Hisk risk penion funds

Alan83

I am in my 20's and about to start a pension fund. Due to the fact that i will not be drawing it for around 40-50 years i was thinking about investing in a high risk fund to try and maximise gains before lowering the risk closer to retirement age. Can you tell me if there is a real risk that i could lose my money (actually lose it eg by companies invested in going bust) or if it will simply be a downturn but with potential to bounce back?

Thanks

middlepuss

You'd need to tell us specifically what you're going to invest in...

You'd be bonkers to invest it all in one single company. Look what happened to RBS or BP.

You could take a chance and put it all into emerging market investment trusts, for example. There are several of these (EG Templeton Emerging Markets IT). Over 20 to 30 years the theory goes that China, India, Brazil etc might do a lot better than European stock markets. But who knows! Most would advise a wider spread - some UK, some emerging markets etc.

Even if you wanted to go for all emerging markets, still spread it around several emerging market funds: any one fund, however good now, could after a change of manager become a dog.

Linton

It is not a good idea to invest in A high risk fund. What you should do is to invest in a range of higher risk funds covering a wide range of sectors. In that way if one sector has problems there is a fair chance that your overall portfolio wont be too badly hit.

Of course, if you get a global credit collapse most equities are affected. You can partially guard against that by including some fixed-rate (gilts, high rated corporate bonds) funds on your portfolio.

The chances of a fund managed by a main-stream fund manager collapsing completely are minimal, especially if you keep to the major sectors. With a major downturn a recovery is to be expected though this can sometimes take many years - I have one fund that has not yet fully recovered from the tech bubble of 10 years ago.

dunstonh

trying to fashion invest usually ends in tears.

middlepuss

Alan, also tell us if you'd be an active investor - someone who reviews their investments regularly and switches; or whether you'd be a passive investor - ie you want things you can invest in that you can pretty much leave to accumulate over the next 30 years - in which case large, well diversified funds could be the answer.

Though I'm sure folks will say you should review your investments every now and again so you don't wake up at 60 and find you've been in some awful underperforming investments for 30 years!

Loughton_Monkey

Alan83 wrote: »

I am in my 20's and about to start a pension fund. Due to the fact that i will not be drawing it for around 40-50 years i was thinking about investing in a high risk fund to try and maximise gains before lowering the risk closer to retirement age. Can you tell me if there is a real risk that i could lose my money (actually lose it eg by companies invested in going bust) or if it will simply be a downturn but with potential to bounce back?

Thanks

By setting up your pension with a range of funds, it is most unlikely you would ever 'lose' all your money. As you are aware, the value could fall but would potentially move back up in time.

As to which funds, then that's anyone's guess. A lot depends upon how active you are going to be in reviewing them. Some funds are designed for long term growth and 'going to sleep', whereas if you specifically hone them to a particular 'slant', then that might not be a good idea for ever.

middlepuss

Loughton_Monkey wrote: »

Some funds are designed for long term growth and 'going to sleep'...

Please could you suggest a few?

Some folks currently viewing this board may be taking a good hard look at pensions and investments at the moment but despite good intentions may then lapse into the invest-and-forget category.

Loughton_Monkey

middlepuss wrote: »

Please could you suggest a few?

Some folks currently viewing this board may be taking a good hard look at pensions and investments at the moment but despite good intentions may then lapse into the invest-and-forget category.

I have no specific recommendations etc. But what I am talking about can easily be seen if you go to Trustnet, look into Pension Funds, and then specify "Balanced Managed".

In principle, these are funds that are intended for medium/long term investors to slot money into over the period and get 'reasonable' returns. There are also "Cautious Managed" which tend to put even more into fixed interest/money market.

SallyG

"As to which funds, then that's anyone's guess."
How do IFAs decide what funds to recommend to clients?
I understand attitude to risk and duration of investment will count - after that how do IFAs choose amongst suitable candidate funds?
I've looked at trustnet online - can't find a key for their star rating system for pensions - mine's got 3 stars - all other SW pensions seem to be 4 star - how come?
What other sites do IFAs consult on a daily basis?

dunstonh

How do IFAs decide what funds to recommend to clients?

Risk analysis and due diligence. If you take a typical sector you will have funds that are higher risk than others. You will have some clear indicators that some funds should be avoided. Others that give potential and may be worth a look. No-one has a crystal ball and in most cases its more elimination to be left with a range of funds, any of which could be potentially be the best but also could fall down flat.

I've looked at trustnet online - can't find a key for their star rating system for pensions - mine's got 3 stars - all other SW pensions seem to be 4 star - how come?

Financial express crown ratings only go to 3. Many ratings firms do not rate pension funds or have only recently started and havent built up the numbers yet.

What other sites do IFAs consult on a daily basis?

I dont think there are many free sites IFAs would use as they are not really suitable. I use financial express analytics which is the paid for version of Trustnet. The free version consumers get with trustnet is cut down compared to the retail version. The free version is fine for the average consumer but its not really good enough for advice. For example, I don't believe the free version does risk scattergraphs and filtering.

purch

How do IFAs decide what funds to recommend to clients?

Guesswork


N.B. The above is not meant to be a serious comment.