Pension Funds - Where to invest

SHOULDI

Hi,

I am 32. My current attitude to risk is 'low to moderate'.

I currently am invested into:

L&G UK Equity Index Fund - 50%
JPM Life Growth Fund - 50%
Approx 10k each.

I am contributing 6% and my employers are adding 9% into my pension.

I had a meeting with our Pensions representiative, and she said that I should look at a more 'diverse portfolio'.

Wise I'm sure, but where do I start...

I am bound by a Legal and General - Group Stakeholder Pension Plan. There are 41 Funds I can choose from.

My question is,

I need to be more aggressive in the next 10 - 15 years to achieve what I would like and therefore would like to create a portfolio of moderate to dare I say it high risk.

Can anyone help me try and find a balance?

I'm looking through the funds and what makes sense is to go around the world.

North America
Europe
Far East
UK

To meet my moderate to high risk targets, should I up the % on what I class as riskier areas like Far East / Global equity funds?

Is this a good strategy?

Appreciate your thoughts.

Thanks, SHOULDI

jamesd

A UK equity index tracker can be expected to drop by 50% or so in a bad year. Are you comfortable with that? Such a tracker is already medium high in risk.

Risk balancing isn't only about different parts of the world, it's also about different types of investment. Like commercial property and bond funds, not solely equity funds.

One of the things you can do is to ask your adviser about the typical maximum drawdown expected for each type of investment and how one tends to move when another goes down.

fizio

The general advice is to ensure you have a decent spread of funds. My current strategy is roughly:
20% govt bonds
20% corp bonds
20% emerging markets
20% developed world
20% uk ftse index tracker

The key is to decide what spread/risk suits you and go from there.
I have other market areas covered through isa's (property, high yield, etc)

Daniel_Elkington

I would question anyone who makes up their own asset allocation. Passive investment works by tracking an index, as soon as you start building your own asset allocation then you are building an active portfolio based on your own opinions.

The question I would ask is, do you think you are more qualified and skilled to make the right decisions than the active managers?

IF you want to stick to a tracker strategy a global emerging markets tracker would be good for you as you have a long term to retirement and there is no chance of you encashing the funds early due to the tax wrapper (pension) prohibiting full encashment.

This way, you may lose out on returns over the short term and can lose a lot (potentially 70-80%) in a terrible year, however as you have time on your side this short term (2-3 year) dip should not impact upon returns in the long term.

Luckily L&G tend to be fairly good at their trackers. I've had a look at there appears to be very few options within the stakeholder, however they do have the global equity 50:50 fund, which should be OK. It is pretty middle of the road in the global equity sector and has achieved fairly good returns over the last few years.

Bonds and property funds may reduce short-term volatility, but if you simply want to ignore it and review in about 10 years then buy the global equity fund.

sorcerer

Everybody has different needs, so making a portfolio strategy is a sensible thing to do. It doesn't mean you have to be a balanced stragegy. For example i am 77% outside UK equities, and this is a delebriate choice, who is to say what is good and what is bad. Only time will tell.

SHOULDI

Thanks all. Food for thought. It's difficult to make a decision as it is a very personal. I feel as though an ifa would help make me understand it a little better and therefore help me make an informed decision.