How risk averse are you?

BananaRepublic

Pincher wrote: »

There are so many Ryanair type cheapo solutions, where personal service takes a backseat to one size fits all, using minimum wage call centre staff that are clueless about what they are managing, that I just wonder how it hasn't happened already.


To match an aging client profile, you can put a vintage on a fund. you assume the age is in the range 65 to 67, say, on fund creation in 2016, lets call it Prosperity Fund 2016. As the years go by, you adjust the portfolio to suit an older client. Presumably lower risk, higher income.


You can start a Prosperity Fund 2017, and put the next batch of retirees on that.


If a 70 year old comes along, with a pension pot, you could put him/her on an earlier vintage fund.


It's a generic one size fit all solution, but even if it only fits 30% of pensioners, what's wrong with that? Nobody says we should all fly Ryanair, but a lot of them do, despite the one size fits all approach.

I would have thought that a lot of the IFA work could be automated, or semi-automated, and I've wondered why companies such as Virgin do not get into this area. There are companies such as Money on Toast who do something similar, but I think you pay 1% per year, which negates the whole point IMO. That is significantly more than the Fidelity platform, and might even be more expensive than using an IFA every few years.

BananaRepublic

Pincher wrote: »

People who are auto-enrolled will be able to sue the government for forcing them onto an unsuitable product, by that logic.


If there were large generic funds meant for the "standard" customer, they can afford to actively manage it, but still spread the cost of managers. In fact, stakeholder pensions don't have to be passive trackers, they are only using passive trackers to keep it cheap.

So many commonly purchased pensions have poor performance that I suspect you would be hard pressed to sue someone unless you could establish gross negligence. In the past pension companies sometimes took customers for a ride such were the high charges and impact on performance. Regarding stakeholder pensions, the government created the concept, and the L&G one I had charged 1% per annum, and yet I could get the same performance in a SIPP for 0.5% per annum or less, including the platform charge. Not surprisingly I have already transferred the funds into a SIPP.

AnotherJoe

BananaRepublic wrote: »

I would have thought that a lot of the IFA work could be automated, or semi-automated, and I've wondered why companies such as Virgin do not get into this area. There are companies such as Money on Toast who do something similar, but I think you pay 1% per year, which negates the whole point IMO. That is significantly more than the Fidelity platform, and might even be more expensive than using an IFA every few years.

Quite a few companies are in this area, Google "robo advice". Whether it's more expensive than an IFA depends, many IFAs will charge a percentage to actively manage and rebalance. That should be included in an automated system like Nutmeg and others. I know I've read advice here that Nutmeg is expensive, I haven't investigated enough to know, and it's also a question of "compared to what". Making such things easily accessible and useable may be better than people doing nothing at all.

Glen_Clark

EdGasket wrote: »

I think it is rather simplistic to refer to equities as a 'safe haven'; you can loose an awful lot on equities..

That depends how you go about it.
My biggest investment is SWDA, a world tracker invested in over 3,000 of the worlds biggest companies with an annual charge of 0.2%. Those companies combined look more solvent to me than the British Government. So provided you don't lose your nerve and sell the lot when the market dips, it looks a safer bet to me than Sterling cash. Just take a look at this http://www.nationaldebtclock.co.uk/ Government intervention in the housing market to keep prices high has exacerbated the problem by diverting investment into property instead of exporting industry to pay off their debts.
Eventually the Government will do what Governments always do when they can't pay their debts. Default on their debts through inflation

Glen_Clark

grey_gym_sock wrote: »

all the evidence (and some plausible theories - though of course you can always find a theory to support any idea, and another to support the opposite idea) says that QE doesn't lead to high inflation. we started QE in 2009. where's the inflation? japan started in 2001, and is still at it. they have the same 2% inflation target as the UK, and they just can't get it up.

see below.

you're describing the commodity cycle. wherever we are in the cycle, either we have commodity inflation now, or we can expect it to come around later. so this is not saying anything special about the present situation.


this is wasteful. but housing benefit costs £20bn or so a year. suppose their bad housing policy eventually adds £5bn to that. that's a small addition to total government spending. so not a big effect on overall government finances.

if you count 2% inflation (the official target) as high inflation, i might agree. the government can borrow at 1% or 2%, so 2% inflation would be enough to leave them paying a negative real interest rate.

the fact that the government can borrow so cheaply at the moment implies that "the markets" think they could safely borrow more. and (IMHO) they should borrow more, in order to invest in housing, infrastructure, clean energy, etc.

i think you're fighting the last war. the current problem is debt deflation: excessive private sector debt, leading to low consumption, as households devote a larger percentage of their income to paying interest and rent the non-productive sectors of the economy (mainly meaning: finance).

Yes we are at a low in the commodity cycle, thats my point - prices will inevitably rise = inflation.
Just because the official inflation statistics are still low does not mean the Government is not setting us up for another bout of high inflation in the future. Its the only way they can deal with their debts.
I am reminded again of the story of the drunk at the bar. People get to think he can keep drinking forever without falling down. But eventually, inevitably, if he keeps drinking he will fall down. You just can't predict exactly when it will happen.

Pincher

Looks like the OP has a few standard vanilla options to go for, and hopefully, cheaper, too.


Funnily, I rather fancy going to a tailor for a suit, all these off the rack suits never fit properly. I always end up getting the sleeves shortened.

masonic

AnotherJoe wrote: »

Quite a few companies are in this area, Google "robo advice". Whether it's more expensive than an IFA depends, many IFAs will charge a percentage to actively manage and rebalance. That should be included in an automated system like Nutmeg and others. I know I've read advice here that Nutmeg is expensive, I haven't investigated enough to know, and it's also a question of "compared to what". Making such things easily accessible and useable may be better than people doing nothing at all.

Well I seem to recall Nutmeg was charging 1% in the recent past, but now seems to charge on a sliding scale from 0.95% if you have <£25k invested all the way down to 0.3% if you have half a million. So they no longer look expensive compared to an IFA, which of course they did in the past for larger portfolios.

Part of Nutmeg's problem is that its typical customer is an investor with not very much invested, who is subject to the "advice gap" in which the cost of advice is disproportionately high compared with the returns they could expect on their capital. Unfortunately for Nutmeg, it chose to invest only in ETFs, which are generally regarded as unsuitable for small holdings due to their transactional costs. That seemed to bear out in the performance of the Nutmeg portfolios, leaving the typical Nutmeg investor underperforming the index by ~2% after fees.

Perhaps this new sliding scale charge will help entice some larger portfolios onto the platform in order to dilute the transactional costs. I don't know. However, it is worth noting that even under its old charging structure it was a loss-making business, so I can't imagine these fee reductions will move it closer to being profitable.

But there are more viable robo-advice options out there, although the ones I'm aware of are quite small operations.

AnotherJoe

Glen_Clark wrote: »

That depends how you go about it.
My biggest investment is SWDA, a world tracker invested in over 3,000 of the worlds biggest companies with an annual charge of 0.2%. Those companies combined look more solvent to me than the British Government. So provided you don't lose your nerve and sell the lot when the market dips, it looks a safer bet to me than Sterling cash. (

I wouldn't say that's a "world" tracker. It's 60% USA and another 15% UK / Japan combined. Add the rest which are principally Europe, it must be 85% + US &Europe only. It's also denominated in $USD so that could be a good thing or a bad thing. Longer term you mention how dodgy being in Sterling is but the same thing could be said for the US Dollar.

It's also very heavily technology and financials biased.

Nothing wrong with all that, it may be a very good fund and certainly looks like had you bought it from inception you'd have done well, but it is not a "world" tracker in the sense most would think of "world" eg with large investments in Asia South America and so on, it's actually very narrowly focussed.

Glen_Clark

AnotherJoe wrote: »

Longer term you mention how dodgy being in Sterling is but the same thing could be said for the US Dollar.

Even if that were so (which I doubt because the US Govt isn't propping up house prices to the detriment of the productive side of the economy) its not like holding cash. Those companies worldwide assets may be priced in dollars, if the dollar falls those assets prices will rise. Unlike if it was held as cash.
Could you suggest a better alternative to SWDA?

masonic

AnotherJoe wrote: »

I wouldn't say that's a "world" tracker. It's 60% USA and another 15% UK / Japan combined. Add the rest which are principally Europe, it must be 85% + US &Europe only. It's also denominated in $USD so that could be a good thing or a bad thing. Longer term you mention how dodgy being in Sterling is but the same thing could be said for the US Dollar.

It's also very heavily technology and financials biased.

Nothing wrong with all that, it may be a very good fund and certainly looks like had you bought it from inception you'd have done well, but it is not a "world" tracker in the sense most would think of "world" eg with large investments in Asia South America and so on, it's actually very narrowly focussed.

It is a developed world tracker because it invests in the companies making up the MSCI World index, which does not include Emerging Markets, so it only give you exposure to about 85% of the true "world" index. You would therefore have to combine it in a 85:15 ratio with an emerging markets tracker to get true whole world exposure.

You also comment that it is very heavily technology and financials "biased", but of course the reality of the situation is that it is not biased at all. It invests in companies in proportion to their market capitalisation, which is in turn dictated by how investors in aggregate have chosen to deploy their capital. The same is true of the country allocations you mention. Deviating from these allocations represents an active decision on your part. I'm not sure that there is much evidence that breaking the default global asset allocation leads to a better risk adjusted return, but presumably if this were true, people would know about it and money would start flowing around to rebalance the global index towards that better allocation.