Default pension investments

atypical

Are the default investment choices in employer pensions generally sensible?

Mine invests in a fund like this one but with a slightly lower charge:
http://www.trustnet.com/Factsheets/Factsheet.aspx?univ=P&fundCode=I8FIV&typeCode=FI8IV&pagetype=overview

It seems to be invested around 40% in bonds which is lower risk than I would otherwise have chosen. I have 168 funds to choose from.

Perhaps the lower risk is a good thing seeing as it's my pension. I'm 23 and otherwise investing monthly in Vanguard Lifestrategy 100% Equity.

Wilkins

atypical wrote: »

Are the default investment choices in employer pensions generally sensible?

Mine invests in a fund like this one but with a slightly lower charge:
http://www.trustnet.com/Factsheets/Factsheet.aspx?univ=P&fundCode=I8FIV&typeCode=FI8IV&pagetype=overview

It seems to be invested around 40% in bonds which is lower risk than I would otherwise have chosen. I have 168 funds to choose from.

Perhaps the lower risk is a good thing seeing as it's my pension. I'm 23 and otherwise investing monthly in Vanguard Lifestrategy 100% Equity.

Why do you say that it is 40% in bonds when the fund breakdown says 18% plus the non-defined "money market" at 6%?

atypical

Wilkins wrote: »

Why do you say that it is 40% in bonds when the fund breakdown says 18% plus the non-defined "money market" at 6%?

I probably shouldn't have linked to that fund as it's not really that similar. The one I'm invested in seems to be specific to my employer and information isn't on the web.

It's in the Mixed Investment 40%-85% Shares sector currently split mainly as: 40% bonds, 40% equity, 15% property/real estate. Long term rate of return is expected to be similar to a developed market equity fund but with less exposure to adverse equity market conditions (quoting from the fund sheet). Not sure what makes them confident of being able to get the same returns with less risk.

Wilkins

atypical wrote: »

I probably shouldn't have linked to that fund as it's not really that similar. The one I'm invested in seems to be specific to my employer and information isn't on the web.

It's in the Mixed Investment 40%-85% Shares sector currently split mainly as: 40% bonds, 40% equity, 15% property/real estate. Long term rate of return is expected to be similar to a developed market equity fund but with less exposure to adverse equity market conditions (quoting from the fund sheet). Not sure what makes them confident of being able to get the same returns with less risk.

OK, given your age, then I'd agree with you, the fund looks rather conservative.

Farmerbob

At your age you can afford to take more risks and try get better returns. I'm 33 and am invested completely in equities, as I see it long term I may be able to weather out any "bumps in the road" so to say. I've only in the last year of so took interest in my pension and where it's invested. Be worth seeing what others view are on this.

Lokolo

Mine is currently;

10% Bond
15% Emerging Markets
20% European Equity
5% Japan
10% Pacfic Equity
10% UK Equity
30% US Equity Index

I am going to be changing it next year, I feel as though I am a bit overexposed to US at the moment and not enough in emerging markets and UK. I will also go for a more riskier hedge fund.

FatherAbraham

atypical wrote: »

Are the default investment choices in employer pensions generally sensible?

Of course, that's not really the question you care about. You care about the fund which your retirement assets are in.

atypical wrote: »

It seems to be invested around 40% in bonds which is lower risk than I would otherwise have chosen. I have 168 funds to choose from.

Perhaps the lower risk is a good thing seeing as it's my pension. I'm 23 and otherwise investing monthly in Vanguard Lifestrategy 100% Equity.

The 40% bonds, 40% equity, 20% (?) real-estate mix you have sounds pretty good, although you might want to set that up as three funds so you can control the asset allocation, rather than have the fund manager muck about with it in an attempt to "outperform".

It is indeed your retirement fund. There are good reasons not to be too greedy. A riskier strategy which offers more extreme outcomes is, for many people, not a good idea. That's because having twice as much money as you need in retirement isn't really that useful, and if you have to risk only having half as much money as you need in order to have the chance of twice as much, that is a most undesirable outcome.

Investment professionals often comment that DIY investors are likely to exceed their capacity for risk, in an irrational desire to achieve astounding investment results.

There are more than enough risks in life.

Warmest regards,
FA

atypical

Lokolo wrote: »

Mine is currently

How have you achieved this? Through using a number of different funds, active and passive? I guess you must review it annually? I want something less involved, exactly like Lifestrategy but with a higher bond proportion ideally.

FatherAbraham wrote: »

It is indeed your retirement fund. There are good reasons not to be too greedy. A riskier strategy which offers more extreme outcomes is, for many people, not a good idea. That's because having twice as much money as you need in retirement isn't really that useful, and if you have to risk only having half as much money as you need in order to have the chance of twice as much, that is a most undesirable outcome.

Thanks for the alternative view!

dunstonh

Most default funds are in the mixed 40-85 equity sector. What was generally known in the past as the balanced managed sector. Some providers picked poor default funds (such as UK equity).

Perhaps the lower risk is a good thing seeing as it's my pension. I'm 23 and otherwise investing monthly in Vanguard Lifestrategy 100% Equity.

The VLS100 is high risk. The 40-85 can range from medium to medium/high. The average UK consumer is cautious. Timescale dilutes risk somewhat as can pound cost averaging (monthly premiums). So, the 40-85 fits the average person better than other sectors.

Lokolo

atypical wrote: »

How have you achieved this? Through using a number of different funds, active and passive? I guess you must review it annually? I want something less involved, exactly like Lifestrategy but with a higher bond proportion ideally.

The lifestrategy one at my work is made up of the funds I can choose. It also says at what point it would change (<15 years retirement, <10, <5), so if I wanted I could effectively replicate the lifestrategy but lower equities and higher bonds. But as it is not automated in changing I would have to remember to change it in, 20 years time!

I do review annually as we have our benefits year change in April, at which point I review how much I am paying into pension, whether I buy holiday, SIP etc. so I tend to look at my pension at this point.

bigadaj

atypical wrote: »

How have you achieved this? Through using a number of different funds, active and passive? I guess you must review it annually? I want something less involved, exactly like Lifestrategy but with a higher bond proportion ideally.


Thanks for the alternative view!

The lifestrategy has different options though so you can tweak the risk level and bond/ equity split. From 20% equity upwards, so going for the lifestrategy option at an intermediate level, or it's equivalent, maybe a 40% bond version might appeal?