Where to start with pensions

dunstonh

The market still hasn't recovered to ite pre crash peak in 1999, so I wouldn't worry too much.

You have to be careful of the index you track though. The FTSE All share and FTSE100 have underperformed the UK All companies sector average each and every year for the last 13 odd years. Whilst the FTSE250 sector has outperformed the sector average.

That has nothing to do with charges but due to the type of companies being invested within the index.

jamesd

You might consider the ones I mention here to start. They are multi-manager funds so get you a fairly big spread fairly quickly, with relatively little money.

Multi-manager probably aren't the best if you become really keen on picking the best funds and want to be more active. They are a good starting point, though.

If you do want to be more active and put more of the money in to stocks and shares, say 5-7 at 50 a month contributions, you should be looking at the various parts of the world and market sectors and spreading the money widely around them.

As you're young, a fairly high risk approach is pretty good for you, provided you can stand the ups and downs. Fairly high risk means things like lots of developing countries, Eastern Europe and maybe commodities and smaller companies funds.

If you look at Trustnet check the regions and sectors pulldowns to get a list of the regions and sectors, then switch from Trustnet to IMA to get a different but similar way of categorising them. Those are the different regions and sectors I mean. Within each region and sector you can find lots of funds and can sort them by past performance, risk and such. Then you can look at the charts to see if it's normal - you might find a surge in 1995 for commodities funds surrounded by lower performing years, for example, a clue that future years may not do as well because they may not include a good year like that.

Selecting a part of the market first, then selecting a fund that has done well over 10, 5, 3 and 1 years and still has the same management team would suggest that that fund is likely to do fairly well in the future.

cheerfulcat

Hi, mattih5,

You don't need a pension plan ( or even an ISA! though the freedom from tax is nice... ) to invest for your retirement. You just need to put money aside, preferably in the stock market. And you have to be disciplined enough not to raid your savings...If you are making regular payments over a longish term then a tracker or - preferably - a set of trackers is fine; they are cheap, and most managed funds will not outperform them, over time.

If you want active management you could look at investment trusts, which are companies which invest in other companies. They have fewer and lower charges than unit trusts and OEICs, so returns can be better. IT managers are also allowed to use gearing ( borrowing ), which UT managers are not. This magnifies outcomes in both directions, up and down. The bigger, global ITs have portfolios which cover most asset classes/sectors/regions so you don't have to worry about working out your own asset allocation - one or two ITs is all you need.

EdInvestor

It's worth noting that EdInvestor tends to favor low fee options even when higher costs could produce higher returns.

Nah.I favour low-cost options that produce high returns.It's much the best way when you think about it

mattih5

Okay so I have decided to scrap the idea of saving £250 in an ISA and then another £80 into a high interest account. I think the replies are correct in saying I don't really need to start pension schemes, I should really be considering taking some risk and maximising my money as much as I can.

I have been looking at Index Trackers e.g. Fidelity MoneyBuilder Index Tracker etc but have come to realise that trackers basically follow the market which worries me slightly. Therefore I have looked into Managed Funds (i think they are called Managed Funds) like the Fidelity Global Special Situations Fund. I would like to take a bit of risk and say invest on a global scale over say a period of 5 - 10 years - Perhaps utilising my full ISA allowance this way.

I know Index Trackers are relatively cheap conpared to Managed Funds but the returns from a Managed Fund can be greater - Can't they?

What are anyone's thoughts to this?

dunstonh

I know Index Trackers are relatively cheap conpared to Managed Funds but the returns from a Managed Fund can be greater - Can't they?

Yes they can. They can be lower as well. FTSE100 trackers and FTSE all share trackers have performed lower than sector average for many many years whilst FTSE250 trackers have performed much better. That is down to timing more than anything else.

When you invest, you invest to make money. Not save on charges. Look at where you want to invest first. Then look at charges. The UK stockmarket is the worst performing of all the western economies. since Labour got into power. So, would you really want to invest in either the all share or the top 100 whilst that is the case?

With £250pm you can utilise 5 funds and that is what you should do. Not just one. Spread it wide and dont work on past performance (i.e. fid glob s/s) as that is no guide to future returns.

jamesd

mattih5, don't use just one investment. Use a selection from different sectors, since each sector does better or worse at different times.

mattih5

When you say invest in various sectors, i thought this was automatically taken care of with a fund, i've seen on Trusnet that it gives you a breakdown of where the fund is invested. Are you saying I should utilise 5 funds e.g. In trustnet there is an option to filter via sector. So I could invest £50 a month in a Global Growth IMA sector and £50 a month in UK All Companies etc etc.

I suppose that would make good sense, so perhaps look into picking 5 which have performed well and say have the same fund manager.

Is my logic correct?

dunstonh

When you say invest in various sectors, i thought this was automatically taken care of with a fund, i've seen on Trusnet that it gives you a breakdown of where the fund is invested

There are fund of funds, such as Jupiter Merlin Income Portfolio, which take care of asset allocation and the fund manager picks the funds within that fund. They are very good for smaller investments where you have no intention of monitoring it or seeking professional advice. However, they are more expensive because you are paying a manager to do the fund picking, rebalancing and they have to make a profit on top too.

Are you saying I should utilise 5 funds e.g. In trustnet there is an option to filter via sector. So I could invest £50 a month in a Global Growth IMA sector and £50 a month in UK All Companies etc etc.

Yes, five different areas.

The UK, on average is the top performing sector once every 5 to 7 years. Going forward it is likely to be less than that. So, in a 20 year period, you will be in the best area twice, maybe three times. The rest will have other sectors that will be performing better.

So, if you arent utilising those other areas, you arent going to make the most from your money.

mattih5

Okay, I think this is the route I will look into going with then. Looking at investing in 5, do they perform credit checks when setting up an account (event though I won't be gaining credit)? Only 5 checks is quite a lot.

Now comes the decision about where to invest.