SIPP Opened - Investing for income?

stringer_bell

Hi All,
I've opened my sipp, and bought a few shares. Looking to buy some funds now. I'm only 27 so I normally invest for growth with my savings and therefore dont need the income. Is it best to invest for income with my pension? or a mix of both? Or just stick to growth?

dunstonh

There are various investment strategies you can use. Each has merits. The thing to avoid is random hit and hope. Some people prefer high yield portfolios, some prefer asset allocation (or sector allocation). Some prefer one of the others. The main thing is to have a strategy and run with it.

gadgetmind

stringer_bell wrote: »

Is it best to invest for income with my pension? or a mix of both? Or just stick to growth?

Growth usually involves going for developing markets and/or smaller companies and/or value stocks (companies earning a lot more than their share price would suggest), whereas income is higher yield (risk!) bonds and/or high dividend paying companies.

You will *not* find consensus regards what's best, but my advice is to read a book or two on constructing portfolios, and the easiest to read, most up-to-date, and most relevant to the UK, is "Smarter Investing" by Tim Hale IMO.

After reading it, you will understand what role different kinds of investment play in your portfolio, which will let you decide what mix to hold and you can then look for suitable investments. Some prefer trackers, some funds, some Investment Trusts, and some hold a combination of the three. You also need bonds to smooth things out, but at your age, you don't need a whole load.

Oh, and congrats on kicking things off so early!

dunstonh

Just a caveat to when doing your research, avoid American based studies and reports. Their taxation system is different to the UK and favours certain methods because of that. Also, the US is very inward looking with investments so you usually find that they hold more "own country" equities than they do global equities. Most models for the UK market have far more in global equities than they do UK equities.

gadgetmind

A lot of people in the UK seem to regard the FTSE as the whole investment universe, and even funds that describe themselves as global often have a strong UK bias. I guess there is the argument that a lot of FTSE 100 companies have a lot of global exposure, but there aren't many lower down the market cap rankings that can claim this to the same degree.

stringer_bell

Thanks for words. I've already got 5 shares in different ftse 100 companies atm, I'm going to have around 10-20 companies shares, and then around 10 or so high risk funds as I'm young and I will be putting a large amount, well for aslong as things stay good. Just wish I used my allowance in previous years

gadgetmind

stringer_bell wrote: »

Just wish I used my allowance in previous years

If I remember correctly, you didn't have a pension scheme running before, so can't use carry forwards. Commiserations.

Regards "high risk funds", I really do recommend some reading as you need to understand that risk is OK if managed, and if it brings sufficient long-term reward.

fairleads

Go for income, you won't be sorry. After all, its what you'll need in the future so you might as well start now. I did 40 yrs ago, also aged 27, and never once regretted it.

qpop

At 27 you have at least 40 years until retirement (assuming state retirement age)

I'd be looking at a very growth oriented selection of OEICs.

Worry about income when you need it.

I have a strong emerging markets slant to my SIPP - I have some time until retirement and therefore a significant capacity for risk.

BLB53

Is it best to invest for income with my pension? or a mix of both? Or just stick to growth?

Assuming any dividend income is reinvested, as it will be within the sipp, whether you choose income or growth will make very little difference.
What will affect the eventual value is charges, so if investing in funds, make sure you select lower TERs - preferably under 1%. Over 40 years, an extra 0.5% in charges will make a big difference.
Of course, the cheapest option is to buy individual shares on a long term buy and hold basis. Apart from the minimal initial purchase costs, there are no further charges apart from reinvestment of dividends. Lots more info on the Motley Fool 'high yield practical' board if interested.

Linton

stringer_bell wrote: »

Hi All,
I've opened my sipp, and bought a few shares. Looking to buy some funds now. I'm only 27 so I normally invest for growth with my savings and therefore dont need the income. Is it best to invest for income with my pension? or a mix of both? Or just stick to growth?

My answer is both growth and re-invested income (dividends and fixed interest). Income generating investments tend to be more stable than high growth ones. So the proportions of growth and income could depend on your acceptance of the occasional large fall.

So a suggestion is to notionally, if not physically, run separate portfolios. One focussed on maximum growth and the other income. The maximum gowth portfolio is likely to be invested in funds to minimise the risks arising from individual companies failing. The other portfolio could reasonably IMHO contain both individual shares, bonds, and funds.

What I believe is less likely to be successful is to "buy a few shares" particularly if you are doing this on the basis of recommendations in the press and on internet forums. When you buy an investment you should buy it for a specific purpose, and if it fails to achieve that purpose consider selling it.