Pension pot fund opinions

fuelcrusher

Hi, I have decided it’s time I took a look at how my pension is performing. I am 40 years old.

I currently contribute approx £10000 gross a year (high mainly because of the child benefit changes)

My employer contributes 9% of my salary although this will rise in July to 12% when I have been with them 10yrs.

I have been contributing to this pension for almost 10 years and it’s value has just passed the 100K mark.

My contributions are split in the following way, it’s been set this way since I joined and I’ve never paid much interest until now:

FL BlackRock 15Y+ Corp Bnd Idx (Aq HP) 20% current value £21,000
FL BlackRock Lg Tm (60:40) Idx (Aq HP) 50% current value £53,400
FL Property 30% current value £26,000


Now, I’m happy that I, and my employer, are contributing enough that hopefully my pension won’t be ‘too’ bad in retirement. I now just want to make sure my money is working well.

I’ve looked up the three funds on trustnet and the charts there appear to me to show the 15yr+ fund performing much better than the long term fund, however the value of the individual pots don’t appear to really show this so maybe I’m reading the charts wrong.
The property fund chart looked pretty woeful and the value above agrees.

So, any opinions on what I should consider doing. Leave alone, juggle the % a bit, move money from fund to fund or go for other funds altogether.

Thanks for any thoughts.

lamb1102

Depends on your attitude to risk but that seems very cautious and overweight in property.
Some knowledgable sort on here may help but an IFA is the best route if you're not clued up yourself.

Gatser

I would only say that a 3 way split seems rather limited.
Personally I would split the £100k into 8-10 funds

I am a great believer in "Many Eggs in Many baskets!"

FatherAbraham

Gatser wrote: »

I would only say that a 3 way split seems rather limited.
Personally I would split the £100k into 8-10 funds

I am a great believer in "Many Eggs in Many baskets!"

One of the OP's funds is a global index tracker, giving exposure to larger companies in all the developed markets, with a 60:40 UK-to-rest-of-world split.

This already gives massive geographical diversification, at a reasonably low cost, with automatic rebalancing.

Counting the number of "funds" is pointless. It makes sense to look at the geographical spread, and the number of asset classes in the portfolio.

Buying lots of funds in the same asset class is a poor strategy, since it will mean pointless duplication and overlap, and/or paying high prices for active management.

Would you feel happier if the OP replaced the global fund with a UK tracker fund, a US tracker fund, a Europe-ex-UK tracker fund, a Japan tracker fund, and a Pacific tracker fund? It would have have the same risk/return, but require lots more work to set up and to maintain the balance between the asset classes (home versus away), but would be a larger number of funds.

Warmest regards,
FA

FatherAbraham

fuelcrusher wrote: »

Hi, I have decided it’s time I took a look at how my pension is performing. I am 40 years old.

...

My contributions are split in the following way, it’s been set this way since I joined and I’ve never paid much interest until now:

FL BlackRock 15Y+ Corp Bnd Idx (Aq HP) 20% current value £21,000
FL BlackRock Lg Tm (60:40) Idx (Aq HP) 50% current value £53,400
FL Property 30% current value £26,000


Now, I’m happy that I, and my employer, are contributing enough that hopefully my pension won’t be ‘too’ bad in retirement. I now just want to make sure my money is working well.

I’ve looked up the three funds on trustnet and the charts there appear to me to show the 15yr+ fund performing much better than the long term fund, however the value of the individual pots don’t appear to really show this so maybe I’m reading the charts wrong.
The property fund chart looked pretty woeful and the value above agrees.

So, any opinions on what I should consider doing. Leave alone, juggle the % a bit, move money from fund to fund or go for other funds altogether.

Thanks for any thoughts.

At 40, one might feel that only 50% in equities is low.

It depends upon your appetite for risk, of course, but you might consider readjusting your asset-allocation strategy to 80% equities, 10% bonds and 10% real estate, with annual rebalancing to enhance returns.

I'd suggest you get hold of William Bernstein's book The Intelligent Asset Allocator, for the insight it gives to the theory and practice of, well, intelligent asset allocation.

In particular, the book explains very well why having a mix of assets whose returns are not perfectly correlated can both reduce risk and enhance returns.

I agree with you that the asset classes you have in the portfolio look good. Essentially you're covering four classes:

• UK equities
• Foreign equities
• Bonds
• Real estate

That's great diversification. You just need to think about whether 50% equities is high enough for you, and to decide how often you'll rebalance (the equity fund's published split already takes care of rebalancing between UK and foreign equities.)

In fact, there are Friends Life-offered funds which combine more asset classes in one fund, which can reduce the rebalancing maintenance workload, if once a year is too much for you. I don't have the details to hand, but look up the Life Strategy optins (not to be confused with Lifestyling). Just check the costs aren't loaded.

In any case, 50% equities in a balanced portfolio won't have hurt your returns too badly, if Bernstein and Modern Portfolio Theory are to be believed.

Warmest regards,
FA

atush

I feel your % in equities is too low, and your % in property too high.

So I'd probably stop investing in the property fund (you could keep the units you have of you like), and start that 30% going elsewhere - perhaps in 2/3 different tranches into different funds.

At your age, I was (and to some extent still am) in emerging markets.

fuelcrusher

Thank you very much for the responses.

All a bit over my head but I certainly feel I should drop the 30% contributions going into property and put the freed up money into the equity fund. So 80% equity, 20% bonds for a few years?

I checked the friendslife website and there are dozens of funds to choose from. Couldn't find a life strategy fund though, although I found one on trustnet 'FL Strategy 01 Pn'

There's no way I'd be competent to research the available funds let alone choose one so I guess professional advice is what's needed.

I've always considered the tax breaks and employer contributions to be the main 'growth' aspect of my pension, hence why I've never shown much interest in the particular funds. Your answers have shown me that's it's time to do 'something', just need to figure out what.

Best regards.

atush

the 80/20 is a 'lifestyle' fund)

Have you looked for an emerging markets fund?

FatherAbraham

fuelcrusher wrote: »

All a bit over my head but I certainly feel I should drop the 30% contributions going into property and put the freed up money into the equity fund. So 80% equity, 20% bonds for a few years?

No, you should take some time to understand how and why asset allocation works (I've recommended a book above; if that doesn't appeal, try Tim Hale's Smarter Investing), then choose an appropriate portfolio split, and then change both your existing investments, and your future contributions appropriately.

What you're currently proposing is a random change, based on not understanding asset allocation very well, combined with the fear that you've done the wrong thing. That's where I was a few months ago, and I started by changing my future contribution allocation too. It's a clear sign of acting before having done enough learning. I've been there.

fuelcrusher wrote: »

I checked the friendslife website and there are dozens of funds to choose from. Couldn't find a life strategy fund though, although I found one on trustnet 'FL Strategy 01 Pn'

My apologies, I was misremembering, and confusing myself with a different investment product, which is not relevant in this context.

Presuming it's available in your particular FL product, you might like to look at the BGI Balanced Index fund, which invests "up to" 85% in global equity indices (split 50:50 UK/RoW), the rest in fixed-interest trackers. This carries no additional AMC. Anyway, I'm not particularly recommending this fund, but it sounds like the kind of asset allocation which might be interesting as a low-maintenance core of your portfolio.

fuelcrusher wrote: »

There's no way I'd be competent to research the available funds let alone choose one so I guess professional advice is what's needed.

I think you'd probably be competent enough to understand sufficient of asset allocation theory, combined with the ability to get feedback on this board, to choose a good asset mix. Don't underestimate yourself. Give yourself a little time.

fuelcrusher wrote: »

I've always considered the tax breaks and employer contributions to be the main 'growth' aspect of my pension, hence why I've never shown much interest in the particular funds. Your answers have shown me that's it's time to do 'something', just need to figure out what.

No need to rush into action. As I said, the portfolio you have isn't bad at all. Your regular contributions look as if they've been holding the asset-class proportions in about the right area, and the individual values haven't drifted too far from your 50:20:30 split.

As the fund values grow, the regular contributions become less important in relation to the investment returns. You've started to get interested in this at just about the right time, by the look of things. It's time to start thinking about the right mix of return-generating assets and risk-mitigation assets, as well as making a rebalancing schedule.

Warmest regards,
FA

fuelcrusher

Thanks for the further replies.

I will research more before making any changes. I have got hold of the Tim Hale book so will make a start there.

Interesting thing is that asking about at work I've yet to come across someone who actively manages their pension. Like me they just contribute to the same original funds to the same split.

Best regards, and thanks again.

Perelandra

Something else to look out for when you're researching-

Once you've made your fund choices, and the splits on them, at periodic intervals (and assuming your scheme allows), you may want to rebalance as well. That is, to sell units in the funds that have performed well, and buy in the ones that haven't to revert the overall percentages back to your original percentages.

Make sure you understand how this can help, though, before doing it (since it sounds rather counter-intuitive...!).