Eight Years to retirement.Moderate or Conservative Investment Strategy?

Crossfell_2

I have just transferred a private pension from another provider to a Hargreaves Lansdowne SIPP. I have decided to go with one of their suggested portfolios. These are categorised as Conservative, Moderate or Adventurous. I am in a dilemma as to go with the conservative or moderate option at this stage. Any observations would be gratefully received!

redbuzzard

My starting point would be adventurous, especially if I was planning drawdown rather than annuity purchase which when you think about it makes you a long term investor.

Then I would be having a few other thoughts.

- the markets are at or near an all time high. Somebody will be along to say that isn't necessarily so in real terms, which is true, but against that the world economy is still sluggish (to put it mildly)and prices reflect loads of QE, and high interest rates. At some point interest rates will increase, and QE will taper, although Europe has only just got stuck in. If I was embarking on 20 years of contributions, this wouldn't worry me at all; but with effectively a lump sum I would be weighing the cost of being off risk now with the benefit of taking a smaller hit when the market dips, and having more left to switch into equities. But I might have said that two years ago and since then a global index accumulation fund I just picked at random is up about 30%...

- How much do I need? For someone who has enough, matching inflation could be success. Someone who really needs the growth might be inclined to take more risk (subject to their attitude and how they would handle a setback). I know a very bright chap who took a couple of million out of a defined benefit scheme a while back, because the scheme had a deficit and an impaired covenant - he didn't need to grow it in real terms and he was confident he could preserve the value.

- what are the alternatives? Balancing equity risk with bonds doesn't feel as prudent as it should when interest rates have only one way to go, and yields on short term bonds which will be less affected are relatively paltry. (but I might have said that 3 years ago, since when bonds have done rather well in price terms...though it's even harder to see a big upside now)

- if I was to go risky, how would I make up the exposure? using a model portfolio does have some benefit there because it is likely to be balanced. Also, while passive funds have a lot to be said for them, especially in developed markets, low volatility is not one of them. I might be tempted by some (relatively) defensive equity income funds, which have a good chance of matching the index with materially lower volatility.

Etc., etc.

Out of all that, and I'm sure you have already had similar thoughts and more, I'd be reminding myself not to lose sight of my objectives, and remain diverse. One good idea isn't enough.

I am actually using some absolute return/diversified growth style funds now. There was some discussion here recently on Standard Life GARS fund and alternatives. Not everybody's cup of tea, and not a long history, but I am reasonably comfortable for now.

I'd say I'm closer to the HL medium portfolio in terms of risk just now. I see they have 20% Newton Real Return in that. I'd be happy to up the risk after a big dip, in the medium term part of the investments (the long portion is equities anyway, with an international bias and a reasonable dose of emerging markets which have gone net not very far in the last five years)

No answers there for you - just a ramble:)

jamesd

It depends to a good deal on how long it is to retirement and whether you plan to buy an annuity or use drawdown or perhaps drawdown then deferring state pension to get more income than annuities typically provide for the money.

atush

With 8 years to go, I would say it will depend on what you want to do with your pot.

Annuity, cash in hand or Drawdown. If DD I would say more aggressive for at least half, for the others I'd say moderate to conservative.

Crossfell_2

Thanks for some really thoughtful replies. I am inclined to go for the moderate option as I really could do with growing the pot. In addition, I am contemplating going for drawdown which might imply a longer investment period,

dunroving

Crossfell wrote: »

Thanks for some really thoughtful replies. I am inclined to go for the moderate option as I really could do with growing the pot. In addition, I am contemplating going for drawdown which might imply a longer investment period,

I plan to semi (quasi?) retire in about 3.5 years. I have a pot of about £80k that I am building in my money purchase AVC scheme, that is assigned to pay off the mortgage at that point. This portion of my overall investments is pretty conservatively invested.

The rest I would characterize as overall moderate risk, includes VLS40, Fidelity Pathfinder Foundation 2, strategic bond funds, US and UK trackers, etc., but also some more risky stuff like Woodford, SE Asia, etc., as I am hoping that I won't immediately be drawing large amounts in 3.5 years, nor even in 5 or 10 years.

As S&S have done well over the past 2-4 years, I have been looking at rebalancing things at the moment to bring the portion of lower-risk investments up.