Suggestions for 'safe' investments within a SIPP?

EdGasket

Does anyone have any suggestions of what to do with cash within a SIPP that I don't need to draw right now but neither do I want to see it halve in the next stockmarket crash?

Ordinarily bonds would be the answer but I see these as risky right now as interest rates are about as low as they get and the only way is up which will reduce the capital value of bonds.

The only option I have come up with is iShares ERNS fund which is ultra short-dated corporate bonds (the short date means they will not be affected much by interest rate hikes).

Are there any sort of absolute return fund that does what it says in choppy markets or any sort of 'cash' fund which is better than just leaving the cash as actual cash in the SIPP?

Linton

The primary protection against a crash is to diversify as much as possible. So one shouldnt look for one asset to provide the safe baseline, one needs several, in the ideal world every one you can think of. Then the much easier problem is to decide the %s.

So for the safety first part of a portfolio I would include

1) Cash, certainly enough to cover any needs for the next 3-5 years.
2) A range of bonds of differing maturities and risks - yes even under current circumstances.
3) Funds that directly own property. OK now you might not be able to cash them in now but under different circumstances they may be useful and you still have some cash and bonds.
4) Absolute return funds. These have yet to be seriously tested under extreme conditions and some have failed under normal conditions. Ones I think you could look at include the wealth preservation ITs eg Ruffer Investment Trust, . Other funds looking as if they may do the job include Standard Life's offerings. Look at the "Targetted Absolute Return" sector in Trustnet and make your own decision.
5) Funds with a steady income - eg from PFI
6) Highly defensive high dividend payers - eg utilities.

Another rather less flexible (at the moment) option is P2P.

Malthusian

If you want more return than cash then you have to accept some level of risk.

Short dated bonds will still fall in value when interest rates rise or the market expects them to, it is just a question of how much. And if everyone is piling into short dated bonds because they think it'll protect them from interest rate rises then there may be a nasty crash when they realise they won't and pile out again. *edit* Putting everything into short-dated bonds is likely to be higher-risk than holding a properly diversified portfolio.

Absolute returns fall into two categories. Some are glorified multi-asset funds with high charges and lots of talent-burying. These I would say are relatively safe. Others attempt to make money in falling markets by relying on the manager's extreme cleverness, possibly even shorting stocks. These I regard as very risky because they are capable of losing you money in all market conditions, even rising markets, thereby violating Warren Buffett's Rule Number 1.

All cash funds currently return zero or worse after charges, except for "cash plus" funds that are not actually all in cash (see the first sentence of my post).

kidmugsy

If you want to stay largely in cash but want also to diversify, you can buy ETFs that are essentially foreign currency funds. You could also but ETCs invested in monetary metals i.e. gold and silver.

TheTracker

For the purposes you describe low interest cash doesn't seem like a poor option.

Can you find a SIPP allowing fixed term deposit products? eg through banks like cater allen which offer term deposits inside wrappers but not fabulous rates. See https://www.investec.co.uk/products-and-services/banking-services/specialist-cash-products/fixed-term-deposits-for-sipp-and-ssas-savings.html about 1% for 12 months. I've read some sipp products allow ns&i?

Or how about leaving your SIPP and turning some of your ISA into cash and putting it into a short term notice account? Might get about 1.3% that way.

Or some corporate bonds on ORB, if it's short term and you choose relatively liquid bonds less susceptible to domestic politics/markets, maybe rebalancing some other equities to balance that risk. Or some dated gilts if you commit to a longer term.

Finally, p2p through Sippclub, if you're willing to pay such fees.

Having said all that, what it really tells me is you are invested beyond your risk tolerance if you want to hide in cash at first sight of a downturn. Get your asset allocations to suit your profile then hang tight and not jump in and out of cash. If you have the profile/portfolio right then you shouldn't have to reallocate in times of uncertainty.

Malthusian

kidmugsy wrote: »

If you want to stay largely in cash but want also to diversify, you can buy ETFs that are essentially foreign currency funds. You could also but ETCs invested in monetary metals i.e. gold and silver.

If he doesn't want investments that could "halve in value" during a market crash then I doubt he would want to invest in commodities that could experience similar losses at any time, whether the market is falling or rising.

Holding foreign currencies is essentially gambling unless you are planning to go abroad in the near future and/or buy some things in those currencies.

markcoyle52

Malthusian wrote: »

If he doesn't want investments that could "halve in value" during a market crash then I doubt he would want to invest in commodities that could experience similar losses at any time, whether the market is falling or rising.

Holding foreign currencies is essentially gambling unless you are planning to go abroad in the near future and/or buy some things in those currencies.

In recent experience, the performance of precious metals during market crashes are precisely the reason one might want to hold a certain percentage of their portfolio in gold and silver. 2008-2011 is an excellent example of this, while their performance in 2016 is no surprise with the world on the brink of another financial crisis.

dunstonh

In recent experience, the performance of precious metals during market crashes are precisely the reason one might want to hold a certain percentage of their portfolio in gold and silver.

You need to expand upon your experience. Don't just look at the upside. Look at the downside too. Silver fell by around 36% a couple of years ago and had about four years of declining value. Does that really sound like it fits what the OP is after?

AnotherJoe

EdGasket wrote: »

Does anyone have any suggestions of what to do with cash within a SIPP that I don't need to draw right now but neither do I want to see it halve in the next stockmarket crash?

Ordinarily bonds would be the answer but I see these as risky right now as interest rates are about as low as they get and the only way is up which will reduce the capital value of bonds.

Ahem.

You also didn't say over what time period. If its in cash long enough, you will lose value every year for certain due to inflation.

jamesd

Cash and P2P loans are potential options that are permitted in a SIPP. I expect SIPPs allowing P2P to be in the £1,000 a year fixed charge sort of price range so they aren't for moderate amounts of money. £1,000 on £100,000 works out well enough, though.

You can also investigate whether you can find options or covered warrant contracts that you can buy or sell to reduce your risk exposure while still holding something else as the main investment.

At the moment I'm heavily in P2P and cash destined for P2P, though definitely not exclusively.

markcoyle52

dunstonh wrote: »

You need to expand upon your experience. Don't just look at the upside. Look at the downside too. Silver fell by around 36% a couple of years ago and had about four years of declining value. Does that really sound like it fits what the OP is after?

I'm not talking purely from my experience, in the last 10 years gold has grown over 200% in value. Granted, precious metals went through a large drop in the last few years but it looks to have turned that around somewhat in 2016.

Of course precious metals have their pitfalls and I would never recommend someone put all their eggs in one basket. However, the OP is looking for security and in my opinion it doesn't hurt to hold a percentage of your portfolio in an asset that tends to thrive when others struggle.