SIPP portfolio

Pedro_S

Good morning

I am saving towards retirement and I have a few questions, if anyone would be so kind as to help me.

To provide context, I am 35 years old and my goal is to retire at 58 (or whatever 10 years before my state pension age is by then!). Including company contributions, I invest £833 a month into a SIPP. I currently have ever-so-slightly less than £50,000 invested in VLS80. My goal is a pension pot of £600k, which I believe would allow me to retire on £30k a year, through income drawdown (supplemented by state pension)

I do not believe in active investing, I understand that most active managers will fail to beat the market consistently and that picking those that do in advance is tough to say the least. Also understanding that keeping fees low is critical, I am a fan of passive investing, looking to achieve the returns of the market over time.

At the start of my SIPP investing experience, I read and was convinced that a single multi asset fund was a broadly sensible decision for my first £50k or so. Thus, I opted for VLS80, knowing that the market will experience ups and downs over the next 23 years but that, thinking long term, it gave me a good starting point for my money. I am happy with this decision.

Should I now be considering a revision to my portfolio? I don't really know when a single fund portfolio is unwise
If so, what should I be considering, decreasing home bias? Greater small cap %? I think there is some logic in broadly replicating the global equity market, so wonder how far I am failing to do this!?

I have a limited knowledge of investing, so would be grateful for any guidance of the many excellent contributors on this forum

Thank you :beer:

Audaxer

In your position I would be happy to keep investing in VLS80 at present. Although Vanguard is considered a very safe fund house, once I got nearer a six figure investment I wouldn't like all my eggs in the one basket, so I would then consider revising my portfolio to either split between 2 multi asset funds or a single sector portfolio. You have plenty of time to learn more about investing if you do want to move to an active single sector portfolio, but I don't think there is any guarantee that the performance will be any better than you will get with multi asset funds.

Pedro_S

Thank you for your response

Are all your eggs in one basket if it is well diversified? Do you mean incase Vanguard was to go bankrupt or something?

I am particularly interested in this because I was considering transferring my SIPP to vanguard once their SIPP goes live

Please excuse my ignorance, but what is a single sector portfolio?

dunstonh

Are all your eggs in one basket if it is well diversified?

Having the investment fund with the fund house as administrator does increase the risk compared to a whole of market platform but only by a small amount. i.e. if Vanguard fails, then they are both fund house and administrator. Whereas Vanguard held on a platform would not see the platform fail.

FSCS protection on their UT/OEIC range domiciled in the UK is £50,000 (rising to £85k in April). Their IT/ETF range has no FSCS protection.

Please excuse my ignorance, but what is a single sector portfolio?

A multi-asset fund invests in a range of sectors (UK, US, Europe). A single sector fund invests in just one sector. e.g. UK equity. Single sector funds are designed to be held in a portfolio of other single sector funds to allow you to build a bespoke portfolio. The idea is that you may pick Jupiter European (for example) for your European sector and Aberdeen UK Property Feeder for your property sector allocation. That is generally how experienced investors build their portfoio. Inexperienced investors shouldn't do that until they get experience and understanding.

You should not invest 100% into a single sector fund (i.e UK equity) as that would be bad investing.

Pedro_S

Thank you Dunstonh.

Yes, I see, a single sector fund clearly does not represent the global market, therefore, is effectively an management choice or active decision. It is definitely bad investing!

Would you agree that keeping 100% of my SIPP account in VLS80 is a sensible decision until nearer 6 figures? At which point, having learned more, a bespoke portfolio of index trackers and bond funds (in accordance with determined asset allocation) would make more sense?

As my SIPP gets larger, would it be worth consdering platform diversification, or is this OTT?

Would it be sufficient to hold difference funds, in different sectors, with different companies (iShares, vanguard, hsbc, etc...)

Many thanks for you help, it is appreciated

dunstonh

Yes, I see, a single sector fund clearly does not represent the global market, therefore, is effectively an management choice or active decision. It is definitely bad investing!

Management choices and active decisions are not bad investing. it is the use of a single sector fund in isolation that is bad.

VLS has management choices.

Would you agree that keeping 100% of my SIPP account in VLS80 is a sensible decision until nearer 6 figures?

Use of a multi-asset fund is perfectly sensible in that scenario.

Do note that Vanguard dont offer a pension wrapper at this time. So, you would have to use a third party platform. I would do that anyway. I believe in flexibility and choice. Vanguard were the main choice some years ago (for that particular style of investing) but not so much now. Whilst Vanguard has a rigid 20,40,60,80,100 spread. Some of the alternatives fit in the gaps in between. HSBC's closest match is currently weighted to 90% equities and doesnt have home bias and is outperforming VLS80. That is to be expected given the period in question. However, if you are willing to accept the volatility of 80% equity then chances are that you would with 90% equity too. HSBC is a little less rigid in allocations too.

There have been a number of threads recently on which of the similar variations to hold. However, going direct to fund house removes that choice. Staying with a whole of market platform enables choice. What is best now will not be the best in 5-10 years time. That is just how it works.

bostonerimus

Pedro_S wrote: »

Thank you for your response

Are all your eggs in one basket if it is well diversified? Do you mean incase Vanguard was to go bankrupt or something?

I am particularly interested in this because I was considering transferring my SIPP to vanguard once their SIPP goes live

Please excuse my ignorance, but what is a single sector portfolio?

You have a lot of diversification with VLS80 because it is made up of a large number of individual sector funds like UK equities index and Emerging Markets Index.

When Vanguard start's a SIPP you should evaluate it carefully for cost and what it offers. The convenience of dealing with a single provider is attractive for some people.

I would not worry about Vanguard "going bust" as that's basically impossible. Vanguard in the US, which owns Vanguard UK, is a mutual company owned by the individual funds which in turn are owned by the investors. The funds are separate from Vanguard, they are regulated by the SEC and their value depends on the stocks and bonds etc that they own which is all public information.

Other than tax efficiency and maybe cost I see no reason not to use something like VLS80 for large amounts of money. I have a simple 3 fund Vanguard core portfolio of US equity, global equity ex US and US bonds and those funds have very large amounts in them and I sleep well at night.

The bottomline is you are well diversified with VLS80 and should see good long term returns, so don't worry about the ups and downs of the markets too much, but you should strategically adjust your asset allocation over the decades. Vanguard won't go bust and there's no danger of fraud or shady dealings messing up your nest egg. So you are in good shape.

Audaxer

Pedro_S wrote: »

As my SIPP gets larger, would it be worth consdering platform diversification, or is this OTT?

Some people are happy to keep well over £100k in the one platform, but I do think it is worth splitting a SIPP or S&S ISA between a couple of platforms once it gets to a fairly high value. If the worse happens like a major fraud, you are only covered by the Financial Services Compensation Scheme up to £50k (going up to £85k from April). I know the risk of something happening with ring-fenced funds is very low with a mainstream platform, but if it did happen the impact could be high for someone with a very large SIPP on that platform.

bostonerimus

There's nothing wrong with platform diversity, but if you've been sensible and chosen a main stream platform it isn't really necessary IMHO.

Pedro_S

Audaxer wrote: »

Some people are happy to keep well over £100k in the one platform, but I do think it is worth splitting a SIPP or S&S ISA between a couple of platforms once it gets to a fairly high value. If the worse happens like a major fraud, you are only covered by the Financial Services Compensation Scheme up to £50k (going up to £85k from April). I know the risk of something happening with ring-fenced funds is very low with a mainstream platform, but if it did happen the impact could be high for someone with a very large SIPP on that platform.

I see the logic, but I guess my concern is that if I reach my target I would potentially have 5/6 SIPPs which feels a bit messy. I'll put a bit of thought in to it over the months and years, as I'm only half way to my first £100k :-)

Nice problem to have for people :beer:

Pedro_S

bostonerimus wrote: »

There's nothing wrong with platform diversity, but if you've been sensible and chosen a main stream platform it isn't really necessary IMHO.

I would think if money is ring fenced, then even if the platform goes bust it doesn't affect your money?