Best pension options?

zudecke

I have recently started with a new employer and have the option to opt into their 3% matched contributions scheme, which is with Friends Provident.

I'm told that the default fund is the: BGI Global Equity 60:40 Index Fund, combined with the 10 year Lifestyle Investment Programme, however I have the option to choose my own investment fund and wondered if anyone has knowledge of links to sites of my best options, if different from the default?

Thanks!

NK

Linton

I think a 60:40 global fund is a sensible default option and could well form the core of your pension long term. So I suggest you invest there for the time being. It will never be the best performer nor the worst and should provide reasonably consistent long term growth as it invests in a wide range of assets.

Other options to consider could be higher risk funds with hopefully a higher long term return. However it is likely that your employer will only offer a relative small number of options and which funds you go for depends on the number of years til retirement and your acceptance of taking short term risks in terms of volatility to achieve better long term returns. So without further information it is difficult to say much useful.

redbuzzard

Two thoughts.

First, sign up, don't dither while deciding about funds. As a pension trustee I 'nudged' a number of junior colleagues to join the DC scheme and there were a couple who couldn't seem to put pen to paper for worrying about whether to stick with the default or pick something else. It doesn't matter for now. You can think about it over the coming months and switch if you decide you prefer another fund(s), meanwhile you are saving in the pension with every £ costing you 40p at the standard tax rate and with the employer's contribution. You have to be in it to win it.

Second - what are your options? Can you really choose any fund you like, or is there actually a choice of a dozen or even fewer, as is often the case? In any event, if you're 10 years+ from retirement, being in UK/Global equity trackers and getting money in every month isn't going to be an unreasonable option for a pension.

zudecke

I'm not close to retirement, but not that young either and I haven't put much away if I'm completely honest!

So, if I invest in their default fund, but then decide to invest in a different one later down the line, do all the funds I've invested into fund 1 get transferred to new fund 2?

My knowledge here is clearly cloudy at best, so your patience is appreciated!

And, as far as I can see, there is a space to request investment to a fund that I choose. No list of options.. I'll ask!

Thanks guys!

Z

redbuzzard

You should be able to decide where your ongoing contributions go (or stay), and where your new ones go.

zudecke

what are the key metrics i should be looking for in a fund?

I've received a list of funds that I can contribute to through Friends Provident.. Everything from funds deemed High+ to Low- risk funds..

I like the sound of First State Asia Pacific Leaders and like the look of the fund mgr.

I guess stay clear of the Eurozone funds?

Any tips??

dunstonh

I like the sound of First State Asia Pacific Leaders and like the look of the fund mgr.

I guess stay clear of the Eurozone funds?

Why stay clear of Eurozone funds?

If you are going to build a bespoke portfolio of funds, what investment strategy are you going to use? How often are you going to rebalance it? How are you calculating the amounts allocated to each sector and fund to ensure the volatility risk is consistent with your risk profile?

redbuzzard

zudecke wrote: »

what are the key metrics i should be looking for in a fund?

I've received a list of funds that I can contribute to through Friends Provident.. Everything from funds deemed High+ to Low- risk funds..

I like the sound of First State Asia Pacific Leaders and like the look of the fund mgr.

I guess stay clear of the Eurozone funds?

Any tips??

Not advice.

I hold American, European, Pacific exc Japan, and Japan index trackers. All have gone up over the last few weeks, partly because the indexes have but also because all those currencies (AUD in the case of the Pacific) except the yen have gone up against sterling.

Sure, the Eurozone problems are still a blight but that's also in the price, whether by too much or too little, time will tell.

I wouldn't bet on sterling not depreciating fastest of the major currencies, though I suppose the Euro could give it a run for its money.

The main observation though is that you have no 'lump sum' or existing pot exposed, you are dripping money in. I'd consider equity index funds assuming you are some way off retirement. Is there a composite UK/Global index fund? Ideal. Just drip the money in. If the markets go down, you just get more units that month, the volatility doesn't matter to you. Low charges too.

If you want more exposure to Asian equities then do some of that with a proportion of your contributions. I was with a serious and knowledgeable investor the other day who said the only equity market he felt safe with right now is Asia. But he has a big lump of money to protect and his main concern is not losing any. He has 20% in physical gold ETFs. Your situation is entirely different.

Just thoughts. Do bear in mind though that you aren't materially exposed in this new pot to a market crash. In fact, it would just present you with better value for your contributions while the index is down.

EDIT:

I'm not familiar with the 'BGI' fund you mentioned as the default. Is it 60/40 UK/Global equity index? Probably. There's a good reason for the choice of 'default'. When people join pension schemes and somebody asks them what their attitude to risk is, it needs a bit of explanation. The last thing a 'cautious' young person should be encouraged to do is save for a pension in gilts or cash. Low risk means low returns.

Have a look at this link Reckless Conservatism

It's an old article but still applies.

zudecke

Thanks guys..

@redbuzzard - so your advice would be to split my pension contributions between both UK and APAC equity index-tracking funds?

Looking at the funds on offer, what are the differences between "Managed" (aren't all funds managed?), and "Regional" vs. "International"?

So, do not bother with cash, property and fixed-interest funds if I'm a long way off retirement..?

EDIT:
I.e. the default BGI Global Equity Index (60(UK):40(ROW)) invests in company shares. "The fund aims for returns broadly in line with the markets in which it invests." Seems like a safe bet? They've classified it as a 4/6 (6 being the most risky) fund...

redbuzzard

zudecke wrote: »

Thanks guys..

@redbuzzard - so your advice would be to split my pension contributions between both UK and APAC equity index-tracking funds?

Looking at the funds on offer, what are the differences between "Managed" (aren't all funds managed?), and "Regional" vs. "International"?

So, do not bother with cash, property and fixed-interest funds if I'm a long way off retirement..?

EDIT:
I.e. the default BGI Global Equity Index (60(UK):40(ROW)) invests in company shares. "The fund aims for returns broadly in line with the markets in which it invests." Seems like a safe bet? They've classified it as a 4/6 (6 being the most risky) fund...

I repeat, not advice!

I certainly wouldn't touch cash, gilts, or any sort of pre-retirement fund which are aimed aimed eliminating volatility not growth. Growth is what you need.

The UK/ROW index fund sounds ideal. Yes it's 'managed' but only passively and mathematically to track the market indexes within it. That sort of management is MUCH cheaper than 'active' management - index fund charges can be 0.25% or less, actively managed funds 1% or more. The difference comes off the total rate of return in both cases.

Most actively managed funds, net of charges, will not match the relevant index - fact. Not to say none will, but whatever anybody tells you, past performance is NOT a guide to future performance (IMO).

I do have active funds. Not many. Neil Woodford's Income and Invesco's Distribution Funds are two, I like the dividends/yield and they have a defensive element in avoiding banks (I'm older I think). Aberdeen Asian Smaller Companies investment trust is another, and Newton Asian another (the received wisdom is that active management adds more value in developing markets). But I'm not sure you need them yet.

As I said earlier, you have no big pot there to cause you to worry about a market crash - it just means you get more units in your tracker while the market's down, and more income and growth in the future. The price next week, next month, or even next year doesn't matter to you. In fact, the lower the better (that wouldn't apply of course to an actively managed fund that was underperforming its relevant index or benchmark).

If you want a property fund, I'd keep it to a small percentage - costs tend to be high, and transparency is poor, but it is diversification I suppose. Some exposure to Asia wouldn't worry me. Your decision.

Regional funds means primarily invested in one of say greater China, Pacific, Europe etc ...International just means 'foreign'.

The UK index is frankly pretty diverse anyway, even as to currencies - UK companies do much of their business abroad, and if those currencies rise relative to sterling that is good for their profits and good for you.

There are other opinions. Nobody pays me for advice, not on investing anyway.

I still think the best £10 I ever spent was on Tim Hale's "Smarter Investing". I just wish I could remember who I lent it to, it's gone up on Amazon to nearer £20. That would have been a good investment :-)