Fund choices....

aj3001

I am now eligable to enter my works pension scheme, I contribute 3% of my salary, and they match that, it is with Legal and General and the fund choices I was thinking of are below, please give me your oppinions on what, if anything I should change from the choices

20% Deposit/Cash Fund
20% Index Linked Gilt
25% Property
20% Far Eastern Fund
15% Japaneese Equity Fund

dunstonh

how old are you?
What tolerance to loss do you have? (in simple terms, how much would you allow it to drop in value before changing it)
What happened to North America, Europe and UK (amongst others)?

aj3001

I am 18, and I will have a fairly high tolerance of loss.

I didn't consider North America or Europe as funds which will perform as well, the UK is covered by the index linked gilt and property is UK

EdInvestor

The choice is very cautious for a person of your age.The 40% in cash and gilts should be in mainstream UK blue chip shares, and that percentage should be higher at least 50% IMHO. (If you want to save in cash, use your ISA, you will get a much better deal, the pension will deduct charges.)

Overseas funds of all types are subject to currency risk and usually also have high (hidden) charges: US funds will have another bad year as the dollar is collapsing again. This is regardless of the US stockmarket's actual performance.

if you want to take more risk in search of higher returns but avoid foreign funds, you could try UK smaller companies and commodities funds.

dunstonh

Index linked is not UK stockmarket but gilts and fixed interest sector. That and cash is pointless at your age and timescale. The index linked could be utilised to a small degree on a medium risk profile if offset against higher risk sectors and rebalanced but not if you plan to invest and forget.

Overseas funds offer greater potential for growth over the long term and the charges nowadays are not much, if any different from UK funds. Its only when you go in to niche or more specialist funds where you may find the charge increases.

Avoiding foreign funds with your risk profile and timescale would be silly. The UK tends to be best performing sector once every 5 to 7 years. So, in a 40 year period you may see only 5 top performing years. The rest of the 35 years will be mostly overseas sectors. With lower risk sectors being better in periods of decline.

aj3001

So which funds would you choose? Available are:

(in order of decending risk)

Jap. Equity Index Fund
Far Eastern Fund
North American Fund
US Equity Index Fund
UK Smaller Companies Fund
European Fund
European Equity Index Fund
Ethical Fund
International Fund
Global Equity Index Fund
Global Equity Weights Index Fund
UK Recovery Fund
Equity Fund
UK Equity Index Fund
Managed Fund
Property Fund
Consensus Fund
Distribution Fund
Index Linked Gilt Fund
Fixed Interest Fund
Cash Fund

dunstonh

Jap. Equity Index Fund
Far Eastern Fund
US Equity Index Fund
UK Smaller Companies Fund
European Equity Index Fund
UK Recovery Fund
UK Equity Index Fund
Property Fund

Percentages spread to suit risk profile.

EdInvestor

I thought you didn't like trackers, DunstonH :huh:

clairehi

EdInvestor wrote:

I thought you didn't like trackers, DunstonH :huh:

Whats wrong with trackers? I read somewhere that historically they have outperformed managed funds.

dunstonh

I have no problem with trackers at all and I utilise them regulary. My issue is when someone goes 100% into a tracker with no diversification. I have said before that I will utilise them on that basis. i.e. the "which tracker should i put my money in" threads we see periodically.

I read somewhere that historically they have outperformed managed funds.

In periods of growth, trackers tend to outperform most managed funds. In periods of poor performance, they tend to underperform most managed funds as they have no downside protection. There is no manager there making a decision to get a little more defensive on the holdings.

When you see this trackers beat managed funds comment, it tends to be too simplistic. If you take out closed managed funds and disregard passive managed and stick with active managed funds you remove a lot of the poor quality managed funds. If you then look to the main fund houses, you have a good chance of picking a managed fund that has good potential to outperform the index tracker. With a stakeholder pension, you dont have those sorts of funds so it makes sense to go with the trackers.

clairehi

dunstonh wrote:

With a stakeholder pension, you dont have those sorts of funds so it makes sense to go with the trackers.

Thats an interesting point.

Whats the difference between a passive managed fund and an actively managed one though?