How diversified should additional savings be for those in DC schemes?

Shameless

As I suspect applies to many others, my company DC pension scheme is invested with a broad stockmarket exposure. Having saved over a number of years ( I am in my early 40s)u, this represents quite a large chunk of my total worth.
The standard advice for what to do with additional savings (after a cash cushion) which are able to be locked away for some time is to put them into stocks and shares in some form within an ISA.

However, I already have a substantial part of my future tied up this way through my pension. I understand there are differences between ISAs and pensions in terms of taxation timing, accessibility etc, but saving in both puts a high percentage of savings into ‘the stockmarket’. Internet questionnaires as to my risk profile seem to suggest about 45% equities/40% bonds/15%cash, but my pension ‘eats’ up the equities proportion instantly! What are the other mainstream alternatives? Am happy to take a little more risk than fixed income bonds (though possibly don’t understand these fully), have a house (so am invested in property to some extent but don’t fancy being a BTL landlord!), but beyond that, the options suddenly seem to get quite esoteric and non-mainstream and very high-risk eg gold/art/wine etc.

So, two questions

1. Roughly what proportion of one’s worth should be in equities (including DC pension)?
2. Any thinking around alternative investments appreciated!

xylophone

You might consider bond funds for your ISA?
http://www.investorschronicle.co.uk/2014/02/26/funds-and-etfs/isa-funds/best-active-bond-funds-for-your-isa-UZFnmIMPqiCB3S5OcfAyQO/article.html

With regard to property, this article might be of interest?http://www.telegraph.co.uk/finance/personalfinance/investing/experiencedinvestors/10710797/How-to-use-an-Isa-to-invest-in-property.html

atush

Are you counting the value of your home (as property) part of your diversifed pot? Because you should do.

And there is no set rule abt %'s as these are determined by each individual according to their risk profile/

Shameless

Thanks both.

Atush, Yes, I do, though the house is the right size for us to live in rather than stretching ourselves to increase the size of the investment.
It just never seems very clear to me whether the proportions suggested are meant to be including or outside the pension. If it is the former, looking at total assets, I would suspect that as Defined Contribution pensions become the norm, many people without great wealth may find themselves with a higher proportion in equities than is rational given their risk profile.

xylophone- thanks, the bond link in particular very interesting

atush

The % also change due to age, being a higher % in equities the younger you are.

Then you have certain periods of time where things get skewed by current market conditions (which mean that cash isn't paying a return after inflation at present which also means gilts and bonds are expensive - in a bubble perhaps.

So some may be higher into equities right now than normal.

bigadaj

Shameless wrote: »

Thanks both.

Atush, Yes, I do, though the house is the right size for us to live in rather than stretching ourselves to increase the size of the investment.
It just never seems very clear to me whether the proportions suggested are meant to be including or outside the pension. If it is the former, looking at total assets, I would suspect that as Defined Contribution pensions become the norm, many people without great wealth may find themselves with a higher proportion in equities than is rational given their risk profile.

xylophone- thanks, the bond link in particular very interesting

Your reported risk profile looks quite low given your age, I'd expect most people to be more heavily in equities at your age than 45%.

The issue of housing is subjective, many people exclude their property as it is after all primarily somewhere to live rather than an investment.

In terms of investment profile it makes more sense to look at all investments as one lump, be they pensions, isas or unwrapped. Many people would also consider there to be a bond bubble still in existence, due to overall setiment being risk averse and low interest rates, so I'd definitely shy away from a heavy bond allocation, alterhatives coule include infrastructure or property funds, but there are risks with all.

Excluding my house I am slightly older than you and have around 90% allocation to equities in investments. This is balanced by a current very large cash balance, probably representing 40% of savings and investments, but this has been built up due to paryticualr circumstance and much may be used up for a house move potentially later this year.

atush

I include mine as It was a self build barn renovation, is far larger than we need, and is worth a bomb plus has a very low 40K mtg.

If you live in a 2 bed terrace, that is mtged to the hilt, you may not want to include it. But it is an asset that can be sold, so listing the (conservative) equity amt would be 'normal'. After all, if you went bankrupt, were divorced, or were sued it would be counted as an asset.

kidmugsy

If there's a bank near you with a safety deposit, buy some gold sovereigns and store them there. No VAT, no CGT and, obviously, no income tax.

Whether gold is high risk depends whether you want to take a fortnight's perspective, or four millennia's.

atush

I hold some gold, but i'd make that only 5-10% max of your portfolio (5% if including your house). I sold half during the rise some years back.

And do be aware that is has gone down over 30% in the last few years.

grey_gym_sock

kidmugsy wrote: »

Whether gold is high risk depends whether you want to take a fortnight's perspective, or four millennia's.

nobody takes a perspective of 4 millennia.

for a realistic long perspective - many decades - you probably want most of your money in shares, and certainly very little in gold.

universities may take a view of several centuries. again, they mainly go for shares. they want an income to spend over the years.