Dads fund review

waveneygnome

After some checking for Dad:

Has a Sipp (AXA Elevate) with £125k in, he has seen a new IFA who has recomended:

Rathbone - Inc Inst Acc = 11%
Fidelity - Emrg Mts W Acc = 11%
Old Mu - UK Mid Cap R Acc GBP = 10%
Schroder - Asian Alpha plus Z acc = 10%
JOHCM - UK Dynamic = 10%
Hender - Strategic Bond I Acc = 10%
HSBC - American Index C Acc = 9%
Invesc Perp - Corp Bond z Acc = 9%
Vang - Japan Stock Ind Acc GBP = 5%
Thread - Europ Select Z acc GBP = 5%
Heder - UK Property PAIF I acc = 5%
Kames - High Yield Bond B acc = 5%

Charges are:
Portfolio charges of 1.06%
Ongoing Advisor charge of 0.50%
total charges 1.56%

He has completed a new risk profile - which comes out at 6 - accepting high/medium risk.

Does this all sound OK?

(He is 70yrs, has state pen of £7k, DB scheme of £8k pa, Other income £7k, plus whatever this sipp will produce)

dunstonh

Does this all sound OK?

it is structured as you can see a fund covering each sector. A couple in the same sector but that is probably due to size of sector. Trackers in areas where managed often fails to add value. All seems fine.

I recognise the sector allocation model from the percentages. Same one I use.

sorcerer

That portfolio doesn't make a lot of sense to me, he's 70 years old, should he be looking at either income funds, or low risk funds, in order to get some sort of drawdown or annuity?

waveneygnome

Thanks Dunston.

Sorcerer.....he's got quiet a high risk profile for his age, hence the choice of growth funds. This sipp money is the icing on his cake - he can survive, or rather thrive on his other income. He looks more relaxed and better than me (25yrs his junior!).

jamesd

sorcerer wrote: »

That portfolio doesn't make a lot of sense to me, he's 70 years old, should he be looking at either income funds, or low risk funds, in order to get some sort of drawdown or annuity?

Not if he's being sensible for a person as young as him. 75% and up in equities is likely to maximise the safe withdrawal rate, not changing with age.

Ignoring the greater tax efficiency of growth for the moment, it's irrelevant whether the returns are in growth, dividends or interest. It's the total return, planned withdrawal rate to be sustainable and volatility that doesn't scare you that matter.

With a portfolio of that size and using modern drawdown rules I'd be suggesting income in the £7-8k range. Higher if he doesn't mind dropping back to his guaranteed income if he lived to be a hundred and older and happens to live through sustained bad market performance.

He's still too young for annuities to be a good move but if he hasn't deferred his state pension he's missed a useful trick. Not too late to do it at 70. It provides useful longevity insurance and helps to increase the safe withdrawal rate by protecting the lower income target in sustained bad times.

Once he reaches his early to mid eighties, or sooner if his health gets worse, annuities may well offer good value for money and regular gradual buying of them can become a good move.

dunstonh

Age 70 today is like age 55 from 25 years ago. Its nothing. More than half will live another 17 years. Obviously, individual health can vary that.

should he be looking at either income funds, or low risk funds, in order to get some sort of drawdown or annuity?

Yield is an important part of any portfolio but its not the only part. 10 years ago, HYP was very popular. Especially in the DIY investing side. The credit crunch hit HYP investors hard and you dont see much mention of it nowadays. Diverse structured allocations with a global spread can still be focused on yield if required but with yields so low, you could be handicapping total return and its total return that really matters. Indeed, outside of pension, withdrawing your growth can be very tax efficient as you are allowed £11,1k of capital gains tax free each year.

kidmugsy

I second jamesd: your father should consider suspending (which they call "deferring") his state pension: for each year of deferral he'll get an extra 10.4% on his pension. He should replace the missing £7k p.a. by taking money from his SIPP, or perhaps better, from his other investments elsewhere.

He could also consider buying a pension "top up" from the government, but he'd need to act before 6/4/17. https://www.gov.uk/statepensiontopup

If he wants to consider only one or the other, the deferral is better value. If he wants to do both I'd guess that he should do the top-up first so that it gains from the 10.4% too once he defers.