Aviva Pensions Mixed Investments - Thoughts on risk level?

mither_2

Hi All,
I'm reviewing my pension and I don't really know where to begin. 
My company's chosen pension counterparty is Aviva.
When I joined the company 5 years ago I just went with the Fund Risk Level 4 of 7 (40% - 85% shares) on the basis that this was medium risk. 
I expect to work for another 25 - 27 years which would take me into my late 60s. I'm assuming this will be the retirement age at this point. 
The performance of the pension doesn't seem that great with the value being only slightly more than I put in. With the recent fall in the stock market it is now likely worth less than I've paid in. 
From what I've read the expectation is that putting money into a share based pension will, long term, be the best approach. Is it just that 5 years isn't long term enough and I should only look at the expected growth over 25 - 30 years? 
Thanks in advance. Any advice welcomed.    
 

Thrugelmir

Statistically 12 years is the minimum length of time to guarantee a positive return on an equity portfolio. Market falls are far more common than people assume, 

Paul_Herring

With the recent fall in the stock market it is now likely worth less than I've paid in.

You know you can login and actually find out? (Might take a while to set up the account if you don't have direct access yet.)

dunstonh

The performance of the pension doesn't seem that great with the value being only slightly more than I put in.

Although, you only started 5 years ago and the bulk of the money hasn't been in that long.  And we have just had a crash.   

From what I've read the expectation is that putting money into a share based pension will, long term, be the best approach.

Correct.  You really need an economic cycle to get the best out of it and you are nowhere near that yet.

Is it just that 5 years isn't long term enough and I should only look at the expected growth over 25 - 30 years? 

5 years is short term and the five years in question was the more volatile end of cycle period.  

Malthusian

Thrugelmir said:

Statistically 12 years is the minimum length of time to guarantee a positive return on an equity portfolio. Market falls are far more common than people assume, 

A positive return on an equity portfolio cannot be guaranteed on any timeframe, but if it took you 12 years to show a positive return, that means you invested your entire portfolio right at the top of the market in 2000. That applies to almost nobody because most people invest in the market throughout their lifetimes (i.e. pension contributions and other surplus income).

We already know the OP isn't going to be the unluckiest investor in the world because they've already had 5 years of bull market returns. The current crash is the bill for those returns and the inflation-beating returns to come.

Assuming they are still paying into their pension, they should be toasting the crash (though naturally not the pandemic which caused it, because that would be callous) because now is when their contributions will get the best returns.

mither_2

Paul_Herring said:

With the recent fall in the stock market it is now likely worth less than I've paid in.

You know you can login and actually find out? (Might take a while to set up the account if you don't have direct access yet.)

Thanks for this - yes, I should have been clearer before. Like yours mine is now worth a similar amount less than I've paid in. 
Hopefully values will increase again in the following months. I've also had the tax benefit of paying directly into my pension. If I hadn't paid in then a lot more would have been taken in tax.  

mither_2

Some really good feedback here.
What I'm hearing is that 5 years isn't sufficient time to assess the value. 
Is there any way that I can benchmark Aviva's performance against their peers? 
is there any way that I can review what my returns with Aviva would have been if I had selected a different fund risk level? 
If I've already filled my ISA allowance for this year is there any other way I can invest money efficiently? The general consensus seems to be that now is a good time to buy?  
  

kuratowski

mither_2 said:

Is there any way that I can benchmark Aviva's performance against their peers? 
is there any way that I can review what my returns with Aviva would have been if I had selected a different fund risk level?   

I use trustnet.  You can register for free, create your own portfolio, add your funds (it's not "Aviva" - it's the specific fund you selected from the options they provide) to a comparison chart, and compare them against sector averages for different risk levels.  It's really, really useful.

dunstonh

Is there any way that I can benchmark Aviva's performance against their peers? 

They are a low cost fund aimed at inexperienced investors that broadly returns in line with benchmark. Never will be the best but never will be the worst.  Exactly the sort of thing a novice should be in. 

is there any way that I can review what my returns with Aviva would have been if I had selected a different fund risk level? 

There will be plenty of funds that would have been better in the past but it doesn't mean they are right for you.  

Looking at returns is not the way to select funds.

kuratowski

Obviously, dunstonh is right about not picking funds on past performance.

However, I think, if OP has another 25-27 years left of working, then it's worth revisiting their risk level, which was the topic of this thread.  Why did the OP pick 'medium risk' 5 years ago?  Was this the right choice?  Did they really know what this means?

The chart below, and the table beneath it, shows how a typical lower risk (yellow line) medium risk (red line) and high risk (blue line) fund have performed over the past 5 years.  The higher risk fund performs better when markets are on the up, but the drops are greater when markets fall.  I think some of us are so used to this pattern, it's easy to forget that this is not widely understood.

By investing at a higher risk level, you could get better returns.  But you also might lose some of the money you paid in and, you'll have a more bumpy ride.  The lower risk level means less see-sawing up and down, but probably also less returns on average over the long term.

[Deleted User]

A good way to benchmark is by comparing vs an index or a combination of indices, or one of Vanguard’s LS funds. The key is to pick the same asset allocation (% of fixed income). 

The fact we’ve just had a crash is helpful. You want to see how your fund performed against an index during this crises.