SIPP - Most common fund choices?

AlanP_2

Susy909 wrote: »

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?

Is this what you are currently invested in?

50/50 Split?


Seems reasonable given your age and your timescale to me but as said above don't add "random fund / bond / index tracker" willy nilly.

Everything in your portfolio should serve a purpose and the investments should complement each other.

Is this your only pension or are you in an Employers Scheme as well?

jamiex

Given your time frame (30 years), why are you looking for a very low risk portfolio? I'm probably a similar age to you, and I'm actually investing 100% in equities as I believe that they will be better in the long term. Also, if you're contributing regularly then you will be taking advantage of any market weakness when you make your purchases.

Have you considered the Vanguard Lifestrategy funds? Maybe the 40% one would be suitable for you? Make sure you pay the lowest fees for your SIPP though to maximise your return, although this applies to whatever you choose.

Tom2023

If you are investing for a 30 year period and you accept that there will be ups and downs to the markets isn't it best to pick a number of investment funds with good track records and hold on tight!

Susy909

I don't understand gilts.

There are some gilt funds but they are rated 5 out of 5 for very risky. And if its a loan, why is the share price not just the amount plus interest.

bigadaj

Susy909 wrote: »

I don't understand gilts.

There are some gilt funds but they are rated 5 out of 5 for very risky. And if its a loan, why is the share price not just the amount plus interest.

Might be useful if you can confirm your age and when you might want to retire, this isn't apparent and is pertinent.

If you don't understand something then probably best to avoid. Rankings are subjective, so it's always best to understand how these are derived and their limitations, are you talking about trustnet or Morningstar?

Gilts aren't shares so they don't have a share price, the value of the fund will vary, partly due to risk but mainly due to wider issues predominantly interest rates. So as interest rates rise the per elves value of gilts will fall as they pay a return fixed at their issue,,therefore the capita value will vary as the yield to maturity changes to match interest rates, and indeed projections for interest rates in future.

If you are risk averse then a lower risk fund might be appropriate for you, LS40 maybe or equivalent funds from HSBC, black rock, legal and general etc

Alternatively there are a number of funds or trusts, frequently run for or based on principles from 'old money', so their returns aren't huge but they try to maintain their value in real terms. Look at personal assets trust, ruffer for example.

It would probably be good for you to do some reading about investment which will help you to understand, the monevator website is a good start and there are numerous books which can explain things.

jamesd

A gilt fund isn't the same as a gilt because you're not buying at the start and getting paid back at the end. Instead the fund means you are exposed to the ups and downs of the gilt price over the years in which you are invested. So it's a higher risk investment than gilts owned directly with intent to hold until maturity.

The price is pretty close to the amount plus interest, but not the ones paid by that gilt. Instead, the combination of that gilt's price and interest has to match the price and interest combination of other gilts, new and old, in the market. If it doesn't, nobody will buy it because they make more from buying the others. If a particular gilt offered 1% interest and lasted forever but the interest rate for new loans was 2%, the capital value of the 1% one would halve so that a buyer gets the 2% that they'd get from the new one. The lowered capital price is a subsidy needed for the interest rate so people will buy it.

The effect of an increase in interest rates like that depends on how much time there is left for the loan to run. It's the full halving if it lasts forever. Much less if it's over 25 years and even less if it's just a year to maturity. That's because to double the interest rate from 1% to 2% over one year just takes about 1% cut to the capital value.

Gilt funds can vary in which gilts they have. They will have a different mixture of long-dated (long time to go to maturity) and short-dated gilts. In general the long-dated ones will pay more but have more capital risk if there's an increase in interest rates. While the short-dated ones will vary much less.

A pension can hold gilts and gilt funds in any combination desired. Not all pension products will let you buy and hold gilts directly but almost all of them will offer at least one gilt fund.

dunstonh

There are some gilt funds but they are rated 5 out of 5 for very risky.

You may want to put some context on that 5 out of 5 as some scales benchmark the lower risk and the highest risk differently.

Name one of these funds you have as 5/5?

Susy909

Ok. And if I invest in the Life Strategy / Consensus 85 funds, are these actively managed? For example, will the fund manager act if its underperforming?

And if I have a ftse tracker, and 1 company goes bust, do I only follow the remaining 99 companies, or will the new company in the index, also be followed?

stoozie1

I have a SIPP totally invested in VLS 100, but an IFA told me this was very atypical.

dunstonh

stoozie1 wrote: »

I have a SIPP totally invested in VLS 100, but an IFA told me this was very atypical.

Yes. That would not be at all typical of the average UK consumer.

The average UK consumer has a risk tolerance and behavioural attitude and capacity for loss closer to VLS40 and VLS60.

In over 20 years of giving advice, I have yet to meet someone with that level of investment risk. However, advice clients do tend to be lower risk than DIY investors. Advisers tend to focus on making people aware of the downside periods and making sure you can handle them. Usually putting it in monetary terms. For example, VLS100 has loss potential of around 50%. So, if you had £100k invested in that fund, how would you react if you got your statement through and your £100k was now worth £50k?

The FOS consider the average consumer to be cautious (more in line with VLS40 or VLS60).

DIY investors do seem to be higher risk in investment selection. I think many of them dont know the real risks and do not realise what they have coming very soon.