Start Cavendish/Aviva Stakeholder... or something else?

CyphersRounds

Hi, I'm almost 30 and looking to start a pension. After doing some research (and an unsuccessful attempt to employ an IFA on a fees only basis) I decided that my best option was to do the following:

• Open an Aviva Stakeholder pension via Cavendish Online. AMC starts at 0.55% and goes down from there.
• Invest in 7 different funds that I believe reflect my risk attitude. (50/50 split of low/high risk with each half being split again by fund type and geographic location).
• Pay at least £400 (net) each month.

However, I've since come across some threads on this forum that suggest that I might be better off with a Personal Pension, so now I'm confused again.

The advantages of a Personal Pension are usually stated as "more fund selection, potentially cheaper charges" but I had enough trouble choosing from the ~30 funds in the Stakeholder and I haven't seen a Personal Pension with charges less than 0.55% (at least not on Cavendish Online).

What do you guys/gals think?

dunstonh

However, I've since come across some threads on this forum that suggest that I might be better off with a Personal Pension, so now I'm confused again.

Stakeholder products are a basic product which have to have a defined charging structure which may or may not be suitable for you. Personal pensions can charge differently and for many people, the personal pension charges are lower than stakeholder whilst also offering greater features and options.

For example, I can immediatly think of several personal pensions with lower charges than the Aviva stakeholder.

Open an Aviva Stakeholder pension via Cavendish Online. AMC starts at 0.55% and goes down from there.

What made you choose the Aviva stakeholder? Hopefully not the article on this site as that article is woefully out of date and Aviva pulled the stakeholder pension that is detailed in that article over 3 years ago and has since twice replaced it with different versions.

I had enough trouble choosing from the ~30 funds in the Stakeholder and I haven't seen a Personal Pension with charges less than 0.55% (at least not on Cavendish Online).

Cavendish is very good at what is does. However, it is just a limited panel selection. That said, they do have a number of personal pensions that would be cheaper than stakeholder. So, I suggest you look at your research again. Personal pensions typically offer the stakeholder fund range as well as external funds. Nothing says you have to pick from the wider range.

Invest in 7 different funds that I believe reflect my risk attitude. (50/50 split of low/high risk with each half being split again by fund type and geographic location).

What strategy are you following or is it a random hit and hope?

Pay at least £400 (net) each month.

Definitely in personal pension territory.

CyphersRounds

I chose the Aviva Stakeholder because it has the lowest AMC from the Cavendish Stakeholder options. It also has a fairly good (for a stakeholder) range of funds.

What sort of annual charges would I get in one of the Personal Pensions that you're thinking of?

My strategy for choosing the specific funds was:

Look up the funds on Trustnet.com.
Focus on funds showing good performance (I know you can't use that to predict future performance, but it's a start).
Discount any with terrible performance (such as Aviva Property).
Avoid funds with high exposure to Europe.
Aim for a good spread of fund types and geographic location. (Off the top of my head I have UK, US, Asia Pacific and bonds, index-linked gilts, cash, equities).

dunstonh

What sort of annual charges would I get in one of the Personal Pensions that you're thinking of?

As low as 0.15% TER.

My strategy for choosing the specific funds was:

Look up the funds on Trustnet.com.
Focus on funds showing good performance (I know you can't use that to predict future performance, but it's a start).
Discount any with terrible performance (such as Aviva Property).
Avoid funds with high exposure to Europe.
Aim for a good spread of fund types and geographic location. (Off the top of my head I have UK, US, Asia Pacific and bonds, index-linked gilts, cash, equities).

So basically a random hit and hope (sorry). Leaving out sectors to avoid Europe isn't ideal. Aviva property does not have terrible performance. It is one of the better property funds in the sector. What sort of weightings are you putting into the funds?

I know its not possible to build a proper portfolio with an aviva stakeholder as it is missing some key sectors but you can get a basic one going. However, by the time you do that you may as well have stuck with the default fund which is a portfolio fund and if you are going to use the default portfolio fund then you may be better off with a provider with a better default portfolio fund.

CyphersRounds

dunstonh wrote: »

As low as 0.15% TER.

Are you able to say which pension that is?

dunstonh wrote: »

So basically a random hit and hope (sorry). Leaving out sectors to avoid Europe isn't ideal. Aviva property does not have terrible performance. It is one of the better property funds in the sector. What sort of weightings are you putting into the funds?

That depends on how you define "random".

What process does a professional use to choose funds? I assume there is some logic to it, otherwise isn't it also "random hit and hope"?

I can't remember all of my proposed weightings but the maximum weighting was 30% in UK Index-linked Gilts (which appears to be performing very well and has a risk rating of 2/5). The other weightings were all 10% or 20%.

Overall I chose 50% in ratings 1-2 and 50% in ratings 3-5.

dunstonh

Are you able to say which pension that is?

No. However, there are several. Although the greatest choice is in the 0.2% to 0.3% range.

What process does a professional use to choose funds? I assume there is some logic to it, otherwise isn't it also "random hit and hope"?

asset allocation, sector allocation, Efficient market hypothesis, high yield portfolio, CAPM, APT or hybrids/variations of those or others. i.e. some structure to you selecting investments on the basis of FUTURE potential.

I can't remember all of my proposed weightings but the maximum weighting was 30% in UK Index-linked Gilts (which appears to be performing very well and has a risk rating of 2/5). The other weightings were all 10% or 20%.

And at a peak or near to peak with the next period expected to see declines.

You eliminate property as being poor but its likely to be better than gilts going forward. This is the risk of looking at past and not looking forward.

gadgetmind

dunstonh wrote: »

You eliminate property as being poor but its likely to be better than gilts going forward. This is the risk of looking at past and not looking forward.

My SIPP is currently 0% gilts (other than those RIT hold, which are very short duration), but I do have 10% in corporate bonds and 15% in property and infrastructure.

I'm also slightly over-exposed to Europe and financials, but I've never been able to resist a bargain.

CyphersRounds

You make some good points, thank you.

Perhaps I should try another IFA. The main issue I have with an IFA is: how do I know they're any good? I will be trusting a single person, who is not rated against his peers (unlike fund managers), to choose the best option for me. In my mind that's a bit of a "random hit and hope".

CyphersRounds

gadgetmind wrote: »

My SIPP is currently 0% gilts (other than those RIT hold, which are very short duration), but I do have 10% in corporate bonds and 15% in property and infrastructure.

I'm also slightly over-exposed to Europe and financials, but I've never been able to resist a bargain.

What point are you making? That gilts are a poor fund choice?

dunstonh

I will be trusting a single person, who is not rated against his peers (unlike fund managers),

An IFA is not a fund manager. So, rating them as such would be wrong. An IFA is a planner, adviser and facilitator. Yes, that will involve discussions on investment options but it doesnt involve having a crystal ball. You would expect the adviser to have a greater knowledge of investments and understanding of different strategies but the IFA is not doing the management of the investments (although they will offer rebalancing and review services if you want them)

gadgetmind

CyphersRounds wrote: »

What point are you making? That gilts are a poor fund choice?

They currently have a "asymmetric risk", which means you have very little chance of making money and lots of chance of losing it.

Index linked gilts are on a negative yield, which means that people are prepared to lose some of their future spending power in return for retaining the rest of it.

The whole fixed interest market is well up weird street right now, so I'm treating it with extreme caution.

I used to think that fixed interest was staid and boring, but the more I learn about bond yield curves and the like, the more my view on this is changing.