SIPP Investments 2 Year Plan

segovia

Hi

I am transferring a Countrywide Assured ex Save & Prosper pension into an iii SIPP, value is about 300K. I'll expect to drawdown in 2 years.

I dipped my toe into the SIPP market earlier in the year with an AJ Bell SIPP and invested £32,000.00 in an HSBC World Equity ETF and some UK Gilts. It hasn't performed very well, I am currently looking at £1,000.00 loss; however, its only 3 months old.

I would like to try and grow my 300,000K but to take too high a risk. Should I stick with Global Equities ETF following Lars Kroijer advice or look for something else?

J

SonOf

invested £32,000.00 in an HSBC World Equity ETF and some UK Gilts. It hasn't performed very well, I am currently looking at £1,000.00 loss; however, its only 3 months old.

What do you mean it hasnt performed very well? It has perfectly exactly in line with expectation. An economic cycle is over 10 years nowadays. 3 months is barely a blink of the eye in investing timescales.

I would like to try and grow my 300,000K but to take too high a risk. Should I stick with Global Equities ETF following Lars Kroijer advice or look for something else?

Lars Kroijer does not offer advice. He offers opinions. Other opinions exist.

Obviously, the World Equity fund is very high risk (in terms of investment funds). The gilts will be very low risk. However, you have not told us the ratio. We need to know that.

What method of drawdown will be using and what drawdown strategy will you be utilising (so we get an idea of your forward planning in respect of how much cash you should have in the pension).

segovia

SonOf wrote: »

What do you mean it hasnt performed very well? It has perfectly exactly in line with expectation. An economic cycle is over 10 years nowadays. 3 months is barely a blink of the eye in investing timescales.



Lars Kroijer does not offer advice. He offers opinions. Other opinions exist.

Obviously, the World Equity fund is very high risk (in terms of investment funds). The gilts will be very low risk. However, you have not told us the ratio. We need to know that.

What method of drawdown will be using and what drawdown strategy will you be utilising (so we get an idea of your forward planning in respect of how much cash you should have in the pension).

re performance over three months, I am an optimist and also very impatient (;-)

I have not even thought of drawdown other that the fact that 25% cash lump sum isn't high on my priority. I want to maximise revenue I don't need the cash.

70% / 30% Equity/ Gilts

Thrugelmir

segovia wrote: »

re performance over three months, I am an optimist and also very impatient (;-)

Perhaps it would be better if you just reviewed these holdings once a year. All that matters is the value of the investments on the day you cash them in.

gm0

Consumer of similar age looking at planning DC drawdown. You won't get an easy answer here as "it depends" on a lot of things. In any event fund selection should follow "what portfolio mix of acceptable risk do I need to hold" that meets my income and legacy investment goals - not the other way up.

If you read around the board there are whole endless topics of debate on multi-asset funds vs active fund selection vs global passive per your post. The overall data for long term suggests that most actives underperform market after costs i.e actives fail and close or the costs eat the excess return. Some however do great. People point to Lindsell Train, (though of course previously Woodford) or other star managers. It is possible to pick "good ones" and get on and off with extra returns but it needs judgement, luck and timing. If you aren't knowledgeable and confident to put the effort in to do that then the lowest cost diversified passive equities from a reputable provider and SIPP platform may suit you better. Market return cheaply per Kroijer etc. Won't do best but many DIY will do worse attempting to be too clever for their own good or failing to exit a fading "star" in time.

Here are a few things to read and think about:

Time horizon - 30-40 years not 2-3 and Inflation

1. You will be invested for 2-3 years and then for another 30-40 perhaps (health circumstances vary but actuarial longevity suggests 90s for many). For sensible income and inflation protection you need to take the "long view" and be invested in something (i.e. not cash or other investments which lag inflation for the majority).

This means that the "long term average returns" whatever they turn out to be in 40 years have time to happen. It does not mean however that volatility of equities wouldn't be a problem along the way. This is why fixed income (bonds), cash and other "not equities" assets feature to have something else to draw on.

Sequence of return

2. After inflation your next biggest risk assuming you need to make the most of a 300k pot in terms of retirement income in drawdown is Sequence of Return. Not obvious initially but consider this. Two 25 year journeys with the same total and "average return". One with a rollercoaster dip at the start and a climb at the end (more volatile) and another straighter line (less volatile). On the rollercoaster your "drawdown" sells more units (for the same income) when prices are low and then you run out of money sooner. When the curve ticked up you didn't own the equities. Bad. Markets were ultimately "the same" but volatility and the sequence of return has hurt you because you had to sell too many units cheap. Same effect happens on the way in that cyclical down markets are "good" when you are saving every month. Buy units cheap.

This is why 100% equities is mostly for people with other identified ways to cover their minimum income needs (DB pensions, BTL rent, State Pension, cash in the short term (couple of years) as examples.

These people can vary drawdown income - wait it out - hold the equities and still capture the long term return. They may have spend the SIPP last or legacy investment goals which drive a higher equity % in designing their portfolio. So different assumptions on income flexibility in retirement allow a bolder investment strategy for some people. But the general received wisdom on equities seems to be 40-60% according to risk appetite and capacity. Sequence of return is most damaging in the first 10-20 years - say 55-75. Once your "time to run" goes down and your portfolio survived it still happens but the practical issue of running out of funds early is diminished - survived and portfolio x/20 now.

Income and drawdown rate and the relationship to portfolio planning

3. Your needed or desired drawdown rate (SWR) influences your risk posture. You can look at it different ways - I need X income so I need a portfolio with the best chance of delivering y% (investment selections and risk likely to be increasing as a higher income is demanded). Or you can look at the data on portfolio and sustainable SWR and pick a % which "works" in all of recorded stock market history and that's your (inflation indexed) income from those funds invested like that (60/40 say) i.e. at that level of investment risk (albeit with a very high chance of chunk of fund left over at the end - you took less than you could "most of the time" in order to be "safe" all of the time. Safe is not absolute just an observation that for historic data it would have worked for the "known" envelope of market behaviour. Something new and different could still happen.

Final thoughts

Your overall situation - spouse, children, property (downsizing), lifestyle (outgoings) all play in. An IFA would want to look at all of that to draw out risk capacity and appetite, investment goals and income needs in order to match you to a good fit portfolio on their slate.

If you plan to DIY then you need to follow the same journey. What income do I need vs want. Does it matter if the fund is depleted at 95 or do I want to leave money to descendants ? etc. etc. When you have view on all of that then the "least risky" portfolio with a chance to deliver the goods will be easier to select.

Good luck

PS If you happen to read my other posts you will see that I regularly recommend the McClung Living off Your Money book to understand drawdown mechanics. It either helps get the thinking straight or convinces you that DIY is not for you and sends you looking for a good IFA.

segovia

gm0 wrote: »

Consumer of similar age looking at planning DC drawdown. You won't get an easy answer here as "it depends" on a lot of things. In any event fund selection should follow "what portfolio mix of acceptable risk do I need to hold" that meets my income and legacy investment goals - not the other way up.

If you read around the board there are whole endless topics of debate on multi-asset funds vs active fund selection vs global passive per your post. The overall data for long term suggests that most actives underperform market after costs i.e actives fail and close or the costs eat the excess return. Some however do great. People point to Lindsell Train, (though of course previously Woodford) or other star managers. It is possible to pick "good ones" and get on and off with extra returns but it needs judgement, luck and timing. If you aren't knowledgeable and confident to put the effort in to do that then the lowest cost diversified passive equities from a reputable provider and SIPP platform may suit you better. Market return cheaply per Kroijer etc. Won't do best but many DIY will do worse attempting to be too clever for their own good or failing to exit a fading "star" in time.

Here are a few things to read and think about:

Time horizon - 30-40 years not 2-3 and Inflation

1. You will be invested for 2-3 years and then for another 30-40 perhaps (health circumstances vary but actuarial longevity suggests 90s for many). For sensible income and inflation protection you need to take the "long view" and be invested in something (i.e. not cash or other investments which lag inflation for the majority).

This means that the "long term average returns" whatever they turn out to be in 40 years have time to happen. It does not mean however that volatility of equities wouldn't be a problem along the way. This is why fixed income (bonds), cash and other "not equities" assets feature to have something else to draw on.

Sequence of return

2. After inflation your next biggest risk assuming you need to make the most of a 300k pot in terms of retirement income in drawdown is Sequence of Return. Not obvious initially but consider this. Two 25 year journeys with the same total and "average return". One with a rollercoaster dip at the start and a climb at the end (more volatile) and another straighter line (less volatile). On the rollercoaster your "drawdown" sells more units (for the same income) when prices are low and then you run out of money sooner. When the curve ticked up you didn't own the equities. Bad. Markets were ultimately "the same" but volatility and the sequence of return has hurt you because you had to sell too many units cheap. Same effect happens on the way in that cyclical down markets are "good" when you are saving every month. Buy units cheap.

This is why 100% equities is mostly for people with other identified ways to cover their minimum income needs (DB pensions, BTL rent, State Pension, cash in the short term (couple of years) as examples.

These people can vary drawdown income - wait it out - hold the equities and still capture the long term return. They may have spend the SIPP last or legacy investment goals which drive a higher equity % in designing their portfolio. So different assumptions on income flexibility in retirement allow a bolder investment strategy for some people. But the general received wisdom on equities seems to be 40-60% according to risk appetite and capacity. Sequence of return is most damaging in the first 10-20 years - say 55-75. Once your "time to run" goes down and your portfolio survived it still happens but the practical issue of running out of funds early is diminished - survived and portfolio x/20 now.

Income and drawdown rate and the relationship to portfolio planning

3. Your needed or desired drawdown rate (SWR) influences your risk posture. You can look at it different ways - I need X income so I need a portfolio with the best chance of delivering y% (investment selections and risk likely to be increasing as a higher income is demanded). Or you can look at the data on portfolio and sustainable SWR and pick a % which "works" in all of recorded stock market history and that's your (inflation indexed) income from those funds invested like that (60/40 say) i.e. at that level of investment risk (albeit with a very high chance of chunk of fund left over at the end - you took less than you could "most of the time" in order to be "safe" all of the time. Safe is not absolute just an observation that for historic data it would have worked for the "known" envelope of market behaviour. Something new and different could still happen.

Final thoughts

Your overall situation - spouse, children, property (downsizing), lifestyle (outgoings) all play in. An IFA would want to look at all of that to draw out risk capacity and appetite, investment goals and income needs in order to match you to a good fit portfolio on their slate.

If you plan to DIY then you need to follow the same journey. What income do I need vs want. Does it matter if the fund is depleted at 95 or do I want to leave money to descendants ? etc. etc. When you have view on all of that then the "least risky" portfolio with a chance to deliver the goods will be easier to select.

Good luck

PS If you happen to read my other posts you will see that I regularly recommend the McClung Living off Your Money book to understand drawdown mechanics. It either helps get the thinking straight or convinces you that DIY is not for you and sends you looking for a good IFA.

Thanks, I'll need a bit of time to fully digest your advice.

BTW - I have BTL property with no debt and receive and receive a rental income of about 40K a year. BTL asset value is circa £500K, and home value above 600K. My wife has a good DB scheme and we will both have state pensions on plan in 2 years and 7 years respectively, so we are not going to be entirely destitute in our retirement.

Therefore, I am looking at the 300K pension pot as a bonus and willing to accept some risk, leaving equity on death isn't necessary as my sibling is already more wealthy than I was at her age. I went down the IFA route earlier in the year and wasn't satisfied with the outcome, he didn't do a whole market review and recommend a discretionary managed fund that the IFA had links with. Total charges were in the region of 3% per annum. I may be better off than some but I am not prepared t give away £9,000.00 a year with no guarantee that I would be able to recover the cost, beat inflation and make a return.

J

Linton

segovia wrote: »

....... I went down the IFA route earlier in the year and wasn't satisfied with the outcome, he didn't do a whole market review and recommend a discretionary managed fund that the IFA had links with. Total charges were in the region of 3% per annum. I may be better off than some but I am not prepared t give away £9,000.00 a year with no guarantee that I would be able to recover the cost, beat inflation and make a return.

This doesnt sound like what an IFA should be doing and the annual costs seem unusually high for a typical High Street IFA. Are you sure it was an Independant financial advisor you saw or could it have been an FA like SJP or a bank?

Albermarle

Total charges were in the region of 3% per annum

About double what you would normally expect, even if you include IFA % ; platform % and funds %

segovia

Linton wrote: »

This doesnt sound like what an IFA should be doing and the annual costs seem unusually high for a typical High Street IFA. Are you sure it was an Independant financial advisor you saw or could it have been an FA like SJP or a bank?

It was a bad experience and not one that I wish to enter into again. Hence, my question posted here. I can't trust/afford an IFA so DIY is my only option.

eskbanker

segovia wrote: »

I can't trust/afford an IFA so DIY is my only option.

Or instead of dismissing the concept of using IFAs, finding a better one offering proper advice at a realistic cost?

Linton

segovia wrote: »

It was a bad experience and not one that I wish to enter into again. Hence, my question posted here. I can't trust/afford an IFA so DIY is my only option.

But if the person you consulted wasnt actually an IFA ..........? It wasnt SJP was it?