Pension fund allocations

laughingboy

Hi, these are my current pension allocations (the links to each fund should work) Any thoughts on these allocations/ratios? I'm mid/late 20's and contribute £550 a month.

I was thinking maybe I should reduce my Asia exposure and allocate ~10% to a global bond fund (specifically this one) as am I led to believe it should reduce volatility.

Latin America ZP................................6%
Asia 2 EP...........................................15%
American Smaller Companies ZP.............7%
European Smaller Companies ZP.............7%
UK Smaller Companies ZP......................8%
American 2 EP....................................15%
UK Equity 2 EP..................................18%
JPM Asia Equity ZP............................10%
European 2 EP....................................10%
Japan 2 EP..........................................5%

I'm a complete novice so any constructive criticism is welcomed. I switched to these allocations about 1.5 years ago from the default 'Lifestyle' fund. I only have ~£20k in the fund so it's probably not worth going to an IFA just yet.

Linton

You have 31% in emerging including far east. Yes, a little high in my opinion and putting 10% in a global bond fund seems reasonable diversification.

I think I would do it by adjusting the allocation of new income over time rather than selling existing investments now.

jamesd

In the mid to late 20s a high emerging markets component seems sensible. It'll move up and down a lot, though. Same for smaller companies, good long term prospects, more volatility than larger companies. In a bad year you might see a value drop of over 50% for the combination.

laughingboy

Thanks for the input.

For now I think I will reduce all the monthly contributions to each fund by 1% and add the available contributions to a global bond fund. I'll also reduce the contribution to Asian funds at the same time.

I have been thinking I have a large proportion in emerging markets which I will peg back over the years. However I do get confused when I see some portfolios that consider themselves 'high risk' with a 5% allocation to emerging markets

jamesd

A FTSE All Share Index tracker fund can be expected to drop 45-50% in a bad year, 20% in routine negative years and is above average in risk. Emerging markets funds can be expected to drop by over 70% in a bad year and smaller companies by 60-70%.

I don't think that you have a high amount in emerging markets, but you are being quite specific in some regions. Moving some to a more general fund like Aberdeen Emerging Markets that can switch between regions without input form you might be useful if that's available to you. I don't see specific India, Russia there and those are interesting markets that a general EM fund would cover.

The main thing is to be sure that you know what to expect in a bad year so that you don't sell out at the bottom after becoming scared. That's the time to be buying, not selling, but it's a hard thing to do emotionally and even worse if you don't know what you signed up for with your choices. So brace yourself mentally and think ahead to what you will do. Perhaps also look at the news headlines from late 2008 to early 2009 and see what a good buying time looks like, while the press is writing about doom and gloom and the end of the investing world. Perhaps also note that Warren Buffett is known to see news headlines about down days in the markets and go shopping when he sees that - he likes sales. Even knowing all of this, don't expect it to be easy on your emotions.

StevieJ

I think that Aberdeen emerging is soft closed.

jamesd

Yes I think you're right. Still available to Hargreaves Lansdown customers without penalties or restrictions, maybe in other places as well. If not, it can be treated as a generalist emerging markets example.

StevieJ

jamesd wrote: »

Yes I think you're right. Still available to Hargreaves Lansdown customers without penalties or restrictions, maybe in other places as well. If not, it can be treated as a generalist emerging markets example.

I use that fund, does that mean I could bed and Isa it with H&L?

jamesd

Yes, you could.