Is 4% a reasonable assumption for return in SIPP

RD42

Hi All,

Age 43, between myself and partner we have pension pots of about £320K.

Based on paying in a smaller amount each year until semi-retirement (£1,800 / year until age 57) and then entering draw-down the annual growth percentage I choose makes a massive difference to our potential pot at retirement, and into drawdown. (of course it would).

At age 57:
2% =£440K
3% = £520K
4% = £595K
5% = £678K
6% = £771K

We are invested mainly in equities, with some bonds and some gold / silver:

Key Holdings
International Shares 49.6% (Mainly USA / Japan / Europe, not emerging markets - funds)
UK Shares 25.1% (Mainly FTSE 100 - held directly)
Property 7.1% (Commercial)
Investment Trusts 5.4%
Cash & Equivalents 4.0%
UK Bonds 3.0%
Exchange Traded Funds 2.4% (Gold)
International Bonds 1.5%

What is the view on a reasonable return to aim for? Is 4% too ambitious, or pessimistic, or about right for a portfolio like mine? Should I get some financial advice at this point - or is that really just money that I would be better off investing?

Thanks in advance...

BLB53

The longer term average for equities is ~5% p.a. so I would think between £600K to £700K would be likely but be prepared for a few dips along the way...it never goes up in a straight line!

RD42

Thanks - I find it hard to anticipate the real return after fund costs, platform costs (I am with HL for the bulk of this) etc. If they drop that 5% to 3.5% it makes a massive difference to us.

Triumph13

RD42 wrote: »

Is 4% too ambitious, or pessimistic, or about right for a portfolio like mine? Should I get some financial advice at this point.

Whilst 4% real return does not sound unreasonable (indeed it's what I use for pre-retirement growth) I'm having difficulty squaring the fact that you are asking these questions with the fact that you have the kind of complicated portfolio that I would only expect to see held by someone who was either a devoted investment geek or already taking advice...

AnotherJoe

Why are you paying in a decreasing amount each year ?

IME IFAs are fine to tell you what to invest in to match your risk level but they have no more knowledge of what the stock market will do than my cat, so gain an extra 20% or so growth by not using one as you seem to be well set on a DIY path anyway.

RD42

Hi Triumph13, thanks for the feedback. My portfolio is self created, based mainly on a few years worth of subscription to Moneyweek magazine. My platforms "x-ray" analysis gave the breakdown I listed.

I guess I am just nervous, given the high stakes for our future comfort, that I get this right. I do enjoy investing, but worry that I could be making mistakes that will cost me in the long run.

Portfolio allocation probably seems better planned than it was. In fact my main pension SIPP has over 70 funds / shares in it - I suspect most people would consider it a bit of a mess.

The one lesson I have learned is to steer well clear of AIM listed shares, I have had three purchases wiped out completely as they got de-listed.

If I could find a single fund that offered great diversification and low charges and something like a 4% after charges return I suspect I would be better off than the hap-hazard approach and portfolio I have ended up with.

RD42

Hi (Another Joe) - essentially I can no longer stand my job so need to reduce contributions. I am relatively highly paid, but its been making me sick with anxiety and depression for years, I wake up every weekday loathing the thought of the day ahead, and weekends are not much better. As a family we recently moved to a cheaper area of the country, leaving us mortgage free, so I plan to get a much less stressful job.

No point saving up a pension if I top myself before getting the chance to enjoy it, or have a reduced life expectancy

ex-pat_scot

Frankly from the way you describe it - your portfolio is a mess (frankly, mine is not much better, but that's another story).
You seem to have chosen an active trading approach (i hesitate to use the word "strategy" as you do not seem to have one) without any clear direction.


Before you obsess over whether the 4% is the correct assumption to make (basically - it's wrong. It's not a bad assumption, given the long term equity return less costs, but it's guaranteed to be fated to be wrong), you really need to sort out your attitude to risk and a sensible investment strategy and approach.


Holding those things you have is not inherently wrong. Howver the way you describe them is absolutely scattergun.
You need to sort out what attidute to risk you have. Is it equities? In which case, why the home bias? Why not buy the whole of market via Vanguard LS100 (or LS80 if less bullish). Why not VWRL and a bit of gold ETF (as I have broadly done)? At least those are the bare bones of a strategy.


in your position, I would be rather tempted to sort out my basic approach to equities : bonds : property : commodities split, then my geographic concentration. (for me, it's Whole Of Market ie VWRL in equities). Then start gradually liquidating your portfolio one month at a time to shift your stuff into your desired investment.


Then leave well alone. Seriously. The biggest wealth eroder will be your subscription to MOneyWeek and your inevitable temptation to tinker.


(I like MOneyWeek, but do not act on the recommendations / themes)

kidmugsy

All future returns are just a guess, but these people at least explain their guesses.

https://publications.credit-suisse.com/tasks/render/file/index.cfm?fileid=88F22B53-83E8-EB92-9D555B7A27900DAC

http://publications.credit-suisse.com/tasks/render/file/index.cfm?fileid=41C8D99B-F01F-0510-9BC5389C682E94D5

AnotherJoe

RD42 wrote: »

Hi (Another Joe) - essentially I can no longer stand my job so need to reduce contributions. I am relatively highly paid, but its been making me sick with anxiety and depression for years, I wake up every weekday loathing the thought of the day ahead, and weekends are not much better. As a family we recently moved to a cheaper area of the country, leaving us mortgage free, so I plan to get a much less stressful job.

No point saving up a pension if I top myself before getting the chance to enjoy it, or have a reduced life expectancy

Fair enough, it was just that that seemed to be a strategy rather than driven by circumstances.

70 shares / funds is, as you know, way way too many, many must be inconsequential amounts. Probably well worth, over the next year or so consolidating down to a much smaller number once you have sorted your strategy out

Marine_life

The question will be whether you will want to maintain that mix throughout the period up to retirement i.e. as you get closer you will have less time to recover from a market shock so it may be that you will switch to less risky (and therefore lower return) assets.