Pension advice IFA

dunstonh

so I want to read articles which talk about predicted future behaviour not past, if that makes sense.

No you dont. No-one can predict the future. If you start investing on what people may or may not think will happen then its a recipe for disaster.

Still getting my head around the terminology so apologies if I am confused. We have 10 funds under the primary asset class of Equity Growth and defined as UK All companies, £142k in total. From what I can interpret this category(?) last year returned on average 0.6%, but our individual funds returned from -6.9% ( M&G recovery) to 8.9% (SE Invesco Perp Inc).

Different funds with different strategies will perform differently at different times. One doing better than another in a given period does not make that fund better than the other.

Take a look at the following link: https://az685122.vo.msecnd.net/documents/16075_2014_08_05_07_19_24_897.pdf.gzip
That page shows you how the different sectors have performed in relation to each other.

Remember all those people telling you how good gold was a few years back. Third from bottom in 2012 and bottom in 2013.
UK small cap was bad in 2011 but top in 2012 and 2013.
You cannot predict these things. Which is why you balance the portfolio with a bit of everything with an overall balance that matches your risk profile and capacity for loss as well as using investments that are within your ability to understand the basics.

I have looked at unbiased.co.uk, but there a lot of IFA to choose from...

under 20,000 nowadays. Much lower than in the past. unbiased has a postcode filter which should help.

Mirador

mgdavid wrote: »

Is your £30k p.a. requirement before or after tax?
If you retire will that give you more time to manage and maximise income from the BTL rather than selling it? Thus maintaining income to use against your personal tax allowance. I assume the BTL is co-owned.
You need to be planning fo 30+ years not just 10. Do your 'other pensions' at 65 come to 30k per annum or less?

We require 30kpa after tax. The BTL could generate £9k of this after agents fees. We are mortgage free.

Other pensions once in payment between us, and including state pension estimate will exceed £30k pa in total. Indicative figures suggest that we will have a net monthly income at that stage which exceeds our present net income.

Mirador

I do get that I need to balance my portfolio, and that you no one can predict the future, otherwise we would all be millionaires. Prediction was the wrong word to convey my thoughts.

What I am trying to say is that in order to make an investment decision it must help to understand whats happening in the world and how that might affect the markets? For example I read an article recently outlining the possible scenario if the conservatives win the next election and the impact that could then have in terms of European markets, given their undertaking to hold a referendum on membership of the EU. That's what I meant by reading a multitude of articles about future predicted behaviour. The way I see it it, at some point when making investment recommendations, someone has to consider the impact of such events and evaluate their possible effect on investments. Whether that is me as an individual or an IFA. Otherwise where does a recommendation to invest in any given sector start? As Dunstonh has helpfully pointed out in his link past performance is no guide on its own. Maybe the answer is experience alone?

Sorry if I have got this wrong, it's a steep learning curve and I am right at the bottom with no ropes. :eek:

gadgetmind

Mirador wrote: »

The way I see it it, at some point when making investment recommendations, someone has to consider the impact of such events and evaluate their possible effect on investments. Whether that is me as an individual or an IFA.

Well, an IFA certainly isn't going to do that. Even those professionals who are paid to make macro calls get them wrong more often than not, and IFAs are neither trained nor paid to do this. And while some IFAs may be able to have an intelligent discussion with you on CAPE, call options, bond yield curves, and the tax advantages of REITs, it really isn't their bread and butter and they tend to outsource portfolio construction and management.

Maybe the answer is experience alone?

The answer is to keep it simple, and don't let your monkey instincts throw you off course.

gadgetmind

Based on a few minutes of thought, and my own preferences rather than yours, here is what I'd do.

1) Ignore portfolios and funds for now and concentrate on what money is where, cash flow, and tax. These really are separate issues and working out asset allocation and what funds/trackers to hold can come later.
2) Sell the BTL. Yes, nice income, but future hassle and the income isn't tax efficient. No need to rush so look to sell for best price.
3) Draw on the pensions as quickly as tax efficiency allows. Tax isn't going to be your friend later on.
4) Move money into ISAs as quickly as possible. ISAs are a tax efficient, flexible, and low hassle way to hold wealth in your dotage.
5) For anything that won't fit into ISAs, seriously consider income oriented Investment Trusts. Dividend income is very tax efficient for basic rate tax payers, and you can sell these down to "ISA up" over the years.
6) Always hold your bond and property allocations in ISAs and keep dividend income for unwrapped. Again, this makes the tax burden less.
7) Don't take lump sums from DB pensions (but do the maths) but do take them from DC pensions. Yes, you can take these in a phased way, but I'd rather have the money in my pocket to then invest in dividend income assets.

Ultimately only you can decide, and an IFA may suggest other tricks (though "miss" some of mine!)

kidmugsy

Mirador wrote: »

Info learnt to date. We have around £680k split roughly 50:50 between us, comprising two DC pensions 250k in each, 2 with profits 55k in each, 90k in stocks and share ISA.

A minor point: I'd check the With Profits pensions to see whether there's a chance of a terminal bonus at some date. If there is a realistic chance, then you might incline to hold on until then.

Then keep your eyes open for the parties' manifestos for the election. For example, will any of them float the idea of putting an upper limit on the amount an individual can hold in ISAs? If so, might it affect you? If so, could that persuade you to leave more money in the tax shelter of a pension? On the other hand, would a new government be as keen on preserving the Great Liberator's pension reforms as one that contains Mr Osborne?

Mirador

gadgetmind wrote: »

Well, an IFA certainly isn't going to do that. Even those professionals who are paid to make macro calls get them wrong more often than not, and IFAs are neither trained nor paid to do this. And while some IFAs may be able to have an intelligent discussion with you on CAPE, call options, bond yield curves, and the tax advantages of REITs, it really isn't their bread and butter and they tend to outsource portfolio construction and management.



The answer is to keep it simple, and don't let your monkey instincts throw you off course.

Thank you for both your replies, they are very informative. If I reading it correctly, and forgive my ignorance in this field, are you saying that behind the IFA is some sort of access to another layer of information which they do not generate themselves. I assume specialist computer run software where various pieces of information are entered, adjusted and scenarios created and numerous portfolios can then be constructed and these portfolios are then matched to the level of risk an investor will accept. I confess my only previous experience of taking financial advice was in 2002 when I was presented with pie charts and a report by the IFA, which I confess I thought he had produced personally. I didn't understand any of it and just went along with his proposals, but this time I want to try to understand some of it

I am not sure about monkey instincts, is that another IFA term maybe


I have checked the with profit funds and believe they carry a 5% guaranteed rate so I am leaving them alone.

Could you explain point 6 a little more? Bond and property funds are all held in our pensions funds, are you suggesting they should be in our stocks and shares ISA and if so why does that make a difference? What is wrapped/ unwrapped? Sorry for all the questions.

atush

they have access to extra information from other experts if they (and then you) pay for it.

But given you were earlier asking for in effect, a crystal ball, I have to say you remain disappointed as no one has one. Not even warren buffet. No one can give you a picture of the future, so no IFA will try and do so.

dunstonh

If I reading it correctly, and forgive my ignorance in this field, are you saying that behind the IFA is some sort of access to another layer of information which they do not generate themselves. I assume specialist computer run software where various pieces of information are entered, adjusted and scenarios created and numerous portfolios can then be constructed and these portfolios are then matched to the level of risk an investor will accept. I confess my only previous experience of taking financial advice was in 2002 when I was presented with pie charts and a report by the IFA, which I confess I thought he had produced personally. I didn't understand any of it and just went along with his proposals, but this time I want to try to understand some of it

Most IFAs are small local firms which do not have the resources to carry out due diligence and analysis themselves. So, that data and information is bought. This can include the allocations that are to be placed into each investment sector to match a give volatility risk rated portfolio. These allocations will change throughout the economic cycle. Whilst the IFA is responsible for the recommendations to change, the data and information has not come from the local IFA themselves. Advice in 2015 is very different to 2002.

gadgetmind

Mirador wrote: »

If I reading it correctly, and forgive my ignorance in this field, are you saying that behind the IFA is some sort of access to another layer of information which they do not generate themselves.

My understanding is that yes, they provide the information on your stated attitude to risk, and your ability to absorb certain losses in certain timeframes, and this is then munged by 3rd parties to come up with an asset allocation.

I have checked the with profit funds and believe they carry a 5% guaranteed rate so I am leaving them alone.

Makes sense.

Could you explain point 6 a little more? Bond and property funds are all held in our pensions funds, are you suggesting they should be in our stocks and shares ISA and if so why does that make a difference? What is wrapped/ unwrapped? Sorry for all the questions.

You definitely need a mix of assets in all portfolios, but if you start accumulating wealth that's outside of tax efficient wrappers (such as ISAs and pensions) then you need to consider the tax situation. Bonds and property will generate income that's subject to income tax, so are more efficient to hold in ISAs, whereas most equities generate dividends (and hopefully capital gains) which generate an untaxed income stream for basic rate tax payers.

So, in this situation, you old bonds and property inside ISAs but consider your unwrapped holdings and ISAs as a single portfolio for asset allocation purposes.