SIPP - Most common fund choices?

Susy909

Hello, new poster but have browsed for years.
I plan to withdraw pension in 30 years (in twenties). My SIPP is around £75000.


Do you think a split between the Consensus 85 and Vanguard 2050 target retirement fund would be a decent choice? What are other common funds? I'm only looking for growth that matches inflation, nothing too risky.


What would you do?

Susy909

I also thought about putting some in a FTSE tracker. What happens if 1 company goes bust though, and is replaced by another?

Ideally, I would like a FTSE tracker which avoided oil companies.

bostonerimus

Why do you own these two funds?...there is considerable overlap between them and I assume you know that the Vanguard 2050 fund will shift more towards fixed income as 2050 approaches. Why do you want to add a FTSE tracker when you already own that inside your two multi-asset funds?

Susy909

I agree there will be some overlap. But there will also be one that invest in x and the other invests in y. Is spreads the risk more than just investing in one of them.

BLB53

Do you think a split between the Consensus 85 and Vanguard 2050 target retirement fund would be a decent choice? What are other common funds? I'm only looking for growth that matches inflation, nothing too risky.

Yes this looks like a reasonable choice of multi asset index funds and should get the job done.

bostonerimus

Susy909 wrote: »

I agree there will be some overlap. But there will also be one that invest in x and the other invests in y. Is spreads the risk more than just investing in one of them.

Given the funds contained in each of the multi-asset funds you own do you think that your statement is correct? You have also given no reason for wanting to add a FTSE tracker.

Alexland

Welcome to the forum.

£75k is a good sum to have accumulated so far so well done. I understand why you might want to split across both Vanguard and Blackrock (I do so myself across my two pensions) and your choice looks OK to me assuming you are controlled enough to not to sell out and crystallise losses when the market next crashes.

Personally I wouldn't bother with the FTSE tracker.

However you comment about only seeking growth that matches inflation worries me as if this is really what you want then you might be better with VLS60. Your current choice is very heavy on stocks (which is usually fine at your age) but might not be right for your risk tolerance?

jamesd

Susy909 wrote: »

I plan to withdraw pension in 30 years (in twenties). My SIPP is around £75000.
...
Do you think a split between the Consensus 85 and Vanguard 2050 target retirement fund would be a decent choice? What are other common funds? I'm only looking for growth that matches inflation, nothing too risky.

Neither those funds nor the VLS60 is consistent with seeking very low risk and only matching inflation. They all have substantial share (equity) and bond investments. The equity portion will see drops of around 40-45% once or twice a decade and 20% or so two or three times a decade on average. The bond portion about half that.

The big catch here is that even though those drops happen, the average growth still leaves you thoroughly positive. Even with the drops the UK stock market long term average growth is about 5% plus inflation. That 5% extra makes a huge difference over thirty years. Even if we assume 1% for fees and cut it to 4%, it'd multiply the real (today's money purchasing power) value of your £75,000 by 3.24 to £243,000.

One of the known issues with investors is that young people tend to want to invest way below the volatility (up and down, misleadingly called risk) level that is sensible for them. While older people nearer to retirement can be inclined to do the opposite if they are desperate to catch up after not paying enough in or investing at too low a risk (volatility) level for a long time.

So, there are a couple of tracks we should take. First, we should try to explain more about volatility to you and that it's OK, just normal ups and downs, even though you're likely to see three to five drops of 40% in the next thirty years. That would still leave you with the expected 3.24 times what you started with if historic investment returns happen.

Ideally we'd get you to the point where you could accept those drops as just part of investing. The bond portion can be used to cut the size of the drops to make them more palatable but bonds grow more slowly, so you'll pay a price for getting smaller drops. That's necessary for lots of people, who just can't stomach 40% drops even when they know that they are just routine.

There are funds that have different mixtures of equities and bonds, so by cutting the equity portion you can cut down on the size of the ups and downs, but also cut down more or less on the long term growth.

Finally, if we can't get you comfortable with that, we'd probably have to say it's really hard to deliver just inflation without ups and downs. Not sure there is any investment that you could use in a pension that can realistically deliver that without ups and downs of at least 20% at times at the moment. Maybe UK government inflation linked bonds (inflation-linked gilts). But those currently don't match inflation, they lock in a small capital loss because of the level of demand for them.

So, if you can, with us telling you it's normal, try to think of what sort of drop would cause you to decide to just sell because it's more than you can stomach. Then we can try to see what might match that sort of drop in a bad year. What you'll find is tales of doom and gloom in the papers and us saying that it's just what markets do and a good time to invest more money. Which is true, but won't help you if you still can't stomach it.

bostonerimus

If you want to match inflation with no risk the buy index linked gilts, however, that is ultra conservative and won't provide you with much of a nest egg in real terms. You are young so should be looking for capital growth and you have a couple of funds that are designed towards doing just that. So the percentage of equities in your portfolio is probably ok for someone your age looking to build a pot over the long term, but it is inconsistent with your stated goal.

philng

I am by no means an expert but when I took redundancy just over 12 months ago at the time of Brexit vote & market volatility I focused on Investment Trusts and selected 5 x £10000 pots as follows:

Bankers +56%
Murray International +51%
Edinburgh +10%
TR Property +33%
Mercantile +28%

All above plus 25% boost tax relief (I only invested £40000 in total made up to £50000 with tax relief) and include divs received.

May have just been very lucky with timing of initial investment but very happy with return and has made me realise a worldwide view rather than just UK is important.

Thrugelmir

philng wrote: »

May have just been very lucky with timing of initial investment

You were indeed. Exchange rates in time may well head in another direction.