Am I well balanced?

System

Coyris - my isa is a fettered multi asset fund, and if anything my sipp covers what the isa doesn't

And I do accept needing to build cash

bigadaj

MatthewAinsworth wrote: »

I'd like to add that richer people need lower risk portfolios because the portfolio is a larger part of their net worth, its not so dominated by their house. As I get better off I may feel more need for bonds than I do now

Not really accepted wisdom but it's good you're thinking.

bowlhead99

MatthewAinsworth wrote: »

-the pension isn't really necessary (have a dB one too) - but its an early retirement pot, and I will get about 41% back in extra tax credits on top of the normal tax relief, which is why I put more into the sipp

Getting tax credit assistance to fund a pension does make it a good thing to do, if you can afford it.

However, not sure you should say it "isn't really necessary" and therefore just buy the riskiest thing you can. You are presumably some way off retirement and don't know what issues will beset your family over the next x decades, nor whether you will be able to stay in a job that's funding a DB pension for those decades until retirement. Unless you are already 60 with 40 years service in the bank. It doesn't sound like you are.

so I feel like now is the best time (while I'm on tax credits) and I have a discounted shot at great gains...

.... Its my view of the sipp being discretionary which is why I feel I can afford a higher risk on that, and with the tax credit rebate I could lose half and still be Quid's in

It is tempting to see it as free money and gamble it. A psychological trick. If you gave some people £1000 and said they could keep the grand or gamble it for £2000 or £0 on a coin toss, you would probably get quite a lot of takers for the gamble, because the free money doesn't seem real and they don't feel they would be "down" if they lost it.

Whereas if you offered the same group of people the chance to give up £1000 of their hard earned savings for £2000 or £0 on a coin toss, they would be sensibly protective of the hard earned savings because although £2000 sounds nice, they can't afford to lose £1000 because they need to save or invest it for a new car or school trips or holidays or boiler or retirement etc.

In your situation you are seeing it as a "discounted shot at great gains". But the discount is yours to keep, whatever you choose to buy. It is a discounted retirement investment but there is no reason to dive up the risk scale just because it cost you less than it would cost you neighbour. The "normal" mixed asset investment would also cost you less than it costs your neighbour.

I could take it slower, though I feel its safer for being a long term thing and safer compared to the people I know who work for micro caps and rely 100% on them for their wages - with a fund at least its more diverse

If I work for a £50m microcap and get all my salary from it, that's my source of new money coming in, but my life savings/wealth already accumulated is mine to keep. If I get laid off, I go elsewhere to replace my income with a new job. What I lose is simply my spending for the time unemployed, if any. My buffer of emergency savings is hopefully sufficient.

Whereas if you *invest* in a microcap and it goes badly - you do actually lose your hard earned wealth. Obviously funds are safer than individual company shares, but same principle. But basically your friend having an employer in one market sector versus you having all your pension investments in one sector is apples to oranges so should be ignored for this sort of pension planning.

How would I get that and what asset class is this?

the asset class is called private equity and there is no need for you to get it at your level of investing. The point was simply that the global investment markets are probably $100tn and so your SIPP shouldn't be concentrated in just 5% of that.

- there are corporate bonds in the isa fund, but while my mortgage dominates this is my primary 'bond' - which the repayment part is £140 a month at the moment

It's an analogy, sure, but investible bonds cover a spectrum and yours is just one type of fixed commitment bond which keeps a roof over your head. Unlike a corporate bond, you can't simply sell out of some of it when it's valuable and buy a bit more equities with the proceeds (unless you count remortgaging).

Anyway, you have chosen not to pay more than the minimum on your mortgage because you think both cash and equities offer more value. Fine, but don't kid yourself that you're making a bond investment. You have decided not to make any discretionary bond investment. Other than the minimum repayments on the leverage that's financing your home), and £15pm in your ISA.

I was citing home bias more to explain why I think developed world does better than emerging without intense outside speculation, like what happened before. Im trying to be in everything I can be

. If you go back to most of the 20th century, the US was an emerging market and also full of a growing-wealthier population of "home bias" investors. It was a very good place to invest.

So, now it is someone else's turn to be the emerging markets. What is now called emerging markets have done very well over the last 20 years, even if they have done less well over a recent selectively cherry-picked stretch kicked off by a global financial crisis. The different markets do better and worse than each other over different time periods which is why you should be in more of them in your pension IMHO.

You say you recognise the need to invest very broadly but that's not how your 100% global developed smallcap looks. Even if you added emerging markets to the developed smallcaps, you are missing the large part of the world economy which isn't small nor emerging. Having some of that in your ISA doesn't fix your SIPP and they are not interchangeable for most practical reasons.

With a long term view volatility doesn't worry me, I'm not trying to time the market and I won't sell when its dropping, if anything I'll buy and wait until it appreciates again

I don't doubt your genuine intention to keep it long term, even though from a practical point of view, circumstances will probably stop it from being long term, given you don't have a savings fund for a new car, unexpected home repairs etc.

But the point here was not to doubt your ability to grit your teeth and hold on in a down market, but to get you to compare to the lucrative returns easily available on cash, for your £100pm that you're pitting into the ISA.

If you look at a professional institutional investment manager such as an insurance company or DB pension trustee, they have billions to deploy and it is hard to find opportunities. In part of their portfolio they might settle for an 85% equity fund (like you have in your isa) and expect to get, say, 7% a year from such a fund, after fees. This is substantially better than the 0-0.5% they could get off a government bond, which are priced at pretty much zero yield with no significant prospect of capital growth other than if the yield turned negative.

So, they are taking the risk of maybe losing 40% of their money in any given year, but being rewarded with maybe 6.5% over their notional "risk free" rate of 0-0.5%

But for YOU it's a different story. You are looking to take 7% or whatever by putting £100pm in an investment ISA. You have that same risk of maybe losing 40% of your investment in a year. So, surely, like the institutions, you would want 6%+ on top of the risk-free rate, for buying an 85% equities investment fund and having all that risk.

Except, your risk free rate is not 0-0.5% on some government bond. Your risk free rate is a regular saver account paying 5% with Nationwide or 6% with First Direct or M&S.

So the institution takes all that risk to get rewarded with his risk premium of 6%+. Whereas you take all that same risk to get a risk premium of what, 1 or 2% over and above what the bank would give you with a cast iron guarantee? It's bonkers. When you say low cash to be able to do an S&S ISA is a calculated risk, I really don't think you've done the calculations.

It's good that you are now saying you'll increase cash. Give up the £1100 ISA and increase cash as a priority. Seriously, you don't need the investment ISA, even though it makes sense in the long long term to get over after exhausting the good cash opportunities. If you want to dabble in investment funds as a learning experience, do it in the SIPP, not in the emergency fund account (s) that could be earning 5-6% risk free. Your wife and child will thank you for it.

life is a gamble, even stepping put the door and driving, and I hope equities will actually reduce our overall risk by giving us an alternative income

Asking if your portfolio is balanced, being told it's not, and replying with "ah well, life's a gamble" sounds like a cop out to me.

Yes, risk is everywhere but when I step out the door I look both ways to mitigate risk. When I drive I use the brakes and seatbelt rather than throwing my hands up and saying screw it, a seatbelt won't protect me from a terrorist nuke so there's no point using one.

If you still want to put away £400pm split 75:25 SIPP to instant access:

1) Increase your cash allocation by dumping the ISA while super-high-interest accounts or regular savers are available to you and your wife, and revisit when you are at £5k+. That could be almost 4 years away if you only have £100pm and some unexpected expenses along the way which gobble up your existing stash.

2) Meanwhile keep plugging away at the SIPP fuelled by tax rebate and tax credits, and use it to invest in a simple balanced fund. If you like, also research and run a virtual portfolio just for fun and curse that you weren't investing in it for real when it does well, then cheer that you weren't investing in it for real when it crashes.

masonic

MatthewAinsworth wrote: »

I'd like to add that richer people need lower risk portfolios because the portfolio is a larger part of their net worth, its not so dominated by their house. As I get better off I may feel more need for bonds than I do now

Richer people don't need lower risk portfolios. It is just that they don't need high risk portfolios. There is little advantage in taking more risk to accumulate even more money if you are already financially secure.

System

Bowlhead-

However, not sure you should say it "isn't really necessary" and therefore just buy the riskiest thing you can. You are presumably some way off retirement and don't know what issues will beset your family over the next x decades, nor whether you will be able to stay in a job that's funding a DB pension for those decades until retirement. Unless you are already 60 with 40 years service in the bank. It doesn't sound like you are.

Over the long term is volatility really a problem? I suppose when it comes to knowing your sale price, but as long as we don't sell right at the point of a 2008 style crash then run of the mill volatility will surely be cancelled out by all the compound interest over time?
Over 30-40 years when you have the flexibility to decide when to draw is there really a likely risk of loss? (Of this early investment at least)

I think that due to the nature of my work, not filling my post would be about as politically acceptable as not having a water or electricity supply.

And if I really lost the DB pension, I could live off state pension and pension credit, and for those to disappear too there would be huge political fallout

-If we've already accepted equities as profitable but volatile, why don't we want to magnify it within our tolerances? The general trend should still be strongly up like all equities, its just a matter of long term holding your nerve

Its true that other pension mixes would be discounted too, I may rebalance when the isa is bigger vs the isa and as I get older, though at the moment I'm actually quite under invested in small cap and emerging markets as a whole. There's time to add other things later as it builds

Fair point about life savings at risk vs just income, though to me I have more income than I do savings which is why I see it from a more income angle. Are life savings really at risk though when the small caps should pick up over the decades?

.. If you go back to most of the 20th century, the US was an emerging market and also full of a growing-wealthier population of "home bias" investors. It was a very good place to invest.

It did have more home wealth, relatively, than India or Brazil for example. And it was also a speculation that paid off

I will add some emerging markets to the sipp

The isa hopefully won't be touched until there's a small time gap to access to the pension, it is really just a mortgage alternative to me. I will build cash though

I'm only allowed to make £300 a year interest outside isa before it affects tax credits, I get Halifax and NatWest rewards already and will need to keep an eye on cash interest

Eventually I may just have the cash and sipp as the sipp would obsolete the isa, its just a tad more flexibility for now I suppose - I could sell now or sell later

System

Essentially we're concluding that is as don't gave much place in the world when there is a cash+ sipp combination

System

I've just remembered the purpose of the isa was to help my son buy a house, I needed to keep up with house prices

AndyT678

MatthewAinsworth wrote: »

I'm only allowed to make £300 a year interest outside isa before it affects tax credits, I get Halifax and NatWest rewards already and will need to keep an eye on cash interest

Neither Halifax nor Natwest rewards are interest payments.

MatthewAinsworth wrote: »

Essentially we're concluding that is as don't gave much place in the world when there is a cash+ sipp combination

The only person who has (possibly ever) concluded that is you. The tax treatment of ISA and SIPP is very different.

System

The only advantage an isa has over a sipp is date of access

AndyT678

MatthewAinsworth wrote: »

The only advantage an isa has over a sipp is date of access

No. All income and capital gain generated within an ISA is tax free. Money drawn from a pension is taxable.