Key Questions to ask financial advisor on Pension

atush

I have to agree. I am very risk averse with my house and family. I am medium ot high risk on some of my investments.

I am very risky with small amts of money and whne share dealing I can get this risky behaviour out of my system in smaller value trades lol.

dtsazza

mbbetter wrote: »

I think the point I'm trying to make (badly), is I would like to explore the scenarios such as that you set out above, with my actual numbers (a very small investment). Understand what the process are and the triggers or events that would to cause these scenarios (loss or gain). Thats the advice I'm looking for.

I may well quite like to have a small % of my net worth invested in an agressive but risky approach over the long term. If I understood the relative risks and what causes these.

The exact triggers or losses would be hard to get at, since almost by definition markets are not deterministic.

Individually most factors are common sense anyway, the question is usually which one apply when and to what degree (i.e. does the fear sentiment outweigh the greed or vice versa). For example, if a company announces reduced/increased profits that'll be a negative/positive pressure on its share price. Likewise if a notable court case is announced/resolved this will exert negative/positive pressure. If an established & respected/unsuccessful & maligned CEO steps down, again this will exert a pressure on the price.

Then there are macro effects which are often trickier; if people start to mistrust equities in general, or have less money to invest, or if "competing" alternatives such as bonds start to look more appealing, or if the regulatory framework around a company/sector looks a bit shaky (esp for emerging markets), they'll be less likely to invest in that area.

Tracker funds like the FTSE respond to an aggregate of the factors that affect their constituents, by definition. Ditto funds in specific sectors, or countries.


All stuff that's very hard to put figures on and/or to measure the extent to which it exists for a given instrument.

Then again my personal view is that "risk" is usually rather a measure of volatility, i.e. the extent to which the share-price might bounce around over and under its "true" price (if there is such a thing).

Consider a stock that will end a year 20% up with 70% probability and will end 20% down the other 30% of the time. The mathematical expectation here is to gain 8% per annum, but there's a big difference between holding for short periods and long periods because of the variance involved.

If I was about to draw on my savings in a year or so, I wouldn't like to entertain a 30% chance of losing money over that period. As a result I'd much rather take a guaranteed 3% return, despite this having a lower average yield.

OTOH if I were investing for 40 years I wouldn't mind if the first year was down, since subsequent years would make up for that. In fact, assuming that a lump sum of 100k was invested in this fund and then left alone for 40 years:

• The mathematical expectation for final fund value would be £2,172,452
• This compares to a (guaranteed) final value of £326,203 if put in the 3% fund over this period
• There is a 0.2% chance of having less money than you started with, in the volatile fund
• There is an 11.5% chance of having less money than the "safe" fund

Obviously this is a very quick-and-dirty illustration, and real returns wouldn't follow such a structured formula. But hopefully it does give some indication of the nature of volatility and uncertainty, and how over longer periods (i.e. pensions) your results are more and more likely to converge on the mathematical average.

Since we can't predict the future, all we can really do is toss a biased coin.

mbbetter

Hi dtsazza, Many thanks for your detailed and highly informative response.

I think this thread and the general replies have taught me that I have a lot to learn about investing. In my early life I was a Saver, I then moved on to become a Borrower, now I need to learn to be come an Investor.

My very high level thoughts are:
The tax relief looks excellent.
The projections keep the funds ahead of inflation.

Drawbacks (I may be incorrect about these):
I can't access the funds until I'm xx years old.
I can't ever access the whole lot
Aviva don't let you view your pension account online (what is this 1990?)

Thinking about it now, perhaps it is the issue of access that I primarily have a problem with, rather than risk. In 30 years time I may like to have the financial freedom to move funds into other opportunities, my fear is that a pension will restrict me on this.

Cheers,

atush

Age 55 for pension access (but you'll get more if you leave it longer).

Good luck with your saving. And try the Motley Fool website (which is where I went to learn at first many years ago ;-)

dunstonh

I can't access the funds until I'm xx years old.

Its a pension. Why should you want to access them before that age. It wouldnt be retirement planning if you could rob your retirement early.

I can't ever access the whole lot

If you could do that, then it wouldnt be able to provide an income.

Aviva don't let you view your pension account online (what is this 1990?)

Its not a contract that is designed with that purpose. You get what you pay for.

bigfreddiel

yelf wrote: »

80% of indepenents only use 5 providers.

I would be interested to know which 5 providers?

fj

mbbetter

Thanks dunstonh, interesting questions that are helping me come to a decision.

dunstonh wrote: »

Its a pension. Why should you want to access them before that age. It wouldnt be retirement planning if you could rob your retirement early.

To answer your question. I would like to access my funds before that age to be able have the option to move to a different investment (not rob my retirement early to spend on a car, holiday or lunch).

If you could do that, then it wouldn't be able to provide an income.

It could provide an income but from a different source.

Its not a contract that is designed with that purpose. You get what you pay for.

This is fair, web access is not a major driver really.

Cheers,

jem16

mbbetter wrote: »

To answer your question. I would like to access my funds before that age to be able have the option to move to a different investment (not rob my retirement early to spend on a car, holiday or lunch).

The pension is only a tax wrapper. It does not stop you accessing your funds and choosing different funds or even providers.

What would you mean by a "different investment"?

It could provide an income but from a different source.

Such as?

mbbetter

In 25 years time... Buy a property, invest in a small business opportunity, buy and resell tickets to the moon, pay cash for aluminum, invest in the latest government IFDDS (or other acronym).

The answer is - I don't know today.

Edit - apologies if the above comes across as a bit churlish, but I really would like to have the ability to have full access to my money - perhaps with something like 5 years notice as a reasonable tie in.

atush

Then make sure you save in ISAs as well. Which can be used to buy anything stupid you like ;-)

Your pension can be invested in equities, bonds, guilts, cash, comodities thru funds and etfs, commercial property and more. Loads of things to choose from which will keep you researching for someyears to come. You can use ISA savings for non commerical property and all the silly things you mentionned like trips to the moon. buy one, there is a crash and there will beno flipping THAT investment ;-)