Risk of funds

foreversummer

Hi

My husband has his pension is the Zurich Managed AP fund at present. He has six years to go to retirement and won't necessarily need to draw it straight away as we have a cash buffer, however it is his only pension and is a small amount of £24000.

I'm trying to weigh up the pros and cons of moving it to the Vanguard Lifestrategy 40.

I've booked at the Zurich fund factsheet and it seems to suggest that about 70 per cent is invested in equities that's if I'm reading it right.

Or maybe he should go the the LS 20.

I guess we are both quite cautious on the risk profile but are we too cautious?

It's such a small amount I don't think a financial adviser would be interested in advising.

If anyone can help us see the wood from the trees we would be most grateful. Obviously, we are not experienced at all in investments but willing to learn.

Forersummer

economic

it looks more like 70% equities, 10% property and 20% bonds/cash.

So i would say vanguard lifestrategy80 would be the closest.

My dad recently sold this as part of a transfer to a SIPP. I think the charges for these zurich funds are quite high.

ColdIron

I'm not sure why the OP would want to increase their equity exposure when they are weighing up reducing them to 40% or even 20% and are 'cautious on the risk profile'

OP, have you explored any lifestyling options that Zurich may offer?

foreversummer

economic wrote: »

it looks more like 70% equities, 10% property and 20% bonds/cash.

So i would say vanguard lifestrategy80 would be the closest.

My dad recently sold this as part of a transfer to a SIPP. I think the charges for these zurich funds are quite high.

Thank you for confirming and yes it's a SIPP we are thinking of, although as he has just turned 60 and is not paying into it so I think the charges are slightly lower than the SIPP.

I guess what I am trying to work out is if this level of equities is too high with a short time-frame and if we should de-risk it now. What I am trying to gauge is suppose there was a crash, just suppose the stock markets tumbled by say 40%. How much would the lose if invested in the Zurich fund as opposed to say the LS 40 fund or the LS 20 fund. I know it's not possible to be exact and I know there are no losses as long as you hold tight for the recovery, but can anyone give some examples of likely figures just so we can work out if we are happy with the risk and therefore work out our risk profile.

foreversummer

ColdIron wrote: »

I'm not sure why the OP would want to increase their equity exposure when they are weighing up reducing them to 40% or even 20% and are 'cautious on the risk profile'

OP, have you explored any lifestyling options that Zurich may offer?

Hi ColdIron

I have seen these funds are available to swap to with Zurich but I haven't looked into the holdings and how they reduce each year. I've also read that they are not so popular these days as he will probably want to draw down small amounts each year to keep him under the tax threshold so some exposures to equities is good to keep up with inflation. It will see if I can track down the fact sheets and take a look.

Foreversummer

economic

stocks and bonds can go up at the same time (like they have done for past 8 years) or they can also go down together.

they can also move in opposite directions as well.

I think answering your quesiton on what to invest in highly depends on when and how much (how quick) will your husband draw on this pension. Eg if he wanted to draw the 25% tax free lump sum, its probably best to do this first BEFORE investing the rest.

bowlhead99

foreversummer wrote: »

Thank you for confirming and yes it's a SIPP we are thinking of, although as he has just turned 60 and is not paying into it so I think the charges are slightly lower than the SIPP.

So you're looking to move it to a more expensive and complex option (the SIPP)?

I guess what I am trying to work out is if this level of equities is too high with a short time-frame and if we should de-risk it now.

You say short time frame. But you also say it's his only pension - so it has to last 30-40 years. Do you mean you will cash it all in, in just a few years time, to get your hands on the £24k less tax? And then invest it in what? Or do you mean you will start to access it in a few years time but only £1k a year because you've only got £24k and are trying to make it last, so you'll keep the other £23k invested.

The chance of a market fall in the "next few years" is rather lower than the chance of a market fall in the "next 30-40 years". The latter is pretty much guaranteed, but if he needs the pension to last his whole retirement he will just accept that sometimes the balance goes down (unless you buy a very 'expensive' income guarantee; you have to take the rough with the smooth

foreversummer

economic wrote: »

stocks and bonds can go up at the same time (like they have done for past 8 years) or they can also go down together.

they can also move in opposite directions as well.

I think answering your quesiton on what to invest in highly depends on when and how much (how quick) will your husband draw on this pension. Eg if he wanted to draw the 25% tax free lump sum, its probably best to do this first BEFORE investing the rest.

Thank you economic.

The plan will be to draw down small amounts to keep him under the tax threshold once his state pension starts in 6 years time. We will have a cash buffer of approximately £15000 and I will be working still although I only work part time and bring home approx £840 per month. I am 6 years younger than him.

I guess what I am saying is that there will not be a need to withdraw the cash lump sum necessarily as we have cash, so potentially his whole pot could remain invested for some time, but not sure what risk to take with it I guess sums it up.

foreversummer

bowlhead99 wrote: »

So you're looking to move it to a more expensive and complex option (the SIPP)?

The old pension plan he has with Zurich is an Allied Dunbar one and drawdown is not allowed only UPFLS.

bowlhead99 wrote: »

You say short time frame. But you also say it's his only pension - so it has to last 30-40 years. Do you mean you will cash it all in, in just a few years time, to get your hands on the £24k less tax? And then invest it in what? Or do you mean you will start to access it in a few years time but only £1k a year because you've only got £24k and are trying to make it last, so you'll keep the other £23k invested.

Yes the second one, keep it invested and make it last. I will eventually retire with my state pension at 67 and I am paying into a SIPP and a Nest pension at present so hopefully in 12 years time I will be able to do similar with mine.

Foreversummer

dunstonh

Old Allied Dunbar plans come in different versions over time but the most common one has heavy charges whilst you are paying into it but if made paid up, the charges drop significantly. One version dropped the AMC to zero if made paid up as the bulk of the charges were on the contributions.

The old pension plan he has with Zurich is an Allied Dunbar one and drawdown is not allowed only UPFLS.

if its only a small amount, then UFPLS should be fine.

Malthusian

Zurich Managed dropped 20% in the last crash. Vanguard Lifestrategy wasn't around then, but funds in the "Mixed Investment 0-35% Shares" category, which is the best comparator I can think of without doing a lot of work, fell by 15% on average.

Past performance is not a guide to the future. This is largely guesswork, but in the event of a 2007-crash, I would be prepared for falls in the region of 30-40% for the Zurich fund, and 20-30% for both the 20/80 and 40/60 Vanguard LifeStrategy funds. Remember that in a real crash, all assets become correlated downwards. And that markets are higher than they were in 2007 so we have further to fall.

Are you planning to cash in the whole pension and buy an annuity in six years' time?