Investments 6-7 years before retirement

Persil_White

I'm currently rationalising my portfolios as we count down to taking income from them. I have a SIPP worth about £375K which I plan to use to buy an annuity in 6-7 years time (tax free cash has already been taken). My wife and I also have ISAs worth about £300K from which we plan to take income as and when we need it. Together with our state pensions, this should cover our expenses and allow us to sleep at night!

These pots are currently invested in a mix of active funds and I'm looking to simplify things and reduce fund charges so looking to make use of index trackers. I'm thinking of switching my SIPP to Vanguard's LifeStrategy 20% Equity so that it might hopefully grow a bit but also not lose too much prior to taking the annuity. For the ISAs, I'm thinking of the Vanguard LifeStrategy 40% or 60% Equity funds.

Is this too simple an approach? Should I be splitting the investments across more funds? Is the LifeStrategy fund diverse enough (it seems a bit UK biased)? I'd be interested to hear what others have done in my situation.

dunstonh

I'm thinking of switching my SIPP to Vanguard's LifeStrategy 20% Equity so that it might hopefully grow a bit but also not lose too much prior to taking the annuity.

VLS20 is the weakest of the VLS funds. Its lack of risk targetting and you need for a defined date of withdrawal means that it is not a strong option.

Should I be splitting the investments across more funds?

No. The idea of multi-asset is that they are diversified within the fund. However, each multi-asset fund has a different investment strategy. So, you should make sure the strategy fits your objective.

Is the LifeStrategy fund diverse enough (it seems a bit UK biased)? I'd be interested to hear what others have done in my situation.

VLS is no longer the cheapest and its allocation method could be considered a weak point. It all depends on your point of view.

jim8888

My tuppence worth is that I have all of my SIPP in a Vanguard 80/20 Life Stratgegy fund. I did this for the same reason as yourself, trying to keep it simple (and low cost). I thought about being a bit more cautious, but I'm going to be withdrawing the money over a ten or twenty year horizon, so hopefully even having that much in equities will still survive the slings and arrows in the long run.

Albermarle

reduce fund charges so looking to make use of index trackers. I'm thinking of switching my SIPP to Vanguard's LifeStrategy 20% Equity s

As far as I understand it a 'life strategy 20% equity fund ' is not an index tracker but a mixed assets fund.
Or am I getting my terminologies mixed up ?

Persil_White

Dunstonh - thanks for taking the time to comment.

The objective with my SIPP is to at least keep up with inflation while limiting the potential downside where possible. I don't need to grow the pot very much to meet my goals but I am hoping that annuity rates will have improved by the time I come to buy one!

I've taken a quick look at what I think are some risk-targeting funds (are these the sort of funds you had in mind?) and come up with the following:

Architas MA Active Reserve A
HSBC Global Strategy Cautious Portfolio C
L&G Multi-Index 3

The Architas fund seems the most different in terms of asset allocation (it appears to have no current exposure to equities which is interesting). It's the least volatile of the 3 with a maximum drawdown of -3.3% and a standard deviation of 2.7% over the past 5 years. However, it's the most expensive of the 3 (OCF: 0.88%.).

The HSBC fund is the cheapest (OCF: 0.16%). It seems to have a lot of exposure to bonds but also a better geographic spread that VLS20. It's the most volatile of the 3 over the past 5 years with a maximum drawdown of -4.9% and a standard deviation of 4.2%.

The L&G fund seems similar to the HSBC fund in terms of asset allocation but more heavily UK focussed. It's in the middle in terms of volatility with a maximum drawdown of -3.5% and a standard deviation of 3.6% over the past 5 years. (OCF: 0.33%).

It seems that every fund has pros and cons and hence why I wonder whether, given my lack of investment knowledge, I should pick 2-3 (hopefully different) funds.

Johnnyboy11

There's the Vanguard FTSE Developed World ex-U.K.Equity Index Fund, which you could mix with the LifeStrategy of your choice to overcome any perceived UK bias.

Prism

Persil_White wrote: »

The HSBC fund is the cheapest (OCF: 0.16%). It seems to have a lot of exposure to bonds but also a better geographic spread that VLS20. It's the most volatile of the 3 over the past 5 years with a maximum drawdown of -4.9% and a standard deviation of 4.2%.

Dunstonh probably can't say specifically which fund(s) he had in mind but if it were me then I would say you are on the right lines with the HSBC range. I have also used L&G passive funds over the last few years.

dunstonh

The three funds mentioned are risk targetted. Although all three are at different levels. So, you need to balance volatility and returns. The asset allocations on the risk targetted funds tends to be more fluid than the returns focused VLS.