L&G Bonds Vs L&G Global Equity

Aletank

Our Company Final Salary Scheme is ending and a new scheme is being set up.
There is a choice of 3 funds -
L&G Global Equity Fund 50 50 http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=L6F72&univ=P
L&G Bond Fund http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=L6F72&univ=P
L&G Cash Fund http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=LGCHAO&univ=N

WE have the "Default " Lifestyle" option which invests in Global Equities until 10 years before retirement then slowly converts to Bonds then Cash

I'm 35 and have 17 years in the Final Salary Scheme, I'll probably choose the Default Option.
I know past performance is no key to the future etc but was looking at the Bond Vs Equity performance and the past 5 years Bonds have done better.
Whats your thoughts on this ?

mania112

All to do with your attitude to risk (because we can't go by previous performance as you say):

Global Equities - Adventurous

Bonds - Moderate

Cash - Cautious

mania112

And you'll go crazy reading too much into the 5 year performance.

Just know that over the long term Equity will return higher than Bonds (although this hasn't been the case in the 00's i think to make things more complicated!)

jamesd

Why did bonds do better over the last five years? You need to know why.

In this case it's easy. The financial crisis caused a high demand for safe assets and in the UK fiscal easing also increased the capital value of UK government bonds. Unlike shares there's no company growth that can happen with bonds, it's a trade off of capital value for interest rate - low interest rates mean that capital values have to go up and vice versa.

After five years of this there is little potential remaining for capital value increases but there is huge potential for capital value drops and you can be sure that they will happen sometime, the only question is when. Given the rare combination of events that prompted the gains, the losses won't be recoverable just by waiting for another crisis.

You're too late to catch most potential gains in bonds but not too late to catch the drops. Avoid high concentrations in high quality bonds unless you're going to watch the markets and try to switch out at the right time. It may also not be possible to switch out, the FSA is concerned that the bonds may not be liquid enough to sell when everyone is trying to do it.

Aletank

Thanks for the replies !;)
When we had this new pension explained to us at meetings, we were told that we could invest our money where ever we wanted. Then the joining pack came through the post with this limited choice.
I really feel we have been had off and not been given much choice but to invest in a poor performing fund.
It's bad enough that we are losing our Final Salary Scheme, new pension is going to be run by Deloitte & Touche who'll be taking their fee then L&G are taking their fee and we have to go into this limited choice of funds.

mania112

Performance looks ok to me:

http://www.trustnet.com/Factsheets/Factsheet.aspx?fundCode=L6F72&univ=P

jamesd

Ask whether it's possible to transfer out occasionally while still being in the scheme. That'll get you in the scheme but also able to get a broader range of investments.

dunstonh

Until you get to around £10k in a pension fund then it really doesnt matter much where you are invested. Dont waste your time an energy picking single sector funds. That would be inefficient and pointless. The default is there for that purpose.

Aletank

Thanks for the replies & all the useful comments, they have made me think a bit more and realise it may not be all that bad.