Switching Pension Funds

benny5

I am currently reviewing the investment mix within my pension funds, one with HSBC (SERPS opt out) and one with Blackrock (AVC) with retirement planned 2-3 years hence. Both have performed pretty well over the years but I now feel its time to de-risk.

My dilemma is when I examine their respective low/minimal risk funds the performance over the past 2/3 years is not spectacular, most show negative returns. Is this par for the course?

EdInvestor

The bond market has performed poorly recently and looks like the property market is about to follow suit. Equity income funds are an area you could look at.

dunstonh

EdInvestor wrote: »

The bond market has performed poorly recently and looks like the property market is about to follow suit. Equity income funds are an area you could look at.

Equity income funds are higher risk than bonds and bricks and mortar. Someone retiring in 2-3 years shouldnt be looking at equity income unless they are a high risk investor.

Bonds have performed below par because interest rates rose and they never do well when interest rates go up. Why go into bonds when cash can be better. Property has seen some outflows for much the same reason.

If rates start dropping, then bond performance would be expected to pick up.

benny5

Thank you for that.

Having looked at the AVC plans’ investment strategy at 3 years from retirement it suggests;
Cash 10%,
UK Fixed interest Funds, 65%
FTSE All share Index Tracker Fund 25%
While investigating the relative performance of these funds I discovered, what I though was a poor return against of the fixed Interest option, hence the initial question.
Incidentally the cash fund’s performance over 3 years stands at 15.97%.
Being adverse to risk at this stage in my life the ‘cash option’ seems attractive for the greater portion (80%) of the fund with the remainder in some low/minimal risk option.


Regards



Benny

EdInvestor

dunstonh wrote: »

Equity income funds are higher risk than bonds and bricks and mortar.

Yes, they are a bit. But how is that comment helpful in current markets?

Why go into bonds when cash can be better. Property has seen some outflows for much the same reason.

I really don't think people need to pay massive commissions and fees to advisors to be told that cash is lower risk than bonds or property.

A combination of cash and equity income investments might well produced the desired return at present.

Retired_I.F.A.

So might a Mary Poppins in the 3:30 at kempton.

Commission and or fees have naff all to do with it. The guy simply said he wants low risk, so you put your 2 pence worth in and recommend a high risk fund type.

Very clever Ed. Hows the knitting going?

dunstonh

I really don't think people need to pay massive commissions and fees to advisors to be told that cash is lower risk than bonds or property.

No. They can come on here and have you give them totally awful advice with no consumer protection.

purch

most show negative returns

That is the problem, or dilemma of investing in Bonds/Securitised Debt etc etc through an open ended Fund.

As these funds have no maturity date, and have to re-value to current prices on the debt, they will show capital losses at certain times when market conditions are against their holdings.

It is far more sensible IMHO if you wish to reduce risk by moving into Bonds or similar Debt instruments, to hold them yourself rather than through a fund. You can then control what you hold, what they yield ( and how or if you re-invest the yield ) and what maturities they are so you can make proper plans.

The categorisation of Gilt, Corporate Bond etc etc funds as Low risk is misleading unless you understand the risks and the underlying investments properly.

EdInvestor

purch wrote: »

It is far more sensible IMHO if you wish to reduce risk by moving into Bonds or similar Debt instruments, to hold them yourself rather than through a fund. You can then control what you hold, what they yield ( and how or if you re-invest the yield ) and what maturities they are so you can make proper plans.

The categorisation of Gilt, Corporate Bond etc etc funds as Low risk is misleading unless you understand the risks and the underlying investments properly.

Quite so.But an advisor will not tell you this, because they would not make any money if you did it yourself as Purch suggests.

That's why so many people miss out on the best investment strategies, pay higher charges and incur higher risks than necessary.:(

EdInvestor

Retired_I.F.A. wrote: »

The guy simply said he wants low risk, so you put your 2 pence worth in and recommend a high risk fund type.

UK Equity income funds are the lowest risk way of investing in equities.

The OP said

Being adverse to risk at this stage in my life the ‘cash option’ seems attractive for the greater portion (80%) of the fund with the remainder in some low/minimal risk option.

So I'm suggesting he keeps 80% in cash and puts 20% in a couple of the better equity income funds.Rather than the usual options of bonds or commercial property funds where he is more likely to lose money because of the present state of the markets.

Overall an 80/20 cash:equity income fund investment strategy is low risk.He could also follow the DIY gilt strategy as mentioned above.



And your alternative suggestion would be....?

dunstonh

Quite so.But an advisor will not tell you this, because they would not make any money if you did it yourself as Purch suggests.

An adviser would not tell you this because it would mean transferring the pension (which they would earn from) but it would not be justified in doing so.


Recommending a switch in funds on the scheme doesnt earn the IFA a penny but you would find most would do it free of charge.

I find it strange that Ed recommends an option which is bad advice and would incur charges but uses the justification that an adviser wouldnt earn from it. Yet the option that an adviser would recommend (fund switch) wouldnt cost a penny and an adviser wouldnt earn from it.

It may be fashionable to be anti-adviser but if you post rubbish it doesnt do the OP any good.