Anyone know a low risk Standard Life Pension Fund?

grey_gym_sock

tawse57 wrote: »

I am not planning on staying in cash for 15 years. Was merely thinking of trying to move somewhere safe from equities for the time being - say 2 to 3 months - to somewhere with lower risk such as a cash fund... and then if there was a sizeable correction of 10% or 20% then moving back into equities.

and if there isn't? e.g. what if it goes up another 20% from here, and only then corrects by 15%? how long before you decide it hasn't worked, and buy back in at a higher price? or what if it does fall by 10% from here, but you hang on hoping for about 20%, but it goes up again instead? etc. ... trying to dip in and out of the market is not a low risk strategy.

tawse57

grey_gym_sock wrote: »

and if there isn't? e.g. what if it goes up another 20% from here, and only then corrects by 15%? how long before you decide it hasn't worked, and buy back in at a higher price? or what if it does fall by 10% from here, but you hang on hoping for about 20%, but it goes up again instead? etc. ... trying to dip in and out of the market is not a low risk strategy.

Yep, you make valid points. What if is always the issue with shares. What if the markets go up 50%? What if the markets crash 50%?

I just think that we have come a long way in the last few years due to all the QE.

redbuzzard

The timing of this question makes it interesting.

Gilt yields have risen a bit but are still very low, i.e. gilts are expensive and some people say there is a "bond bubble".

Among other bits and pieces I am still in a defined contribution scheme with a limited choice of passively managed funds - some equity index, bond index, gilt index, cash.

For those who don't actively choose their fund, they go automatically on to the "lifestyling" option whereby their fund is moved gradually into bond, gilts, and finally cash in the run up to retirement. This phasing starts 10 years from the expected retirement date.

The trustees are currently scratching their heads because this strategy, which is designed to prevent sudden falls in the value of retirement funds just when they are about to be needed, could have the opposite effect if gilt prices crash. Leaving aside sovereign credit ratings, at some point interest rates will rise and that will depress bond/gilt prices too.

I suggested that they could offer some sort of absolute return fund. It doesn't really solve their problem because they probably wouldn't want to "default" people into it, but given a choice I would consider it as an active choice.

Can you access the Standard Life Global Absolute Return Strategies (GARS) fund? It aims to produce a long term return of Euribor +5%. I think it originated as a "pension plan in a box" for SL's own employee pension assets - it is now a very large fund and many company pension schemes hold it.

It is diversified within itself (suggest you read up on it, it uses equities, bonds, currencies, hedging) and has so far been far less volatile than equity funds. Peformance since launch has been impressive IMO. It hasn't matched the rise in equity indexes this year of course but should be far more resilient when the market turns.

Have a look and see what you think.

HOWEVER - that is to answer your question, which some people would say is the wrong one!

What you are trying to do is time the market. That is trading, not investing. A lot of research (not be me) suggests that people lose more than they gain by trying to guess where the high and lows are going to be. The great Buffett reckons he is better to stay invested - when he is out of the market, he misses out on any rises as well as dividends. Ask yourself why so few managed funds of any kind, including the ones that don't have to hold exclusively equities, beat the index funds with income reinvested.

There's a time to take a low risk approach, which is when you are more concerned with avoiding losses than capturing gains - that is in the last few years before you retire.

At 15 years from retirement you should be looking for growth (is the received wisdom). That basically means exposure to equities. I assume you're still contributing. When those share prices go down, your monthly contributions buy more shares, which generate more future dividends. You shouldn't really care about the price per se - you aren't selling them!

It's perfectly natural to want to avoid risk, leaving aside the timing issue. Pension professionals (not me, though I was once a trustee) sometimes use the term "reckless conservatism" usually in relation to young people starting in a pension scheme for the first time. When somebody asks them to consider their appetite for risk, quite naturally some will say they want to avoid it. But if they stick to cash and bonds from the start, they don't really have a hope of building an adequate fund.

Not advice, of course. I bought BP shares just before the Macondo well exploded. So much for timing the market!

tawse57

Thanks redbuzzard for such a detailed response.

I will look into that SL fund over the weekend.

I take your point about trying to time the market. I have been following the rise of the FTSE, DOW, NASDAQ, etc, over recent years and, since last November, I am of a mind that we have gone into a parabolic blow-off period.

Off course, with Bernanke printing 85 billion of QE each month this rise might go on and on. Getting out of stocks now might mean missing another 10% or 20%, or even more rise, or it could mean missing out on a 2008/09 50% crash again.

I think things are complicated by the difference between the US and UK - I think, dare I say it, that there are some green shoots in the US economy but for us here in the UK I think we are going nowhere with no plan or leadership about how to get out of this mess. Thankfully, the FTSE has lots of companies that are basically invested overseas.

Bernanke says he will not raise IRs this year - do we trust him?