Is my plan ok?

Jaguar_Skills

Hi everyone.

I have posted a lot on this topic in the last few weeks but I really don't want to get it wrong so I would be appreciative of people looking over what I am about to do!

Bit about me: I am 29 years old, no company pension until April 2016, no house but deposit saved and currently sitting in Santander accounts (just waiting for the gf to save hers). I want to save £600 per month into my pension.

I want a simple pension (as I dont know a huge amount about trading) . I am thinking of investing in the Cavendish Online Fundsupermarket Pension with fees of 0.30%. The two investments I wish to put into are Vanguard Life Strategy 80% Equity Acc (fee of 0.24%) and Blackrock Consesnus 100 Fund D Acc (0.2%). This will give me 90% in equities.

When April comes and my employer starts the company pension I may decrease what I am paying into my Cavendish and max out the company one as they will match (up to a cap).

Whilst I am not that familiar with rebalancing the portfolio I realise that 90% is quite high in equities and I could expect a sharp fall (if there is a correction, is that right?).

Therefore as well as looking at the above is there any particular timeframe when I should rebalance? Should it be yearly, after 10 years etc?

TH1878

Jaguar_Skills wrote: »

Hi everyone.

I have posted a lot on this topic in the last few weeks but I really don't want to get it wrong so I would be appreciative of people looking over what I am about to do!

Bit about me: I am 29 years old, no company pension until April 2016, no house but deposit saved and currently sitting in Santander accounts (just waiting for the gf to save hers). I want to save £600 per month into my pension.

I want a simple pension (as I dont know a huge amount about trading) . I am thinking of investing in the Cavendish Online Fundsupermarket Pension with fees of 0.30%. The two investments I wish to put into are Vanguard Life Strategy 80% Equity Acc (fee of 0.24%) and Blackrock Consesnus 100 Fund D Acc (0.2%). This will give me 90% in equities.

When April comes and my employer starts the company pension I may decrease what I am paying into my Cavendish and max out the company one as they will match (up to a cap).

Whilst I am not that familiar with rebalancing the portfolio I realise that 90% is quite high in equities and I could expect a sharp fall (if there is a correction, is that right?).

Therefore as well as looking at the above is there any particular timeframe when I should rebalance? Should it be yearly, after 10 years etc?

What you propose sounds like a sensible plan. The most important figure in all of this isn't your equity exposure - it's the amount that you're paying in and £600 for a 29 year old is pretty good.

With the above plan, I'd look to rebalance annually.

AlanP_2

Plan seems sensible to me, simple and leaving the professionals to do most of the work.

I'd agree with annually as well, not so often that you are tinkering but often enough that things aren't getting too far away from your chosen allocation before you intervene.

The rebalancing you will need to do is between the VLS and BR funds to get them back to your chosen 50/50, 80/20 or whatever split.

Rebalancing inside the funds between equities (and between equity sectors) and bonds will be handled by Vanguard and Blackrock.

As said £600 pm at your age should grow into a valuable retirement pot even if you do cut it back a bit when your employer scheme comes online.

Jaguar_Skills

TH1878 wrote: »

What you propose sounds like a sensible plan. The most important figure in all of this isn't your equity exposure - it's the amount that you're paying in and £600 for a 29 year old is pretty good.

With the above plan, I'd look to rebalance annually.

Thanks. With regards to rebalancing annually is this just reducing equities in line with me getting older? Or is that Vanguard for instance may change what they invest in within the product?

Jaguar_Skills

AlanP wrote: »

Plan seems sensible to me, simple and leaving the professionals to do most of the work.

I'd agree with annually as well, not so often that you are tinkering but often enough that things aren't getting too far away from your chosen allocation before you intervene.

The rebalancing you will need to do is between the VLS and BR funds to get them back to your chosen 50/50, 80/20 or whatever split.

Rebalancing inside the funds between equities (and between equity sectors) and bonds will be handled by Vanguard and Blackrock.

As said £600 pm at your age should grow into a valuable retirement pot even if you do cut it back a bit when your employer scheme comes online.

Thanks Alan I guess I now need to work out a time frame re equities etc.

I came across a Monevator thing that suggested this:

0-3 0%
4 10%
5 20%
6 30%
7 40%
8 50%
9 60%
10 70%
11-14 80%
15-19 90%
20+ 100%

With the left hand column being years until retirement and right being equities. Half decent rule to follow?

Does that not suggest that for 15 years (i.e. have 30 to invest for) I don't need to rebalance as I am sat at 90% and only need to go to 80% at 14 years to retirement?

TH1878

Jaguar_Skills wrote: »

Thanks. With regards to rebalancing annually is this just reducing equities in line with me getting older? Or is that Vanguard for instance may change what they invest in within the product?

For the next 10 years or so, I would just make sure that your fund split stays at 50/50 to ensure your equity balance remains at 90%.

Triumph13

Beware any table that tells you what percentage equity to have. The one you have there is clearly assuming you intend to buy an annuity when you retire (or buy a Lamborghini) which is why the equity percentage goes to zero. If you expect to use drawdown to provide an income over retirement then the picture is completely different.


Having said that, the '100% equities >20 years' sounds about where you should be.

Dunnit

You will not draw this as a pension for 40 years and even then it is likely it will remain invested for another 25 years.
I would be 100% equities. Minimise charges.

redbuzzard

Jaguar_Skills wrote: »

Thanks. With regards to rebalancing annually is this just reducing equities in line with me getting older? Or is that Vanguard for instance may change what they invest in within the product?

You are a long way from needing to worry about reducing the equities - and that would be called "allocation" rather than re-balancing, which usually means adjusting back to the chosen allocation (e.g. your 50/50 split of your 2 funds).

The stuff about being increasingly in bonds/cash etc approaching retirement is a long way off and in any case is now less relevant to many people who are contemplating drawdown - I am just starting drawdown, but I will still have long term investments for quite a while.

EDIT:
And another thing...you are planning monthly contributions. This is a proven effective method of investing in equities.

If you were considering investing a large lump sum now into equities, I'd be asking myself whether that was a good idea when the markets are near (or in some cases at) all time highs, despite my general lack of enthusiasm for market timing.

But in your case, if the equity markets dropped 50% in 6 months time, the thing to do would be to carry on - no point crystallising your losses by selling when you would actually be holding much better value investments than before, and your ongoing contributions will be buying twice as many shares with attendant income attached and recovery ahead at some point.

Jaguar_Skills

TH1878 wrote: »

For the next 10 years or so, I would just make sure that your fund split stays at 50/50 to ensure your equity balance remains at 90%.

The only way this would change is if I started paying £400 into one and £200 into another right?

So I won't need to rebalance at all?

Jaguar_Skills

redbuzzard wrote: »

You are a long way from needing to worry about reducing the equities - and that would be called "allocation" rather than re-balancing, which usually means adjusting back to the chosen allocation (e.g. your 50/50 split of your 2 funds).

The stuff about being increasingly in bonds/cash etc approaching retirement is a long way off and in any case is now less relevant to many people who are contemplating drawdown - I am just starting drawdown, but I will still have long term investments for quite a while.

EDIT:
And another thing...you are planning monthly contributions. This is a proven effective method of investing in equities.

If you were considering investing a large lump sum now into equities, I'd be asking myself whether that was a good idea when the markets are near (or in some cases at) all time highs, despite my general lack of enthusiasm for market timing.

But in your case, if the equity markets dropped 50% in 6 months time, the thing to do would be to carry on - no point crystallising your losses by selling when you would actually be holding much better value investments than before, and your ongoing contributions will be buying twice as many shares with attendant income attached and recovery ahead at some point.

I am trying to get my head round this but struggling a little. Is there a simple analogy?