Locking in gains?

Moose1960

At the risk of being ridiculed, thought I'd post this in the hope of some sensible views

Brief precis: I'm 52, hoping for retirement at 60 although willing to keep working if the pot isn't where I want it to be. I have my own business, earning reasonably well and in the fortunate position of being able to use maximum pension and ISA annual allowances for the foreseeable (next four years at least and hopefully beyond). Current "pot" - SIPPS, ISAs and a little gold (circa 5%) is around £500k. I waved goodbye to my IFA a while ago and decided to self-manage.

Here's the issue: After some reading around, including on here, I put my whole 2015/16 pension allowance of £40k into Scottish Mortgage Investment Trust in February 2016. At the time of writing it's sitting at a gnat's hair short of £75k.

Now, I know that the markets have been good and my other funds have performed well too, but not in that league. An 87% increase in 18 months is almost in too good to be true territory.

The question, then is less "what should I do?" - that's down to me and I'll have to stand or fall by the inevitable wrong calls that I'll make - but more "what would you do?", aimed at those wise heads on here who've been doing this rather longer and better than me.

Do you have a strategy? Would you sell, say, half the holding to at least lock those gains into something less volatile?

bostonerimus

You should have an asset allocation between equities and fixed income that matches your appetite for risk. If you are heavily invested in equities and worry about market volatility then I'd say your asset allocation is wrong and you need to modify your portfolio. Selling because you believe the market is high can be dangerous. If you don't have a suitable asset allocation or a long term strategy that takes you to your retirement goal and will produce income then maybe you left the IFA a bit too soon.

Personally I have a 75/25 equity to bond allocation that I plan to keep for the foreseeable future.

barginfinder

what would I do?, I'd move the profit (35k) into a lower risk fund and let the initial 40K run - but if you have 500K in total and this is only 75K then you may be happy letting the whole 75K run in this higher risk fund - wish I had 500K (I'd retire now) and well done!!

bowlhead99

So basically you have 15% of your £500k portfolio in that one equities fund which itself has a relatively concentrated and conviction-driven approach and has much of its money in high growth and tech stocks.

When you got it for you self-managed portfolio back in 2015, it presumably wasn't such a big component of your portfolio, as it's grown 85%+ since then and your other stuff, on average, hasn't. Though some of that growth is a freebie from sterling currency crashing, and all your other funds will have got that on their US exposure too.

The obvious thing to do would be to sell some of it and go back to an overall allocation that you're happy with, between high risk equities, boring equities, overseas equities, domestic equities, fixed interest, property, infrastructure projects, gold, and whatever else floats your boat.

The fact that it's gone up is no reason to drop the fund. It was supposed to go up. However, the fact that it's now 15% of your ISA / SIPP gold etc portfolio, is a reason to trim it back, if it was not supposed to be as much as 15%. Maybe you would prefer to only have 5% or 10% in a fund with that sort of volatility profile.

Over the next 18 months it could drop by 75% just like it went up by 75+. Presumably you'd prefer it went back to being a small part of your portfolio because you sold some of it and got the cash, rather than because it crashed - then you would regret having so much tied up in it.

Audaxer

I think I would have a strategy which is to rebalance my portfolio when necessary back to my original risk level. It sounds like you have reached that point.

elephantrosie

is there a pension allowance yearly? i am now contributing to NHS pension at work.

barginfinder

the short answer is yes

Tom99

I would sell half

eskbanker

elephantrosie wrote: »

is there a pension allowance yearly? i am now contributing to NHS pension at work.

barginfinder wrote: »

the short answer is yes

The slightly pedantic but more accurate answer is that there is no annual pension allowance as such (you can pay in what you like) but there are limits on how much gets tax relief, as per https://www.gov.uk/tax-on-your-private-pension:

You usually pay tax if savings in your pension pots go above:

• 100% of your earnings in a year - this is the limit on tax relief you get
• £40,000 a year - check your ‘annual allowance’
• £1 million in your lifetime - this is the lifetime allowance

For those looking to understand the rules of the game, start at http://www.moneysavingexpert.com/pensions/ and follow up with any specific detailed questions on the pensions board at http://forums.moneysavingexpert.com/forumdisplay.php?f=19 as this is taking this thread off topic.

Moose1960

Thank you for the useful responses.

Yes, it looks like some re-balancing is in order!