Sipp Pension Portfolio - What do you think?

philrush

Hi Mickey,

Thanks for that, will take a look.

I was wondering if there any models (in terms of percentages) in which investments should historically be held for a pension, I've got bits of information, but surely there are some clear investment strategy models? At the moment my short list is a mix of lots of things, and I am unsure how to produce a balanced portfolio.

For example: 70% in shares and resources, 20% in property and 10% in fixed interest is one strategy I found. But I'm sure there are many other models.

From what I understand I can use portfolio calculators (x ray tools) to work out the percentages overall, is there a good free tool to do this? As the morningstar one is ok, but you have to re-enter everything over each time you want to recalculate. Also I'm finding it difficult to locate the funds as a lot are similarly named, does HL have the references required for these calculators, or do I always have to manually search each fund?

Thanks, Phil

Ark_Welder

philrush wrote: »

From what I understand I can use portfolio calculators (x ray tools) to work out the percentages overall, is there a good free tool to do this?

Have a look at the Portfolio tool on Trustnet. Registration is free and your data is saved. It does rely on the underlying fund info being up-to-date, but then I suppose that they all do!

http://www.trustnet.com/Tools/Portfolio/PortfolioLogin.aspx?Url=/Tools/Portfolio/PortfolioHome.aspx

Difficult what to suggest about a model portfolio on the grounds that everyone will have their own views, and these will reflect their attitudes to risk and probably their age: one suggestion is that the older someone is, the greater the percentage of bonds should be held. But it's hard to say what allocations might be best going forward at the moment - at least for the short-term outlook

Don't necessarily discount all Absolute Return funds. There are different strategies employed and different underlying asset types. Some of these funds have higher charges because they are fund-of-funds or/and have performance fees, but not all. If one of these funds or a balanced/active managed fund is used as a core then it would (hopefully!) swap between asset types as the economy changes - but, on the whole, try to avoid FoFs because these do tend to bump up the charges.

bendix

Jeez, guys . . i'm disappointed in the granularity of your answers.

The OP is 40 years away from retirement, and you're discussing the minutiae of whether that fund is good or bad, or should you go emerging market bonds or gilts?

At the end of the day, I'm worried all your nit-picking (I understand you're trying to be helpful) will actively discourage him from doing anything by over-analysing it.

He has forty years. WHATEVER he does now is not going to be a mistake, providing he does something. He could invest it all in one high risk fund for all I care, so long as he commits to taking an interest in it, monitoring it and just keeping engaged with it over the forty years, adding more, changing direction, learning as you go.

The only general comment I would add is this: OP, you're doing the right thing. Don't overthink it. Choose funds you think you're happy with and just do it.

Oh, and try to increase the 14.5% a percentage point every year or so, perhaps to 15.5 next year etc etc. At least in the first 20 years of your progress.

philrush

Hi Bendix,

Thanks for your input, there is a lot of information overload as I'm new to this, and I think it will take me a fair few years to know what I'm doing. So at the moment I just want to make an informed decision, which this thread has definately helped with a lot. My feeling is if I make mistakes I can correct them in 6 months/year time and as I gain knowledge I should be able to invest more wisely. And given I have 40 years to retirement I do have a lot more margin for error, than say someone close to retirement with a large pension pot to consider.

I looked at assett allocation models, but to me they do seem a little simplified given the current economy, such as why would I want to hold a lot in cash in times of inflation? Some of the more cautious models, seem to me a guaranteed way to lose money.

Ark Welder,

Thanks for the info, will give that a go at trustnet. I think I agree with the "fund of funds" should be avoided, as I'm under the impression that getting lower charges is a good thing to aim at.

I was also wondering what a manageable size of funds to hold is, I was thinking of maybe narrowing down to 6 funds? Maybe less. Partly because the amount I can put in each month, can't stretch across lots of funds, and partly because I would have thought too much diversification will give lower yields (although perhaps a safer return)

Thanks, Phil

Ark_Welder

philrush wrote: »

I was also wondering what a manageable size of funds to hold is, I was thinking of maybe narrowing down to 6 funds? Maybe less. Partly because the amount I can put in each month, can't stretch across lots of funds, and partly because I would have thought too much diversification will give lower yields (although perhaps a safer return)

If you are concerned about 'information overload' and also about the possibility of fewer funds then you might consider starting off with just one or two funds: globally diversified and/or multi-asset. Then spend the year (but not 24/7 ) reading up on investing strategies, asset types, economies, etc. You might then be in a better position to decide whether you want to divert some payments into more specific areas. The one or two funds might be carried on as core holdings or you might decide to reinvest them elsewhere, but in the meantime you have made a start - and without overload!

Something that is often said about too much diversification is that you end up with tracker-style performance, but with higher management charges. In that case you would probably have been better off using trackers from the outset. I suppose that it depends upon the differences between the funds, i.e. their asset types and geographic spread. You can always keep track of them in a spreadsheet.

My only recommendation is that you include in your reading the Business sections of quality news papers and agencies - plenty of information online. These will give you an idea of what is happening in the economy both here and around the world. This kind of information might be useful for deciding investment areas to avoid as well as ones that might be beneficial longer term. The Money sections of newspapers I find to be a bit 'after the event', i.e. trend followers rather than setters. The cynic in me says that is something is being mentioned in the Money sections as being a good investment then the time is probably approaching when it would be better to get out!

OK. I lied. My other recommendation (;)) is to not be overly concerned with the gyrations in stock markets just now. You are just starting off on a 40-year journey so the affect on your assets will be a lot less than if you were 35 years into it. Expect volatility and dips - these could actually work to your advantage (pound-cost averaging). My own feeling is that we have not seen the worst just yet, and have not seen the bottom of the markets. But I won't be selling up and holding lots of cash, just indulging in a bit of tinkering now and then to maintain some balance to my portfolio.

In answer to the question 'why would I want to hold a lot in cash in times of inflation?', the answer might be 'because cash will provide a better return than other asset types at the moment'. Would you rather be making a -3% real return on cash over a year or a -20% return on stocks over 3 days/months/years? The cash can always be invested once circumstances look like they will be changing (when reading, you might find this approach described as something like 'capital preservation'). But such an approach does require the almost mythical ability to 'time the market'.


Have fun, and don't get overloaded!

philrush

Hi,

Been away a while, but have had an attempt of my first draft of a portfolio, although still don't really understand how to balance it out properly as there are so many different ways of doing it.

Anyway this is what I have (first figure is % of portfolio, 2nd figure is 3 year gains)

HSBC FTSE 250 Index Ret Inc 25.0 28.2
Invesco Perpetual Distribution P 12.5 28.8
Marlborough Special Situations Acc 12.5 58.8
HSBC Pacific Index Ret Acc 12.5 38.7
M&G Strategic Corporate Bond X Inc GBP 12.5 41.7
Troy Asset Management Ltd Trojan Capital I Acc 25.0 34.9

The asset allocation is as follows:

Asset Allocation

32.9 UK EQUITIES
11.3 UK CORPORATE FIXED INTEREST
10.5 INTERNATIONAL EQUITIES
8.3 UK LARGE CAP COMPANIES
4.8 UK FIXED INTEREST
4.3 MONEY MARKET
4.0 OTHER INTERNATIONAL EQUITIES
3.8 AUSTRALIAN EQUITIES
2.8 SOUTH KOREAN EQUITIES
17.5 Other Holdings

Sectors
14.5 FINANCIALS
11.9 INDUSTRIALS
9.2 CONSUMER GOODS
8.5 CONSUMER SERVICES
6.7 BASIC MATERIALS
6.6 TECHNOLOGY
6.5 BBB
4.7 HEALTH CARE
4.3 A
27.2 Other Holdings

Regions
61.4 UK
9.4 INTERNATIONAL
4.3 MONEY MARKET
3.6 AUSTRALIA
3.2 EUROPE EX UK
2.8 KOREA
2.0 HONG KONG
1.9 TAIWAN
1.2 USA
10.4 Other Holdings

I did notice that the 6 month figure is -10.4% and the year is down 2.4% for the portfolio but I'm trying to look at this over the long term, anyway any help with the below questions would help me a lot.

Should I wait a couple of months for a double dip or further fall in the markets?
Does this look like a balanced portfolio for someone as a long term investor?
What level of risk does this portfolio suggest, I would say I'm a moderate risk taker ?
Do you think this portfolio is suitable for someone aiming at average annual gain of (7-10%)
I worked out the average charge of this portfolio is 1.20%, should I aim for lower?
I would have thought checking my portfolio once a year would be enough given the length of time
I have to retirement, am I correct?
The tracker funds seem to have done worse in the last 6 months, in times of volatility are trackers
a poor choice?


Any input appreciated,

Thanks, Phil

Linton

All comments are of course IMHO

Anyway this is what I have (first figure is % of portfolio, 2nd figure is 3 year gains)

HSBC FTSE 250 Index Ret Inc 25.0 28.2
Invesco Perpetual Distribution P 12.5 28.8
Marlborough Special Situations Acc 12.5 58.8
HSBC Pacific Index Ret Acc 12.5 38.7
M&G Strategic Corporate Bond X Inc GBP 12.5 41.7
Troy Asset Management Ltd Trojan Capital I Acc 25.0 34.9

Bit of a mixture of the general and specific. The troy fund may invest anywhere in the world - if you like the fund why are you tweaking their choices? I would say either go for a small number of general funds, relying on the fund manager to allocate assets or a larger number of focussed funds to give you the asset allocation you want.

The asset allocation is as follows:

Asset Allocation

32.9 UK EQUITIES
11.3 UK CORPORATE FIXED INTEREST
10.5 INTERNATIONAL EQUITIES
8.3 UK LARGE CAP COMPANIES
4.8 UK FIXED INTEREST
4.3 MONEY MARKET
4.0 OTHER INTERNATIONAL EQUITIES
3.8 AUSTRALIAN EQUITIES
2.8 SOUTH KOREAN EQUITIES
17.5 Other Holdings

Confusing - surely anything under UK large cap will also be in UK Equities. Too much in UK . What about USA, China?

Sectors
14.5 FINANCIALS
11.9 INDUSTRIALS
9.2 CONSUMER GOODS
8.5 CONSUMER SERVICES
6.7 BASIC MATERIALS
6.6 TECHNOLOGY
6.5 BBB
4.7 HEALTH CARE
4.3 A
27.2 Other Holdings

Too much in financials, not enough in basic materials and technology. Is the above list a fair reflection of the areas you believe will do relatively well in the next 40 years?

Regions
61.4 UK
9.4 INTERNATIONAL
4.3 MONEY MARKET
3.6 AUSTRALIA
3.2 EUROPE EX UK
2.8 KOREA
2.0 HONG KONG
1.9 TAIWAN
1.2 USA
10.4 Other Holdings

Too much in the UK. Where do you expect growth to be in the next 40 years?

I did notice that the 6 month figure is -10.4% and the year is down 2.4% for the portfolio but I'm trying to look at this over the long term, anyway any help with the below questions would help me a lot.

Should I wait a couple of months for a double dip or further fall in the markets? Irrelevent - in 40 years time the details of what is happening now wont matter.

Does this look like a balanced portfolio for someone as a long term investor?
No
What level of risk does this portfolio suggest, I would say I'm a moderate risk taker ?

Do you think this portfolio is suitable for someone aiming at average annual gain of (7-10%)
No.
I worked out the average charge of this portfolio is 1.20%, should I aim for lower?
The average charge is a marginal factor - focus on overall return.
I would have thought checking my portfolio once a year would be enough given the length of time
I have to retirement, am I correct?
Checking and thinking about your investment is a continuous process. If you are talking about making changes - yes once a year is reasonable

The tracker funds seem to have done worse in the last 6 months, in times of volatility are trackers
a poor choice?
Trackers are neither worse nor better in times of volatility, of necessity they are average. The HSBC tracker is average performance for the FTSE250. You will find the Far East tracker below average performance compared with the specialist managed funds. In the mature markets trackers can be good, in markets where specialist local knowledge is beneficial trackers do not work so well.

philrush

Hi Linton,

Thanks for the detailed feedback, I'll take another look. I think I'm slowly getting somewhere, I like all the funds listed, its just getting the balance right.

While I think the troy fund looks great I'm reluctant to rely too heavily on one fund manager, although if I could narrow it down to 4-5 I think that would suit me more, the idea was the Troy fund and the HSBC FTSE tracker would be the core.

Phil

Linton

If you want to rely on the fund manager to allocate assets - yes you should certainly have more than one, though I would say 5 is arguably excessive.

The FTSE 250 tracker is hardly a core general fund. It purely invests in mid-size UK companies. So it's restricted by geography, company size, and asset type. By the nature of UK companies it is also restricted by company sector, for example there are relatively few mid size UK miners, telecoms, oil companies, utilities etc. Look at the analysis of the fund on trustnet.com.

I would suggest you could look at global growth funds, if that's what you want.

philrush

Hi Linton,

Thanks again, the FTSE 250 was a core holding to bring the costs down, and it has a strong past performance. I had considered an All Share tracker instead.

The Global Growth Fund I like is Rathbone Global Opportunities, which would give me more of a geographical spread.

Phil