Pension Investment Strategy

Pip_Boy_111

Hi all.

Having literally spent hours reviewing fund performance and comparisons and considering the comments here and on other threads, i have decided to move my funds around. Having looked into the lifestyle strategy, it seems that from now, more funds get moved to lower risk investments each year (this year due to move to approx 78% equities and dropping yearly until around 45% at 60).

I have gone with the following:
Global equities (ex UK) 65%
Sharia equities 10%
Uk equities 10%
Emerging markets 10%
Property 3 %
Index linked Gilt 2%

Feel free to critique and tell me how stupid I've been :rotfl:

Next job is to stop myself wanting to check up on it every day to make sure I haven't made the mother of all c*ck ups

bowlhead99

Pip_Boy_111 wrote: »

I have gone with the following:
Global equities (ex UK) 65%
Sharia equities 10%
Uk equities 10%
Emerging markets 10%
Property 3 %
Index linked Gilt 2%

Feel free to critique and tell me how stupid I've been :rotfl:

I don't see the point in the Sharia bit. Either you want to follow Sharia guidance because you are religious (in which case why only 10% instead of 100% - you either respect the rules or you don't?); or because you are not religious but believe that limiting your investments to following those restrictions is the best way to make the highest long term returns (in which case, again, why only 10% instead of 100%).

I also don't see the point in only 2% in IL gilts. It doesn't hurt to have a portion of your bonds be IL gilts (investment-grade bonds, high yield bonds, international bonds, index linked bonds) but when 98% of your allocation is equities and property (and 97% of that 98% is equities) you are not going to change the overall profile of your returns (profit and volatility) very much by saying that 2% of the whole lot will be IL bonds offering no significant risk or return.

If there was a big equities crash over the next couple of years, you could top up the equities by rebalancing a little from some of the IL gilts. But your pension contributions of about £10k a year (28.5% of a 35.5k salary) will only be going £200 into IL bonds and £9800 into everything else. Do you seriously expect those £200s to be able to make a meaningful difference when the £9800 drops to £5800 or £4800? It is not much of a wealth-preservation strategy. Because in a 'bad year', when your equities drop a quarter or third or half of their value, you will already have £10k of brand new money that you could put in, exclusively into equities if you like - and the ability to reallocate a few hundred quid of IL gilts to top up the equities is not really going to be a gamechanger.

Investing without following a scientifically designed model (or even the choice of model) is largely about opinion. But a portfolio with 2% bonds and 98% equity and property is largely the same as one with 0% bonds and 100% equity and property. So I would say with 25 years to go before you can touch the money, either forget the gilts altogether, or increase the bond allocation to something more meaningful on the grounds that equities are known to be best for long term performance but could easily suffer a crash in the next few years, as there hasn't been one for the last decade.

Personally I would take the 10% Sharia equities and use them to boost the bonds and property component to 15%. I would also take 5-10% from the developed ex-UK equities and add them to the UK side. With an 85% equity portfolio, 15 to 20 / 85ths of your equities in the UK is still less than a fifth or less than a quarter allocated to the stockmarkets of the country in which you live, which doesn't seem excessive.

The 10% in emerging markets looks fine (10-15% of your overall equities allocation even if you add more bonds and property); I wouldn't go below that level on a 25 year view.

Next job is to stop myself wanting to check up on it every day to make sure I haven't made the mother of all c*ck ups

Yes, drop that ASAP . We are all like that when we first discover investing, and then eventually we realise that if it goes up every day we will be overconfident and if it goes down every day we will be depressed -and neither of those are very good for mental wellbeing or taking a dispassionate long term view on how things are going.

If one fund beat another over a 1 day or 1 week or 1 year period, most savvy investors would say it is meaningless because you have to take the ups with the downs and look at the long term view. So, daily really doesn't matter and you are wasting your time doing it, as well as potentially making you more nervous about whether you made the right decisions.

bostonerimus

I would also beef up the property and gilts just a bit. I don't see any reason to have a holding less than 10% of your portfolio.....apart form cash of course. I'd probably get rid of the Sharia and EM and increase the property and gilts to be each over 10%

If you are going to pursue this individual fund strategy you must be able to react to market volatility in the right ways. You must avoid panic selling when things drop by 20% and monitor the asset allocation to make sure you aren't drifting away from it.

But maybe there's a bigger question; have you worked out the investment gains you need to meet your retirement goal. If you can get there with a portfolio that has previously returned say 5% with low volatility do you really need to take the added risk of a more volatile portfolio that might return 8%. Often people look at the potential returns and don't consider the risks associated with a strategy. But in general I think you are doing pretty sensible things.

Thrugelmir

Pip_Boy_111 wrote: »

They have been quite volatile in the short term but over the long term (5 years) produced around 11 - 14% growth p/a respectively. Lifestyle, by comparison, around the 5-6%.

5 years long term? You need to extend your time horizons somewhat. When you've several decades under your belt. You'll find that you've accumulated a sizable number of teeshirts in your wardrobe. Nor will you ever stop learning from experience.

There's a lot of sage advice about if you read well. As a relative novice I recommend one of my favourites.

Rule 1. Don't lose money.
Rule 2. Never forget rule no 1.

Pip_Boy_111

Thanks for taking the time to comment all.

Taken on board the advice, particularly re: sharia and the no man's land allocation to gilts and property. I guess what I was trying to achieve was a bit of diversity in the portfolio, but maybe not to the right extent. The sharia, having looked at the factsheets, seemed ok, but I guess I've kind of gone "halfway house" with the little bits of 10% on things.

Like I say, I am here to learn and as long as I haven't consigned myself to a retirement of poverty, then all is good up to now. I guess what I'm asking is, am I thinking along the right lines?

With the comments here would a more sensible mix be:
Global ex uk - 60%
Uk - 15%
Index linked gilt - 15%
EM - 10%

One thing I just checked (rookie error i suppose) is that I can transfer allocations once in 12 months few free, chargeable after that. May be 12 months until I can rectify this without a fee

Again, thank you for the comments and advice.

Pip_Boy_111

bostonerimus wrote: »

I would also beef up the property and gilts just a bit. I don't see any reason to have a holding less than 10% of your portfolio.....apart form cash of course. I'd probably get rid of the Sharia and EM and increase the property and gilts to be each over 10%

If you are going to pursue this individual fund strategy you must be able to react to market volatility in the right ways. You must avoid panic selling when things drop by 20% and monitor the asset allocation to make sure you aren't drifting away from it.

But maybe there's a bigger question; have you worked out the investment gains you need to meet your retirement goal. If you can get there with a portfolio that has previously returned say 5% with low volatility do you really need to take the added risk of a more volatile portfolio that might return 8%. Often people look at the potential returns and don't consider the risks associated with a strategy. But in general I think you are doing pretty sensible things.

I have done some simulations with various calcs online and planning tools within the dc pot online platforms and I believe (hope) that with 2% above inflation we could achieve a "workable" retirement at around 58/59 (DW 4 years younger than me). With 5% above inflation we could have a very comfortable retirement at that age. Please note i freely admit i am very new to this and have only my own research to go off at the minute, so I am not offended if people poo poo my plans
I would also point out that, at the minute I am basing my figures off of my pension, plus SP. DW has only recently started 're training in a new career on a very low apprentice wage. She actually has been enrolled into the LGPS, which I realise is DB. Waiting on more info about this to really add it to the plans, but at the minute I am working with what I have and if we can achieve our goals with that, then everything else will be a bonus.
Am I being silly? Am I on the right track? Am I way offline? Who knows at this point?
This is why I'm here asking probably daft questions and pestering you good folk for advice. All I know is, just showing an interest and contributing 15% of salary puts me way ahead of colleagues of a similar age (some refuse to pay more than the 3% minimum ).

AnotherJoe

Quick background: 33 yrs old, Wanting to have enough of a pot to retire at around 58-60 (very early i know

It's not early at all either in terms of planning or retiring . Have you read any FIRE blogs? I agree with previous poster, at your age don't mess about go 100% equities.

Pip_Boy_111

AnotherJoe wrote: »

It's not early at all either in terms of planning or retiring . Have you read any FIRE blogs? I agree with previous poster, at your age don't mess about go 100% equities.

I haven't read these no. I assume a Google search will turn these up? Will have a look for these. Thanks.

As I said previously. I think I'll have to wait 12 months to change without incurring fees, but I have a pretty high allocation of equities now so (I hope) things are ok.

bowlhead99

As I said earlier, investing is about opinion but if your portfolio is 85% equities (which is fine as an equity allocation at your age) and 15% something else; I don't see why that 'something else' would be 100% index linked gilts and 0% not-indexed gilts and 0% corporate bonds and 0% high yield bonds and 0% international bonds and 0% property. Just get a bond fund which covers a range of bond types, and a property fund.

Pip_Boy_111

bowlhead99 wrote: »

As I said earlier, investing is about opinion but if your portfolio is 85% equities (which is fine as an equity allocation at your age) and 15% something else; I don't see why that 'something else' would be 100% index linked gilts and 0% not-indexed gilts and 0% corporate bonds and 0% high yield bonds and 0% international bonds and 0% property. Just get a bond fund which covers a range of bond types, and a property fund.

Thanks

Funnily enough, this echoes a couple of FIRE blogs I've hunted out and started reading. Seems like a simple, yet recommended strategy. Equities/bonds adjust ratio as desired for time of life. Seems i may have been overthinking a tad from what I'm reading here and in blogs. Live and learn.....