Pension v S&S ISA Investments

WoB

When choosing investments for your DIY pensions and S&S ISA's, do you have choose similar options? What makes you determine what to select for both? Do you see pensions more long-term compared to ISA's? I have recently opened a personal pension via Cavendish Online and originally intended to follow a purely passive route, had selected my mix of trackers etc. only to change my mind a select a few low cost mixed asset funds instead. Now I've opened up an ISA account with Charles Stanley Direct and I'm back to my original plan of index trackers.

It got me thinking what do others do? Are you choosing the same mix between your pensions and ISA? Do you have a different philisophy between the two?

Interested to hear your thoughts on the path you've gone down.

SomeUser

Different philosophy. Firstly, I've got over 30 years until retirement and nearly as long before I can access the money. Isa contains some money that I can access if I absolutely have to.

But, I have a trust based occupational scheme, with very good but restricted investments. My Isa on the other hand, gives me access to some of the more esoteric investments.

Pension is mostly equities with some property and diversified growth inc hedge funds to hedge against the overweight emerging markets and Pacific equities allocations.

Isa has full range of asset classes for diversification and in case of emergencies. The only thing I don't hold at the moment is infrastructure because they are all at a hefty premium . I do invest in frontier markets. I don't hedge against my speculative (esoteric) investments, mainly because I do small amounts, using strict principles, holding for the short term and in amounts that wouldn't be the end of the world if I lost them.

If the question is mixed asset vs your own tracker selection, it completely depends on which mixed investment fund versus which tracker selections. If going for self select passive trackers, market weighting is a straightforward tactic that limits exposure to specific market risk.

SomeUser

I should probably add... I split equities into 3 main groups, UK, overseas developed and emerging markets including Pacific ex Japan . I use a selection of overseas funds that hedge developed currencies back to sterling to remove risk. I build up my equity allocations in those 3 main groups. Japan is a tricky one, a bit of an outlier who I treat completely separately (clearly not EM, but doesn't behave as developed).

WoB

Cheers SU. So I guess you are seeing the ISA as a more short term investment and that drives your different choices. Probably a stupid question really! :-) I guess ultimately there is no difference other than timeframe/accessibility (and of course the products maybe offering different options).

SomeUser

Yes, the ISA covers covers all eventualities, shorter and longer term. Pension is strictly long term.

gadgetmind

Both our pensions and our ISAs are for the long term. In fact, because ISAs are the last money we will touch (due to tax advantages) these will be left untouched longer than the pensions. Much longer in the case of my wife's SIPP, which will be emptied (tax free) and closed before SP kicks in.

As a result, our ISAs and SIPPs have pretty much identical asset allocations, are invested in the same assets (diversified ETFs, mainly global) and are tracked in four tabs of the same spreadsheet.

bowlhead99

I'm like many of the others in that at least some portion of my ISAs are going to be accessed before retirement and so are less long term in construction.

Ultimately there's likely to be some ISA assets providing me a tax-free income in retirement but that will have a big component of future money in it rather than the money from previous years to date which might get spent on cars or house upgrades depending on what I can afford to fund from unwrapped cash available at the time.

Having said that the ISAs are more short term in outlook, they do have some volatile assets in them including frontier funds and individual stock picks for example. "More short term" is all relative, as some of the pension might not be drawn for 50 years, depending on how the game plan is working out.

Actually I expect I'll be drawing a chunk of ISA money out next year to buy a car (depending on financing costs at the time). I haven't gone so far as to ring fence some ISA holdings in low risk assets specifically for this eventuality, because I'm fine with taking a bit of a punt. If some of my shares or funds tank before then, I would either buy a cheaper car (which I'm mentally prepared for as it will "teach me a lesson" about not being so cavalier with risk assets), or finance the car using a suitable cheap method (because if equities get a great deal cheaper it would make sense not to cash in much of the ISA, quite the opposite).

Not recommending anyone to follow me on that of course!

edinburgher

I have the same investment philosophy across pensions and ISAs, preferring to utilise index tracking products with low expenses. The only thing that differs across the two is the percentage of equities held. Funds for retirement proper are currently 80%+ in equities.

Like others, I have a 'nest egg' pot invested within my ISA that will grow over time, although in my case I'd like to use it to kill off the mortgage at some point. This is invested at 60% in equities as the timeframe is considerably shorter and I don't want to take as much risk.

gadgetmind

bowlhead99 wrote: »

Actually I expect I'll be drawing a chunk of ISA money out next year to buy a car

I've been investing in PEPs/ISAs since the late 80s, have never taken a penny back out, and our current plan isn't to touch them until nearly age 70!

Pensions will be drawn down first (tax efficiently), then unwrapped funds spent (and bunged into ISAs), and finally we'll start to use ISAs.

bowlhead99

Makes perfect sense to keep S&S ISAs sacred once you have them.

Unfortunately by overenthusiastically filling pensions for the tasty tax relief, I just haven't ended up with a lot of cash that isn't already in ISAs or pensions or home, apart from a general cash cushion which is not really intended for blowing on a once-a-decade purchase like a car. So I'm likely to draw on the ISAs from time to time for those one off big purchases.

The alternative, depending on what borrowing rates are like at the time, is simply to get bank or cc finance for most of a capital purchase like that, and then preserve the ISA and cash float intact and be effectively geared on my investments for a while. Or burn the cash float and have my credit card space be most of my "emergency fund" until I save it back again.

I'll likely prefer one of those options to keep the ISA intact, but if I had been saving up for cars and house deposits outside an S&S ISA I wouldn't have had such a decent ISA stash anyway, and so it doesn't feel like it would be the end of the world to cash it in and avoid borrowing costs. But probably crunching the numbers I would be better getting that extra compound tax free growth for the rest of my life in exchange for a year or two's borrowing costs.

Thrugelmir

ISA's - primarily cash

SIPP - stocks and shares.

See little point in holding cash in the SIPP given the poor returns on offer. So tend to remain fully invested in the SIPP. Use the ISA to counter balance the weighting.