SIPP - which fund to sell to replenish cash?

[Deleted User]

My cash fund is almost empty so I need to look at selling some fund units to replenish it. I have eight funds and all bar one are currently below their original value. A couple, which are mainly comprised of bonds, are just below - they haven't fluctuated in value much recently, so I will leave them alone, probably. In general terms, would you incline to sell units of the fund that is in profit, or units of the worst fund - currently a FTSE 100 tracker down 10% at the moment - or something else, maybe bits of more than one fund? Thanks.

barnstar2077

If you have a fund that is down 10% then it only becomes an actual loss when you sell some of it. Personally I have made my SIPP out of cheap trackers that will go up and down, but hopefully will increase over the long haul. Many people keep some cash in reserves so that they don't need to sell stocks when they are down.

[Deleted User]

barnstar2077 wrote: »

If you have a fund that is down 10% then it only becomes an actual loss when you sell some of it. Personally I have made my SIPP out of cheap trackers that will go up and down, but hopefully will increase over the long haul. Many people keep some cash in reserves so that they don't need to sell stocks when they are down.

I kept enough cash for 12 months, but now I need to fill the pot again. I'm reluctant to put more than 12 months of withdrawal money in, since my provider, Charles Stanley, pays 0% on cash.

kidmugsy

johnsmith1890 wrote: »

My cash fund is almost empty so I need to look at selling some fund units to replenish it. I have eight funds and all bar one are currently below their original value. A couple, which are mainly comprised of bonds, are just below - they haven't fluctuated in value much recently, so I will leave them alone, probably. In general terms, would you incline to sell units of the fund that is in profit, or units of the worst fund - currently a FTSE 100 tracker down 10% at the moment - or something else, maybe bits of more than one fund? .

Are you retired? Saving for retirement?

tacpot12

I have built my portfolio with a cash and bond buffer in case the equity market has crashed, so I would sell my bond assets first. However, equities are only down about 10% at the moment so I would also be happy to sell equities if I needed the money (I would not be happy to sell if they were down 20% or more).

If I was selling equities, I would look at the relative strenghts of every holding and sell the two that I judged to have the worse propects. (Not necessarily the two that have dropped the most value, but perhaps the two that seemed most unlikely to recover well.)

[Deleted User]

I retired 12 months ago and set up the portfolio over the following three months.


Thanks for that. It is certainly an option to sell part of one of the bond funds (I have two). However, considering what Barnstar2077 said - no real loss until you sell - I got to thinking that I should sell some of the fund that's currently in profit. It's Terry Smith's Fundsmith, which despite that recent market volatility is about 8% up. At some future point, when I look at rebalancing the portfolio, I could then invest more in Fundsmith. I currently have about 12% of my portfolio in it. What do you think?

Alexland

All sounds very complicated - just do what is needed to return to your target allocation as the allocation you have now will be a drift of what you decided you wanted. Get some 'rebalancing alpha' in your life.

bostonerimus

Alexland wrote: »

All sounds very complicated - just do what is needed to return to your target allocation as the allocation you have now will be a drift of what you decided you wanted. Get some 'rebalancing alpha' in your life.

Sounds like a plan to me.

To the OP, what have you been doing with dividends? Many people will use the income variant of a fund and have the dividends deposited into a cash account. to top up their cash buffer, combine that with some sales to rebalance your portfolio and see what your cash flow looks like.

[Deleted User]

bostonerimus wrote: »

Sounds like a plan to me.

To the OP, what have you been doing with dividends? Many people will use the income variant of a fund and have the dividends deposited into a cash account. to top up their cash buffer, combine that with some sales to rebalance your portfolio and see what your cash flow looks like.

Three of the funds - the two consisting of bonds, and the FTSE 100 tracker - are income funds and the dividends are paid into the cash account. The remaining five funds are accumulation. Overall, the dividends in the year or so I've been running the SIPP have paid for two months' income.

bostonerimus

johnsmith1890 wrote: »

Three of the funds - the two consisting of bonds, and the FTSE 100 tracker - are income funds and the dividends are paid into the cash account. The remaining five funds are accumulation. Overall, the dividends in the year or so I've been running the SIPP have paid for two months' income.

You might think about using all income funds for simplicity. As it is sell/transfer enough to rebalance your portfolio back to it's target allocation and give you the cash you desire.

eg

if your target is 50/50 equity and bonds and you have a 100k portfolio and it changes to a 45/55 allocation and the portfolio drops to 95k value and you need to take out 5k then you will want to end up with 45k in equity and 45k in bonds and 5k in cash. You will start with 42.75k in equity and 52.25k in bonds so sell 7.25 of the bonds, take out 5k in cash and buy 2.25k of equity . This gives you 5k in cash and 45k each in equity and bonds.

[Deleted User]

bostonerimus wrote: »

You might think about using all income funds for simplicity.

Yes, I was wondering about that, if only because of the convoluted way in which dividends are reinvested. I had assumed that dividends on accumulation funds would be used to buy new units. Maybe they are, but in terms of how it's reported, the original number of units appears to stay the same, but they are revalued. My statement includes items such as Retention of Income and Accumulating Equalisation, which I haven't yet got completely to the bottom of. This is Charles Stanley, but maybe the other providers operate in the same manner?