AVIVA Work pension choosing funds?

jamesd

Those appear quite reasonable, assuming you want to to be underweight UK. The sort of thing that might work for a person more than ten years from possible retirement or planning to use drawdown and who can accept 40% value drops without becoming scared.

There's something of a trade to be made. High equities means lots of volatility in the form of those drops but also a higher chance of meeting longer term retirement objectives.

Last year Bill Bengen, of 4% rule fame, wrote an interesting paper Small-Cap Withdrawal Magic where he observed that for US drawdown investors 100% small cap shares would historically have been the best choice most of the time. The cases where they wouldn't have been all appear to have been predictable using the cyclically adjusted price/earnings ratio. But they are even more volatile than large cap shares.

jamesd

cashbackproblems wrote: »

I am high risk but the consensus above seems to be I could lose out in the long term, maybe I can just play with my S+S ISA not my pension.

Then let me correct that. In the long term you'd probably do well. The concern is more about whether you really have the stomach to take 40% or 80% drops that might take years to recover. If you don't then you might sell after big drops and become too scared to invest. Risk is fine, provided you do know the risk involved.

You should be looking at maximum drawdown numbers to get some idea of drop levels but at many places that and charts will only go back five years so they will miss 2008 and give you a misleading impression of what to expect. Some rough idea of what to expect in the way of drops:

80% commodities, natural resources, single emerging countries and emerging markets overall.
60% small cap equities
40-45% large cap equities like global and developed country equities
25-40% high yield bonds
20% and illiquidity commercial property
10-20% gilts, government and corporate bonds

Room to disagree on some of those but they should give you some idea.

Even if you have a high risk tolerance you don't have to use it all the time. I'm currently quite high in fixed interest instead of my more usual nearly 100% equities because I'm not keen on the cyclically adjusted price/earnings ratios in some markets.

To give you some idea of what speculative - above high - risk tolerance might mean, I set up pension salary sacrifice down to minimum wage after the drops in early 2008, knowing prices might get even cheaper, and added more stoozed - borrowed - money to invest around April 2009. I currently have more money borrowed on credit cards to invest than the value of my atypically small mortgage, all of it in effect invested in P2P lending. Even then I knew that market crash headlines really mean investment sale now on, buy cheap. And acted on it. If you don't know this and won't act on it, think carefully about whether high risk really describes you.

michaels

It is weird that the average investor would sooner buy a share that has just gone up than one that has just fallen - in nothing else in life do we think that costing more = better.....

I salute your call on equities in 2008/9. We traded up property in 2010 so didn't have any funds to play with. I am currently doing the sal sac thang to maximise my pension (infact down to zero with personal pension contributions to take advantage of tax credits) but I am well aware that the 30% rise in my pension over the last year means that what I am buying now is very expensive....

[But it is a matter of making hay while the sun shines, once tax credits changes to asset tested Universal Credit the deal won't be available]

jappiem78

It's a bit gambling with your pension, don't you think? The younger you are, the more aggressive you can go but do you have the nerves of steel when your pension is down by 30%?