to guarantee you rent all year.

Another option, if your income is limited is shares. Yes your pension is linked to shares, but its linked to shares via a lot of greedy fingers who each take a bit before it comes to you. You could buy shares in a company such as Sainsbury’s, starting with just a few and buying more. Though I must confess I know nothing about how shares are bought! I believe they pay a dividend each year, their value fluctuates. I am thinking about shares myself and I am thinking it would be a good idea to invest 50% of my budget on "safe" shares and 50% on more risky shares. At the very least you should do some thorough research before you go down this road. And always get multiple opinions.

yelf

You clearly havent got a clue what you are talking about in the slightest. Those are some of the most stupid statements I have ever read. Nearly every singly thing you say is grossly flawed - to the point that it would take an age to state all the ridiculous inaccuracies. Honestly - makes me laugh

cumulus.james

You think it is good idea to have all your money in the one pension pot? Don't be so rude. I am 29 years old and no way would I rely on just the once source.

Do you know of any great gold reserve that is going to devalue gold? Uses for gold are increasing, many of your electrical goods contain it. Demand is high and likely to remain so. Therefore if one buys gold now in 10 years it is highly likely to be worth significantly more then. I would suggest gold prices increasing is more certain than a pension linked to shares.

If property is not a good idea then it is odd most the wealthy people I know of are so though property. Indeed Alan Sugars money comes mostly from property. If when you retire you can boast 2 properties to sell you are surely going to have a happy retirement.

Savings accounts are more secure than pensions. Your pension fund can fail. Your post office savings account can not, unless the government goes bust. Which is unlikely.

When it comes to shares I admitted do not know a lot about them. But it is worth looking into.

Better to have half a dozen of your financial eggs in one basket and the other half safely in the fridge.

yelf wrote: »

You clearly havent got a clue what you are talking about in the slightest. Those are some of the most stupid statements I have ever read. Nearly every singly thing you say is grossly flawed - to the point that it would take an age to state all the ridiculous inaccuracies. Honestly - makes me laugh

Shimrod

cumulus.james wrote: »

Therefore if one buys gold now in 10 years it is highly likely to be worth significantly more then. I would suggest gold prices increasing is more certain than a pension linked to shares.

Try telling that to people who bought gold in 1980.

cumulus.james wrote: »

Savings accounts are more secure than pensions.

I suggest you read one of DunstonH's many posts on inflation risk to understand just one of the reasons why this statement is wrong.

cumulus.james wrote: »

When it comes to shares I admitted do not know a lot about them. But it is worth looking into.

Better to have half a dozen of your financial eggs in one basket and the other half safely in the fridge.

If you don't know much about shares, how do you know they are worth looking into? If you want to spread your risk, you would have your money in several pension funds. Each fund may be made up solely or partly of shares, bonds, index linked gilts or cash. That is a much better way of spreading the risk than investing in a half dozen shares. What if you picked those wonderful blue chip shares - Polly Peck, Marconi, HBOS, RBS?

It's fine to come on here and ask questions if you don't know or aren't sure of something (that's the whole purpose of the forums after all), but expect short shrift from most posters when you come on here giving advice on matters you clearly know nothing about.

Aegis

cumulus.james wrote: »

We have all heard the phrase " don't put all your eggs in one basket" and I feel this is especially true with pensions. Especially with the current climate. Pension horror stories are two a penny.

Can you name a single pension investment fund that has gone bust? How about a single horror story regarding any money-purchase pension pot, other than simply not putting enough in to purchase a decent annuity at the end (which is performance risk, something equally applicable to all forms of investment, whether in a pension or not).

About the only one I can think of off the top of my head is Equitable Life, which suffered because it implied that it would offer rates/returns that were simply too high to sustain. As modern plans more or less unanimously no longer guarantee rates or returns and are subject to independent valuations based on the total value of assets owned by the fund, this is very unlikely to affect anyone starting a modern pension.

Financial companies are dangerous people to trust. Indeed we nearly saw some of the worlds biggest banks go under, if that can happen then how safe is a pension fund?

Very safe, insofar as provider risk goes. An investment fund generally buys assets under a trust agreement, which ring-fences the underlying securities from the fund management company. As such, if the management company goes but, the underlying assets can be liquidated and returned to the owners. On top of that, if this fails, the Financial Services Compensation Scheme exists to ensure that investors are fully compensated to the value of the investments.

There's usually little protection against poor performance, but again, that's a totally separate issue which should be dealt with by a decent asset allocation within the investor's established risk profile.

In addition to the possibility a fund could be wiped out, there pensions are as I am sure you know VERY complicated and a great many people want a piece of your pension pie.

Ultimately modern pensions aren't very complicated. You put money in and get tax relief, it grows like an ISA, then you take it out as a tax-free lump sum of up to 25% and a taxed income. The only two bits which are somewhat complicated are the investment choice (which you'd have to do anyway, even without a pension) and the choice as to how to generate an income, which boils down to either a) purchasing an annuity or b) not purchasing an annuity and instead selling assets to pay your pension.

Some older pensions can be a little more complicated than that, but all in all most pensions are not much more complicated than standard investments.

Now I am not saying don't have a pension, but don't have it as your ONLY source of income for your retirement. I know savings are not a good prospect right now, but have a savings account, preferably with the post office as it is secured by the government, and one with a penalties or notice period for withdrawing to stop you dipping into it.

Utterly useless as a retirement planning tool except for someone in the last 5-10 years. Cash simply doesn't grow enough to warrant saving for 10-40 years: inflation will reduce the real value to probably less than you paid into it (after all, the interest will be taxed). A cash ISA would be better than a simple cash account, though still not even close to recommended, while a stocks and shares ISA or a standalone pension would be much more suitable over that time scale.

Gold is a good investment. It is unlikely to devalue much. When i say gold I am not talking jewellery, you can buy gold bars (these come in all sizes for all budgets) and keep them in a safety deposit box or invest in a home safe and insure them. Any gold you buy is likely to have at least doubled in value over a decade.

No it isn't. In terms of real value, gold tends to stay the same. As such, it is unlikely to increase exponentially in value. The likelihood is that investing in gold will, in the long term, mean that whatever you put into your retirement pot is the same as what you get out, which is far from ideal. Retirement pots should aim to beat inflation by a considerable margin, and something as fundamentally static as gold simply isn't likely to achieve this for you.

Property is the best way to go.

How exactly do you quantify this statement? According to various investment studies, equities have outperformed property over most long-term timeframes by a considerable margin. Equities also have the advantage of being much more liquid (i.e. you can buy and sell them almost immediately) and much less at risk of losing their income stream (dividends are sometimes suspended, but are usually very reliable, while property can remain empty for fairly long periods, during which you still have to pay the mortgage - net result is a negative income).

If you can buy a place to let this is good way to a great retirement. Yes property will go up and down. But this does not matter until you come to realise that capitol.

The exact same statement applies equally to bonds, equities, commodities, hedge funds, warrants, options, etc.

The good news is that in most areas a small pokey ex-local authority 1 bedroom flat will rent out at more than £500 per month and this will go some way to off-set any risk. he bad news is you really need at least £40% deposit to make it worth your while. There are many estate agents who will manage the property and some even offer you a deal to guarantee you rent all year.

So basically you are suggesting taking investing into a fairly highly leveraged and extremely concentrated asset within a single city in (presumably) the UK as opposed to "putting all your eggs into one basket" by investing into a diversified range of investment funds within a pension?

Another option, if your income is limited is shares. Yes your pension is linked to shares, but its linked to shares via a lot of greedy fingers who each take a bit before it comes to you. You could buy shares in a company such as Sainsbury’s, starting with just a few and buying more. Though I must confess I know nothing about how shares are bought!

If you don't know anything about a subject, don't give advice on that subject.

Equities CAN be traded directly by consumers and held either within a pension wrapper or through a more accessible wrapper. For someone looking to buy and forget, however, this can be an incredibly bad move, as there will be no rebalancing, no amendments to exposure levels based on changing risk profiles, etc. At the very least someone like that would be much better off investing into a tracker, either via an ETF or a unit trust/OEIC. With charges as low as 0.25% p/a, these offer exposure to a basket of shares, with trades made to ensure that the companies within a certain index are represented according to their market capitalisation.

That's a much better option than simply buying blindly into companies without looking at their fundamentals, and it doesn't even address the fact that many active managed funds consistently outperform their respective benchmarks, which can add value by either increasing returns or reducing risk. These funds are available within pension wrappers as well as ISAs and simple dealing accounts (also life policies, but those are a little more niche).

I believe they pay a dividend each year, their value fluctuates. I am thinking about shares myself and I am thinking it would be a good idea to invest 50% of my budget on "safe" shares and 50% on more risky shares. At the very least you should do some thorough research before you go down this road. And always get multiple opinions.

This last sentence is probably the most sensible advice in the whole post: always research options fully before either giving or implementing any advice.

For your own reference, if you were a professional financial adviser and gave the above post to a client you would undoubtedly run into all sorts of compliance issues, and would likely be facing some fairly huge penalties from the FSA over quality of advice given. Please think very carefully before making recommendations on matters that you admit in the same post you don't understand!

Paul_Herring

cumulus.james wrote: »

We have all heard the phrase " don't put all your eggs in one basket" and I feel this is especially true with pensions. Especially with the current climate.

Pensions are typically accrued over decades - the 'current climate' is only really of concern to those who have put those decades of contributions in and may need those funds soon, not those who will retire in 20/30/40 years.

Pension horror stories are two a penny.

Compared to the number of people who actually save for a pension I'm sure the numbers aren't quite as large as you're trying to make out.

Financial companies are dangerous people to trust. Indeed we nearly saw some of the worlds biggest banks go under,

Stop lumping pension funds in with banks. It's not a useful comparison.

if that can happen then how safe is a pension fund?

How safe do you want it to be? There are numerous types of funds from very safe to very risky.

In addition to the possibility a fund could be wiped out,

Hyperbole. Unless you decided to put all your funds in buying shares in one company that goes bust 1 day before it comes to realise that fund, you're not going to be in a situation where your fund is wiped out. At worst (and unlikely to happen due to how funds should be invested in funds) you'd get protection up to £50,000 from the FSCS per fund-holding company

there pensions are as I am sure you know VERY complicated and a great many people want a piece of your pension pie.

Pensions need not be complicated.

Now I am not saying don't have a pension, but don't have it as your ONLY source of income for your retirement.

Well quite, but...

I know savings are not a good prospect right now,

For the long term, holding a substantial amount of your pension fund in cash savings are never a good prospect due to inflation.

but have a savings account, preferably with the post office

Um, why the Post Office especially? It was only this November that any savings with them became fully protected by the FSCS - before that you had to rely on the passport scheme. Remember IceSave?

as it is secured by the government,

Not quite.

and one with a penalties or notice period for withdrawing to stop you dipping into it.

And almost every single UK bank also has the protection you cite for the Post Office, and I'm sure each of them also have accounts with notice periods.

Unless, of course, you're talking about NS&I savings, where the only involvement the Post Office has is as 'front of shop' for the Government. A fairly fundamental misunderstanding on your part if so.



I gave up after that. Fisking a post as confused as this such that it needs interjecting more than once a sentence is basically pointless, since I'm sure that neither of us are going to convince the other, and you're just going to ignore anything I have to say.

Paul_Herring

Aegis wrote: »

On top of that, if this fails, the Financial Services Compensation Scheme exists to ensure that investors are fully compensated to the value of the investments.

Actually it doesn't (and never has) - since January, they increased the limit they protect by £2,000 to £50,000 per institution - same limit as cash savings: http://www.fscs.org.uk/what-we-cover/eligibility-rules/compensation-limits/investment-limits/

Still - that's higher than most pension funds held today (IIRC the median is woefully low at around £20K)

diable

I am working on my credit rating by applying for and using credit cards so that my rating goes up once that happens I will draw out all the cash and move to Thailand and invest the money in a Go Go bar as it will be better then shuffling around the local shopping center in winter trying to keep warm when I am 65.

dunstonh

Wow, what a rather strange and inaccurate post. Shame you lot beat me to it However, I am going to pick apart a few points for the fun of it.

Pension horror stories are two a penny.

No they are not. The media repeating events from 20-30 years gives that impression perhaps. Many of the things that occurred back then brought in changes that have made things much better today.

Indeed we nearly saw some of the worlds biggest banks go under, if that can happen then how safe is a pension fund?

The two things are not related.

In addition to the possibility a fund could be wiped out

Even if you take the most basic investment fund used (a balanced managed fund) the spread of assets is so wide (and includes cash, global equities, fixed interest securities and often property) that a wipe out would be the least of you worries if that was to happen.

Another option, if your income is limited is shares. Yes your pension is linked to shares, but its linked to shares via a lot of greedy fingers who each take a bit before it comes to you.

Yet buying shares each month on a typical regular contribution is likely to be more expensive than a typical unit linked fund. Plus, it stands more chance of being wiped out. Lets say if those shares were northern rock, bradford & bingley, polly peck, marconi etc.

Though I must confess I know nothing about how shares are bought!

Or pensions or investments in general by the looks of it. Nothing wrong with that as there are plenty of ways to learn about it or use people that can do it correctly. However, not knowing anything about the subject but then telling people things that are complete rubbish is not fair on the poor soles that also know nothing about the subject but may believe you.

yelf

"safe shares" direct share holdings are high risk. Define a "safe" share. BP anyone?

Also look at property share prices compared to total share returns over a 20yr period: shares hammer property, and are liquid, and have no cgt to pay in a pension.

Pension funds diverisfy acrosss sector, asset, style and geographical location - that is how you dont have all your eggs in one basket. Comparing a diversified managed portfolio to a bank? Log off!

bendix

cumulus.james wrote: »

We have all heard the phrase " don't put all your eggs in one basket" and I feel this is especially true with pensions. Especially with the current climate. Pension horror stories are two a penny. Financial companies are dangerous people to trust. Indeed we nearly saw some of the worlds biggest banks go under, if that can happen then how safe is a pension fund? In addition to the possibility a fund could be wiped out, there pensions are as I am sure you know VERY complicated and a great many people want a piece of your pension pie.

Now I am not saying don't have a pension, but don't have it as your ONLY source of income for your retirement. I know savings are not a good prospect right now, but have a savings account, preferably with the post office as it is secured by the government, and one with a penalties or notice period for withdrawing to stop you dipping into it.

Gold is a good investment. It is unlikely to devalue much. When i say gold I am not talking jewellery, you can buy gold bars (these come in all sizes for all budgets) and keep them in a safety deposit box or invest in a home safe and insure them. Any gold you buy is likely to have at least doubled in value over a decade.

Property is the best way to go. If you can buy a place to let this is good way to a great retirement. Yes property will go up and down. But this does not matter until you come to realise that capitol. The good news is that in most areas a small pokey ex-local authority 1 bedroom flat will rent out at more than £500 per month and this will go some way to off-set any risk. he bad news is you really need at least £40% deposit to make it worth your while. There are many estate agents who will manage the property and some even offer you a deal to guarantee you rent all year.

Another option, if your income is limited is shares. Yes your pension is linked to shares, but its linked to shares via a lot of greedy fingers who each take a bit before it comes to you. You could buy shares in a company such as Sainsbury’s, starting with just a few and buying more. Though I must confess I know nothing about how shares are bought! I believe they pay a dividend each year, their value fluctuates. I am thinking about shares myself and I am thinking it would be a good idea to invest 50% of my budget on "safe" shares and 50% on more risky shares. At the very least you should do some thorough research before you go down this road. And always get multiple opinions.

With the greatest of respect, you're a fool pretending to be a sage.