Advice/thoughts on pension scheme - new graduate

mark55man

you're asking the right questions - just remember to keep an eye on what you are doing/have done as real life overtakes you in the next 5 - 10 - 15 years.

my opinion - the company is worthy of some healty scepticism from you - stay while its good and you are learning/earning, but don't get too loyal they don't seem worth it

jamesfisher1989

Well to be honest I found the job situation tough since graduating so kind of fell into this job. I'll try it for a while at least, if I end up hating it it's at least given me some experience which I could use in the future.

Anyone have any opinion on the funds I highlighted above? Do we think 7 funds is a sufficient number, given I can invest in up to ten?

Radiantsoul

jamesfisher1989 wrote: »

-First State Asia Pacific Leaders
-First State Global Emerging Markets Leaders

-FL Kames High Yield Bond
-FL Baillie Gifford Managed
-FL Baillie Gifford North American Equity
-FL BNY Mellon Long Term Global Equity
-Blackrock Market Advantage Strategy

.

There are two schools of thought on what to invest in:-

ACTIVE - you can outperform the market and should research funds which are likely to do this. No fund can outperform forever(or its faster compound growth would see it taking over the whole stock exchange), so you will need to decide when and if to leave funds.
PASSIVE - It is very hard to outperform the market and you should go for tracker(called Index on your factsheets) and keep costs low. The aim of the game is to diversify(you can increase your return by holding uncorrelated assets) for any given level of risk.

The evidence favours passive investment in mature markets(developed world shares and gilts). Outside of these areas active might be better. I guess it is a bit duller.
You seem to be tilting towards active, which is fine. You can pay an extra 1% to go active. It is a tough hurdle rate for active funds to generate an extra 1% year on year on year. And most fail.

mark55man

To me - they look like the right sort of areas, for someone in your area I have no idea if the funds are good ones - but if they are your only choice in your scheme then

Two main observations

* Equity: it is more important to get the sector right than the fund. For me Asia, and specially Japan are good - but others think Japan is and will remain a basket case. Europe / UK Small cap are also worth a play as they tend to advance in advance of big caps in a recovery (but some would argue that we are not in a recovery - I disagree).
* Asset Allocation: your funds should cover equity property (industrial/commercial) and bonds as these are not correlated ie a bad year in 1 won't wipe you out. You should read up on investment

It probably bad form to recommend another site, but I am learning loads from www.fool.com and its Investment strategy board - you might look around. HTH

In terms of how many funds - if they are all in the same assets you are not really diversifying, but I would say 7 covering different but not too cautious areas is good. As you are buying for the long term and investing monthly you should not be afraid of dips - in reality they allow you to buy more of your chosen asset - so long as you have faith in its long term value. Obviously if eg Japan turns into a basket case you may want to leave but at the level of funds you are talking about this should not be an issue, and dips are opportunties

Of the ones you put I am less keen on North American and bond funds (which many believe to are overpriced). Perhaps you could start with the others and then reallocate money as others look more stable and/or have crashed a little

sorry bit rambly but that is a stream on consciousness from someone who is nearly at the other end of the pipeline

jamesfisher1989

So mixing index trackers and actively managed funds might be better? Say, keep the two First State Asian ones, then a global equity index? Most of the indexes offered seem pretty similar, covering global equities so maybe just one tracker would be best?

mark88man, the bond funds would be chosen just to diversify away from mainly equities. Say I wanted 75% equities/25% bonds from the funds I am offered my options for including some exposure to bonds are pretty limited to these bond funds.

mark55man

make sure the funds you choose don't have additional bond exposure - IMHO I wouldn't want to be over exposed to bonds at the moment unless they were short maturity (so you can always hold to maturity and get par value for them) and these will help stabilise your portfolio (or constrain it if you go too heavy) but won't add much to the return

My suggestion and I am not an IFA or even an pundit - just reflecting the bulk of opinion I have read (which some would say is reason enough to ignore it) is at this point of time you don't want to be too cautious as a young investor - especially one investing month by month, and you don't want to chop and change too much - so some bonds yes - but 25% is higher.

I am lucky although not in a final salary scheme now I have 20 years to call on to act as my rock solid income - I therefore can be more risky in the DC choices I make

At the moment in my Company pension (fund based) I am about equal in

* US Equity Pension Fund
* Pacific Rim Equity Pension
* Pacific Basin Equity Pension Fund

In my Contracted out SERPS Pot SIPP (you need to decide if you want to do anything over and above your company pension, and if you do whether to use a personal pension or SIPP or to use S&S ISAs) - I have about the same amount in individual stocks - primarily financial/energy at the moment (with a review after this years results)

jamesfisher1989

So after some thought, how about this mix of funds?

-FL Blackwood Emerging Markets Equity

- FL Blackrock (50:50) Global Equity Index

- FL Baillie Gifford Managed

-FL Balanced Index Fund of Funds

-FL Blackrock Market Advantage Strategy

Tried to go with low cost options in terms of annual management charges and to keep things fairly balanced. Any thoughts?

mark55man

I would go for that - see how they go for a few months - watch your reactions as they go up and down and read some stuff - eg the ww.fool.co.uk boards have a board called investment trusts and unit trusts which has a lot of discussion on individual funds, but mainly from an income and not from growth.

your reactions are important as they tell you how you react to risks and results, though remember not to be too volatile, and a good fund going down is seen by many as an opportuntiy not a threat - unless you are very close to needing the money

you might ask there - explaining that you are new. I am not qualified to comment on the funds you cose other than that they llok to have some diversification - but there can be more overlap under than you might think

Tancred

jamesfisher1989 wrote: »

Hi all,

My situation is that I graduated from University in July last year. I am starting on a graduate training scheme with a company in February. I have now received details of the pension scheme.

It is a salary sacrifice scheme with a minimum salary sacrifice of 5%. The employer makes no contribution. For a large company I think this is pretty poor. Anyway, I can't change that. Do people think it still worth paying into the pension without an employer contribution? Obviously I could make my own investments outside a pension, but is the reduction in tax from salary sacrifice worth more?

The scheme uses funds provided by Friends Life and I can invest in up to ten funds. I was just interested to hear thoughts on how I should split this. As I'm only 23, there are several years to retirement and so obviously ups and downs in performance are more acceptable.


I'm not looking for people to say 'do this, do that' etc, just some thoughts on the fund split people would advise. I know the terms 'High Risk' and 'Medium Risk' are somewhat arbitrary but some advice on what others would do would be helpful.

James

It's not a generous pension but this might be offset by a possibly higher basic salary than the market benchmark. It's all relative.

mark55man

one more post. Here is a specific example of some experienced investors helping a learner. There are many such threads - the focus is not on pensions but on income (the after you retire perspective).

http://boards.fool.co.uk/first-cut-portfolio-from-a-novice-investor-12722357.aspx?sort=whole

You can tell that there are many different views on what to do - but you need to make a start and then you can correct over time by steering your new money in your chosen directions. Most of these are not available to you, but they make the point about what to think around