Seeking Advice on HL SIPP allocations

bowlhead99

ZingPowZing wrote: »

Or you could pick (say) four stocks with strong dollar revenue and manage your SIPP yourself.[

It seems daunting

It seems 'a bloody stupid idea', more like.

A portfolio that holds a mix of assets (shares in literally thousands of different companies in tens of different industries all over the world, fixed interest bonds issued by various types of companies and governments, and property, etc) is something that can be expected to grow over time, above inflation in the longer term.

Whereas, picking only 4 companies and hoping none of them suffer a catastrophic event (e.g. BP Deepwater Horizon causing a massive drop in value, Enron or Lehman ceasing to exist, etc etc) and deliberately picking companies which all have strong US dollar revenue rather than euro, yen, won, yuan, pounds etc, is something that might be expected to end in tears.

It certainly seems woefully inappropriate for someone trying to construct a 'long term medium growth portfolio' to instead just recommend 'pick 4 individual companies from a choice of tens of thousands on the planet, and hope they do averagely well'

but there are advantages:
a) You can count on £5k pa of dividends (tax free)

Mixed asset investment funds produce dividends too. Not that the OP needs income, because they are not looking to spend the money, only grow it to support their sisters family in some decade (s) to come.

And the money is in a pension, so no UK tax to pay on the income or gains received in the pension, rendering your "(tax free)" somewhat misleading.

b) You can mitigate the effects of any negative Brexit impact.

Yes, if you know in advance what the Brexit impact is going to be, and how all businesses around the world will be affected or unaffected, you can perhaps pick 4 companies out of the thousands, and skillfully mitigate the effects.

Normal human beings would still use funds, to spread their risk collectively with other people across a diversified portfolio. If you have some knowledge of how Brexit will shake out, you could buy individual specialist funds, to try to get exposure to less-affected businesses. If Brexit mitigation is a goal (and it doesn't need to be a major goal, with a 20 year time horizon) the average person who doesn't know much about investing (or even the average one who does, but can't predict Brexit events with certainty) would probably be better with some generalist fund rather than try to construct their own portfolio.

c) If there is a global downturn, you won't necessarily be better protected in a fund than a mega-cap. In any case, your picks should be sufficiently differentiated so that they do not perform as one, apples and pears.

Ok so looking for big global business, we could select one energy company (e g. Shell, Exxon), one global products conglomerate (Procter & Gamble, Unilever) a bank (JP Morgan Chase, HSBC), a tech firm (Apple, Google).

They would not entirely 'perform as one', but in a global stock market crash with a dollar weakening (currently at a multi decade high against the pound) you might have to watch your £160k drop to £60k. While the medium risk multi asset fund might stay in the £110-130k range.

d) When you do make gains, you don't have to worry about CGT, a further advantage over your current portfolio.

OP's investments in a pension are not subject to CGT.

If OP was investing outside a tax wrapper, which they are not, CGT is no more applicable to 4 funds than it is to shares in 4 individual businesses.

Arguably a fund or investment trust is better than using individual companies because as the fund or investment trust sells the shares it holds to buy into a different company, it will not pay CGT ; whereas the individual investor choosing to sell Shell to buy BP would be conducting a disposal in scope of CGT. The Funds investor only pays CGT when selling the fund itself.

So, the 'don't have to worry about CGT' is very misleading', even if CGT was relevant, which it isn't when in a pension.

e) As Jane Austen says, "It is better to choose, than to be chosen." A SIPP gives you freedom, don't hand it back to a fund manager or, worse, an IFA.

Maybe Jane Austen thinks the freedom to screw things up is an inalienable human right, and others would probably agree... but

I wonder if Jane Austen thinks it is a great learning experience for a non-investment-savvy disabled person with low projected lifespan to pick a few individual stock market shares and watch some of them crash heavily in value, and then they can remember those mistakes for next time they have built up £160k of pension benefits and are wondering how to deploy the funds. Unfortunately, there will not be a next time because the person will not get a second chance to earn £160k of pension rights and have another go.

On reflection, Jane Austen might think it better for OP to benefit from the diversification available in cheap multi asset funds, and that it would not be 'even worse' if they dared to buy proper independent financial advice from a regulated professional (IFA)

Worst of all, imo, would be to take instruction from Hargreaves Lansdown's own advisers. Their advice is biased towards their own products and, following the Woodford fund debacle, you may find you don't even have the freedom to switch funds.

I would not buy HL advice as it's not independent - better to seek it from an IFA, or go the DIY route after some reading up on what it entails.

Beyond that point of, 'don't ask HL to recommend funds for you' , with which I agree, I would certainly distance myself from all the other points you made.

You created your account here to complain about the service you bought from HL, and perhaps don't like to have fund managers look after your money, craving real freedom for yourself. That's fine.

However, as OP does not seem to be an experienced investor, and wants to achieve some modest growth of pension assets to pass on to family, it doesn't seem they would be best to indulge your desire for freedom from the trappings of a sensibly diversified and regulated mixed asset collective investment scheme.

ZingPowZing wrote: »

"Probably the worst thing an inexperienced investor could do."

Why? Imo the worst but sadly most common thing an inexperience investor can do is watch her fortune be winnowed away by funds "rebalancing" every few days, shuffling stock from one fund to another and back again with a charge to her fund on each transaction.

People have suggested buying and holding a generalist mixed asset fund or two, which manage a very broad set of holdings with a target level of annualised volatility.

People haven't suggested 'buy a few funds and revisit to change them every few days'.

Inexperienced investors - who don't appreciate that sensibly-diversified funds do exist to be bought right off the shelf and held for a long period of time to grow - might try to 'stock pick' by buying a few blue-chip household names and hoping they turn out to be at least as good as the average ones they could have picked. Such investors hopefully get turned off that strategy by the weight of sensible opinion on this forum.

[Deleted User]

Well, I am sure that the OP will take your fulsome reply on board, bowlhead. Apparently from the OPs posts, caution will be his watchman, and I wish him well of course, but there is a potential cost to being passive too; it just doesn't feature so much on the balance sheet. He certainly won't be short of advice that caters to a need for a sense of safety, if not immunity from market movement.

"Man proposes, God disposes" and none of us can be certain but would certainly be interested to learn how his choice is performing in one, two or, God willing, five year, against an alternate path.

AnotherJoe

ZingPowZing wrote: »

"Probably the worst thing an inexperienced investor could do."

Why? Imo the worst but sadly most common thing an inexperience investor can do is watch her fortune be winnowed away by funds "rebalancing" every few days, shuffling stock from one fund to another and back again with a charge to her fund on each transaction.

But that specifically wouldn't happen in a single multi asset investment, unlike your barking mad idea of four US shares.

[Deleted User]

Won't it? It may not be a headline charge but if you drill down you can expect that every time your fund manager adjusts a holding, there is a stockbroker charge to your client account. Of course, all the client tends to see is the overall value of price of the fund.

"Barking mad," eh? Ok. Select your preferred single multi asset investment, I'll pick four stocks and we'll see which is worth more in a while.

bowlhead99

ZingPowZing wrote: »

"Man proposes, God disposes" and none of us can be certain but would certainly be interested to learn how his choice is performing in one, two or, God willing, five year, against an alternate path.

I am sure it will be possible to come back in one, three or five years and select with hindsight four individual companies which collectively produced a better result than an average 'medium growth' mixed asset fund. And likewise four different ones which performed less well.

Whether it will be 'interesting' to see how that 'alternate path' shakes out, depends on what kind of things interest you . Because it is pretty much a given that some combination of companies will be better and some other combination, worse. If we say there are 300 companies around the world which have a market capitalisation in the tens of billions with high dollar revenues, and you are going to select 4 of them, there are 0.33 BILLION combinations you might pick. You would reduce this number a bit if you had criteria like the companies need to be in different industries, but would still have a huge set of options.

What would be interesting might be hear the justification of whether the combination of 4 companies selected, which outperformed the generalist investment fund, was more judgement than luck... and whether someone without investment experience might have been more likely than not to choose that particular 4-company combination if they had decided not to let a fund manager construct a proper portfolio.

Certainly if markets go strongly up in the next year, and dollars strengthen against pounds, it might be a great idea to have 4 megacap equities with lots of dollar revenues. If they don't, it might be more useful to use a diversified fund which isn't 100% equities and has underlying assets and incomes that aren't so heavily dollar-denominated.

But we know that in advance. So the result in 'one, two, or god willing five' years owes a lot to randomness and what markets actually do over that relatively short term period. It seems sensible to put your eggs in four hundred or four thousand baskets instead of just four.

"Barking mad," eh? Ok. Select your preferred single multi asset investment, I'll pick four stocks and we'll see which is worth more in a while.

The OP, who is seeking advice on how to protect and grow their life savings for her family, is rather more vested in the outcome than you are. It is not a competition.

When you lose 60% over the next 'while' (say two or three years) and the OP's £160k is £65k on her premature deathbed at that point, after having a heart attack from the heavy losses - you can come back and say 'aw shucks, I guess my method isn't foolproof but it will be better if you give it another ten to twenty years, I hope'. Scant comfort for OP.

[Deleted User]

Possibly, bowlhead, but you're not persuading Warren Buffett..

OldMusicGuy

ZingPowZing wrote: »

Why? Imo the worst but sadly most common thing an inexperience investor can do is watch her fortune be winnowed away by funds "rebalancing" every few days, shuffling stock from one fund to another and back again with a charge to her fund on each transaction.

The costs can be pretty low compared to the lowering in risk that these well diversified funds deliver.

Holding four individual stocks (if you knew which ones to hold) is a recipe for a very stressful ride with a possibility of large losses (as well as large gains). And no inexperienced investor has the knowledge to pick four stocks that have the potential to outperform the market. That's why it's better for inexperienced investors (that usually don't like massive ups and downs in their holdings) to be widely diversified rather than be very narrowly invested.

Certainly it's ok to do this kind of thing with a part of your portfolio if you know what you are doing, but it doesn't seem that is what the OP wants to do or has the knowledge to do.

OldMusicGuy

ZingPowZing wrote: »

Possibly, bowlhead, but you're not persuading Warren Buffett..

He's not talking to Warren Buffet, he is talking to an inexperienced investor. And remember the advice Warren Buffet gave his trustees as to how to invest his estate when he is gone:
"My advice to the trustee couldn't be more simple: Put 10% of the cash in short-term government bonds and 90% in a very low-cost S&P 500 index fund. (I suggest Vanguard's.)"

[Deleted User]

The OP, who is seeking advice on how to protect and grow their life savings for her family, is rather more vested in the outcome than you are. It is not a competition.

jellydream should make his own choice and may, in any case, be uninterested in how a different choice would have affected his fortune.
Others may find the comparison to be of interest, in which case it should have its own thread.

No hindsight, no aftertiming.

SonOf

ZingPowZing wrote: »

Possibly, bowlhead, but you're not persuading Warren Buffett..

Warren Buffet is a value investor. He spends millions of dollars on research and analysis before buying companies that he feels offer value.

The OP has stated simplicity and efficiency and doesn't seem concerned about costs. So, a low-cost multi-asset fund/governed portfolio in a personal pension would seem to fit that objective.