Transferring Stakeholder to SIPP

bowlhead99

pulck74 wrote: »

Thank you. That is very helpful.

I suppose I am medium risk and I have probably got 23 years till retirement, so I hope I'm being sensible in wanting to split my pension investment something like 50% UK bonds and 50% world equity index tracker. I want as passive a portfolio as possible.

If you have over two decades until you retire and then 20-40 years of living on the investments after that, for 40-60 years total... then, putting half the money in the UK bond market seems like it will hamper the potential growth, that you are hoping to provide the necessary wealth to keep you going that long. Because bonds are more stable than equities, but the nature of their more fixed returns will not exactly set the world alight. It's not unusual to see investors on here who are in their 40s and holding 60-80% equity for a long term view.

It does of course depend on your attitude to risk and how long you've got. If you are the type of person who would watch the equities crash to 50% of their former peak over a few years and then say "hmm, I've been reviewing my pension again and since I transferred into this global equities tracker it's just been going down, I had better sell up and find something safer in case equities never recover" you will destroy your wealth by locking in a loss. If you can hang on for ten to twenty years you would probably see it come back.

'Medium risk' to most people would involve some sort of balanced portfolio of UK and international equities, bonds and property following some sort of model and the percentages might differ depending who constructs it, notwithstanding then referring to it as 'medium' on some scale. C Half and half UK bonds and world (including UK) equities is perhaps "some sort of model'", but what sort: what sort of growth or volatility does it target? Does that align with your own needs and aspirations and risk tolerance? If you're not sure, perhaps better to do as others suggest and buy an all-in-one fund with a defined strategy.

The passive tracker options within my Scottish Widows Stakeholder are not clear to me - another reason why I am inclined to move to a SIPP quite soon. But there is, for example, a fund called "Scottish Widows Global Equity Pension" (it's listed on Trustnet). Its growth appears to have been much better than my Environmental fund over the last 5 years. Of course, I fully understand the usual disclaimer about past performance not being a guarantee of future performance.

What do you think?

Comparing your fund to a better more diversified one does not give results that are particularly surprising given how markets have moved.


You have a fund that restricts itself to investing nearly entirely in UK listed companies (so significantly fewer than a tenth of companies globally, by market value) and within that set of companies it only picks from the pool of companies that "show a commitment to protection and preservation of the natural environment", whatever they mean by that. Whereas the other fund invests globally, mostly in the developed world with a small piece in emerging markets.

Despite the fact that some years you will "get lucky" and find the UK to conveniently be the best place to have been invested, and sometimes green companies will do the same or better than the average of other companies, restricting yourself to a specialist fund that only has one country or company type is not the best way to do it.

As it turns out, five years ago a dollar was worth 61.3p. Now a dollar is worth 76.7p which is 25% more. A Euro is also about 5% more valuable in pounds than it was back then, although the global fund you mentioned has over half of its money in US companies. But basically, nvesting globally would have been good for investors who live their life in pounds. The dollar investment got a 25% boost over the five years, which is almost 5% annualised - even though the currency was flat for much of the time with one short sharp shock event in the middle (referendum result two years ago).

Even ignoring currencies, it's not really surprising that a fund that had invested in some of the high growth company types that don't exist on the UK stock market - such as Google, Amazon, Tencent, Netflix etc, all doubling or tripling over the five years - beats a UK green fund that doesn't cast its net widely. Despite the fact that some years people will really like greener companies as a trendy thing to invest in.

The global fund you mentioned isn't a tracker, as its objective is to invest in companies it selects from within MSCI's developed and emerging markets indexes while hoping to beat the blended result of those indexes. However, if the objection to using managed funds is simply that you've heard cheapest is better, but via your stakeholder it's not significantly more expensive or volatile than using a different SIPP provider and an equities tracking product, you could consider using it. I haven't actually researched that particular fund other than clicking on a Trustnet link for it to see the headlines.

Being 'stuck with' the limited options of a stakeholder is not the end of the world if there are funds you would like to use available within your options, and the fees are lower than 'the highest a stakeholder is allowed to charge'. If the fund options in your stakeholder are universally terrible - or you have a substantial pension pot where a full personal pension or SIPP could be cheaper or have broader options that you'd actually make use of - it might be worth moving.

Still, if you do move to a SIPP because you can get a lower cost, or access to all options under the sun - I'd still suggest getting an all-in-one mixed asset fund, rather than building up your portfolio from multiple specialist components like all the different types of equity trackers, and bond trackers, and something for property etc etc.

BLB53

I did include them. Although I only gave the stakeholder as an example of 0.55%. One of the cheaper options is 0.28% plus 0.05% for a fund charge and 0.01% TC. making 0.34% all in.

Thanks for the clarification but I do not believe the 0.01% transaction charges for that or any other fund.

dunstonh

BLB53 wrote: »

Thanks for the clarification but I do not believe the 0.01% transaction charges for that or any other fund.

I share some of your scepticism over transaction charges. The inclusion of profit and loss has nothing to do with charges and should never be included.

pulck74

bowlhead99 wrote: »

If you have over two decades until you retire and then 20-40 years of living on the investments after that, for 40-60 years total... then, putting half the money in the UK bond market seems like it will hamper the potential growth, that you are hoping to provide the necessary wealth to keep you going that long. Because bonds are more stable than equities, but the nature of their more fixed returns will not exactly set the world alight. It's not unusual to see investors on here who are in their 40s and holding 60-80% equity for a long term view.

Thanks for the detailed response. Having recently decided to look again at my pension, I started reading 'Investing Demystified' by Lars Kroijer which recommends a 50/50 split of low-risk bonds/world equity tracker for a medium risk profile (see page 24 if you've got it). That's where I got that notion from. I believe he advocates bonds to preserve capital.

Elsewhere I've read about how global equities index trackers might help counteract against regional declines. The rationale struck me as sound but as you can see I'm learning.

Given my portfolio is almost the polar opposite of what is being recommended, I thought transferring to a SIPP would be the best way to change that.

I'd be interested to hear any thoughts.

dunstonh

I started reading 'Investing Demystified' by Lars Kroijer which recommends a 50/50 split of low-risk bonds/world equity tracker for a medium risk profile (see page 24 if you've got it). That's where I got that notion from. I believe he advocates bonds to preserve capital.

And what bonds are you going to use to fill that 50% allocation? Gilts, corporate, high yield, global, global high yield? If you slant it towards higher risk bonds will you reduce the equity weighting to retain your target volatility level to keep it within medium risk?

What about the property asset class?

Elsewhere I've read about how global equities index trackers might help counteract against regional declines. The rationale struck me as sound but as you can see I'm learning.

A tracker does not do that. Diversification does that. That happens in both managed and passive.

pulck74

And what bonds are you going to use to fill that 50% allocation? Gilts, corporate, high yield, global, global high yield?

Kroijer advocates government bonds in your base currency as long as your country's credit rating is high. The minimal risk possible.

A tracker does not do that. Diversification does that. That happens in both managed and passive.

Yes, apologies, he does say diversification is key. But he is not a believer in actively managed funds. Am I right in thinking there are stats which back up his preference for passive trackers?

BLB53

Am I right in thinking there are stats which back up his preference for passive trackers?

Passive outperforms active over the longer term in most areas of investing and UK as well as global - maybe not smaller companies sector.

https://us.spindices.com/spiva/#/reports

dunstonh

Kroijer advocates government bonds in your base currency as long as your country's credit rating is high. The minimal risk possible.

Choosing not to invest in a range of fixed interest securities but instead only picking one area is an investment management decision.

But he is not a believer in actively managed funds.

Yet he is making active investment decisions with the choice to eliminate investment areas and only invest in a certain area. That is what a fund manager does in a managed fund. if he is recommending a worldwide tracker for equities covering small, medium and large cap investments in every country then how come the same principle is not being applied to fixed interest securities. This is 50% of the money (referring to the earlier post). Its like spending all your effort on half the money and then saying you can't be bothered with the other half.

His choice of investing 50% in each is a management decision. The choice of which worldwide tracker to use to follow which benchmark is a management decision.

Am I right in thinking there are stats which back up his preference for passive trackers?

In the US in particular but most other countries, index trackers have better long term performance (but generally weaker short term performance. The trackers tend to be mid table over 1 year to 3 year period but move up over longer-term periods). The UK is better than most with managed funds. Still plenty of naff funds but by the time you eliminate the bank and insurance company own brand funds and the computer managed active funds, you are left with a much smaller selection of managed funds which may or may not offer viable alternatives for a sector.

The risk of using US research is that in the US, it makes sense because of US taxation. The UK does not tax funds internally like the US. A lot of "research" on sites is based on US data rather than home data.

If you are going to be a lazy investor (invest and forget) then passive investing makes sense. Although it should be within a multi-asset fund and not a couple of single sector funds.

If you are not a knowledgeable investor then passive makes sense. You are not going to know what good looks like. So, sticking with mid table consistency will almost certainly result in better long term returns.

if you are a knowledgeable investor then you are more likely to use a combination of active and passive. To eliminate all managed funds out of hand means you are missing out on some stand out funds. These types of investors tend to adjust their funds more frequently and that is needed with managed funds as you will often adjust to suit the economic cycle. Something a "lazy investor" would not do. I have 12 funds in our portfolio. 5 are passive. 7 are active. two sectors don't have passive funds available in them. So, I have to use active or make the management decision to not include that area.

So, its more about understanding your knowledge and experience. Know your limitations and dont pick things that are unsuitable. All options have a degree of choice and selection and management decisions.

pulck74

I think I misrepresented his position and it's not that far away from yours. He is specifically trying to set out a simple strategy for the "lazy investor", as you put it, (I'm definitely one of those!) where returns may not be as good in the short-term, but there is hopefully less volatility in the long-term. Hence the government bonds element. For the confident and knowledgeable investor, sure go ahead and invest in more active funds and forget about the bonds. He is talking about a long-term return of between 4-5% after inflation.

I've just watched a couple of videos on his website (I'm not allowed to post URLs on this site, but just Google his name) which are much clearer than anything I can express.