SIPP Fund Advice

Rekw2000

I have just opened a Best Invest SIPP with 3 funds

Threadneedle UK equity income
Standard Life UK equity Income
Artemis Global Income

All three funds dropped in value straight away, should I hold out, is this a long term game?

TIA

dunstonh

All three funds dropped in value straight away, should I hold out, is this a long term game?

Investing is always a long term game. An economic cycle is around 10 years. You have to do one cycle to really see how things are.

However, your investment selection seems strange. Single sector funds are designed to be held with other single sector funds to allow you build your own portfolio and asset allocation. eg UK equity, US equity, Asia, Europe, Property, fixed interest etc. So, what is your structure? (you are heavy in UK). Where are the other areas?

Can you handle a 40-50% loss in 12 months as that is the possibility with those funds.

Rekw2000

I researched and wanted to invest in stable UK equity for long term growth but mix that with global equities, certainly cant handle that kind of loss - not sure if I should switch them into a tracker?

Kendall80

Rekw2000 wrote: »

I researched and wanted to invest in stable UK equity for long term growth but mix that with global equities, certainly cant handle that kind of loss - not sure if I should switch them into a tracker?

If you want to reduce volatility then the accepted method is to introduce certain percentages of bonds, gold, property or alternative investments.

bowlhead99

Rekw2000 wrote: »

I researched and wanted to invest in stable UK equity for long term growth but mix that with global equities, certainly cant handle that kind of loss - not sure if I should switch them into a tracker?

It depends what type of tracker you are talking about. Look at the performance graphs of equity index trackers over the last 10-15 years. The UK all-share for example is principally composed of large UK listed companies and lost 40% in 2000-2003 and 2007-2009. There is no fundamental reason why it couldn't lose 50%+ from peak to trough, and most world indices are the same.

If you want lower than "normal" volatility you probably shouldn't use an index tracker because such a fund deliberately aims to give you all the volatility of the index by putting most of your money into the biggest companies within it.

However, you say you are investing for long term growth so presumably if something crashed 50% you would not sell out at that point but remain invested, for the long term, and see it recover. You could reduce the risk of large losses (real losses or paper losses) by spreading your money across a broader set of asset classes. Different types of funds go up and down at different rates and at different times.

For example, if a UK equity income fund can crash 50% it is a pretty big problem if that happens to the first fund in your 3-fund portfolio, and at the same time, the second fund in your portfolio which is also a UK equity income fund also takes a 50% dive because the two funds' performances are closely correlated. Whereas if only one of your funds takes a huge dive and another one takes a much smaller dive or even goes up, you would not be suffering anything like a 50% loss on your total pension.

If you invested in a tracker of something more stable than UK equities, such as short-dated government bonds, your potential losses would be much much more limited. But so would the returns be - you couldn't expect much long term growth.

Investing is about finding a blend of risk and reward you can handle. That doesn't mean you just look at the last 3 years performance chart and see that something is relatively stable and generally going up so must be fine for your long term needs. If you have "researched" but were not aware that equity funds can lose half their value a few times every couple of decades, you probably need to research more.

Rekw2000

Thanks...these are active funds and not index trackers

dunstonh

It doesnt matter if it is active or passive. The issue is the amount you are putting into equities. There have been two periods in the last 16 years where declines in excess of 40% have occurred and a number of 20% plus drops too. Its not a case of if but when.

If you can handle your value dropping nearly in half then its fine. if you cant (or you cant afford to) then you need to lower the risk.

Rekw2000

thanks.....I will diversify and invest in a global property tracker

dunstonh

Rekw2000 wrote: »

thanks.....I will diversify and invest in a global property tracker

That actually increases the risk. Global property trackers invest in shares of property companies. So, you are still in equities. Plus you are now in a niche specialist area of equities.

AlanP_2

Have a read on monevator.com about Asset Allocation and generally browse some of the other articles on there, also look at their Simple Portfolio.

In your position, and whilst you are still gaining knowledge in this area, have a look at some of the multi-asset class funds on offer - Vanguard LifeStrategy, L&G Multi-Index, Blackrock Consensus. They cover a broad spread of asset classes and can be a simpler, easier approach to gaining broad exposure.

Triumph13

The other obvious is question is why have you just chosen equity income funds? If it is because you intend to just take the income and never sell the holdings then why do you care about volatility in the price?