Investment for a Vanguard Sipp?

TUVOK

I have a Vanguard SIPP opened with a total value of £3600- 00
At present it is all in cash, I would welcome opinions/advice on what Vanguard funds to invest in this SIPP
I will not need to ever use the monies invested myself as it it is intended for my children, but obviously as I am in my 70's and re the present health crisis, I am looking for a fund/funds which does not require a 5/10 year investment window.
I have thought of various Vanguard funds such as their Life Strategy range, World ex UK and bond funds, but would welcome other's views.
Thank you for any/all replies.

bowlhead99

What fund you invest in depends on goals and attitude to risk as well as, to an extent, your knowledge and understanding of how the investments work. Vanguard have a limited range of funds available in their SIPP because they only offer funds that they run themselves and not funds run by anyone else. It seems a bit strange that you've already selected them as the investment provider and given them the money without deciding which (if any) of their funds might be suitable to invest in. But here we are.

I will not need to ever use the monies invested myself as it it is intended for my children,

So on the one hand you will never need the money so it could be invested for thirty years until you pop your clogs age  (e.g.) 102, and then your children might not need it for themselves until thirty years after that. So with a sixty year timeframe you could sensibly invest in a global equity tracker such as the Global All Cap fund, which spreads the money across thousands of companies worldwide and tracks $40 trillion+ of equity markets.

Putting the money 100% into worldwide equities like that will have great growth potential over a long time period but be quite volatile (go up and down a lot) along the way. The fact that it goes up and down a lot all the time won't be an issue, because you won't be looking at it, as you won't need it at all...

but obviously as I am in my 70's and re the present health crisis, I am looking for a fund/funds which does not require a 5/10 year investment window.

...But on the other hand, you think you might catch and die from Covid-19 next month, and your children might need to spend the money immediately (even though presumably they don't actually need the money right now, otherwise you would have already given it to them, as you have told us you don't need it for yourself). And therefore you're thinking that you want a fund that would not need as long as a 5-10 year timeframe to come good. 

Well, unfortunately you are out of luck there, because no investments are recommended for less than a 5-10 year timeframe, as the results you get from them will be essentially random, driven by market forces. Only over 'the long term' should you expect a fund to deliver 'average' results compared to its potential. If you think it's likely that your heirs will get the money in the next year or so, you could just leave the money in cash, if safety is paramount.

But it probably shouldn't be, because according to office of national statistics based on data from 2016-2018, a 71 year old UK man only has a 2.1% chance of dying in the next year (1.4% for a woman) and on average will live another 14 years (16 for a woman) and could quite possibly live to 100+ (at 100, a man still only has a 39% chance of dying in the next year).

Those statistics were from before Covid-19 was around, but new reported cases of Covid are less than 6000 a day (under one in a thousand of our population) and only a fraction of that will actually die from it. If you're not one of them who gets taken out by the virus, the money will probably be invested for a decade plus. While if you are one of them who dies off this year or next, your children can probably afford to keep the money in investments for a decade plus.

As such, with average luck, the money will simply not need to be spent in the next few years, and so it's going to be counterproductive to presume that the money is needed in the next couple of years and not invest it, because inflation will erode it over longer time periods. Even the lowest-risk investments they offer could return a negative result over the next few years. So IMHO if this money isn't critical for anyone's lifestyle (you don't need it now, and your children don't need it now) you should probably just use a mixed asset fund to invest in 'a bit of everything' and assume that the money won't be needed for a decade or more, and that some risk can be taken in pursuit of growth.

I have thought of various Vanguard funds such as their Life Strategy range, World ex UK and bond funds, but would welcome other's views.

Of these three options:

The LifeStrategy funds are the only mixed asset funds they offer (other than the 'target date' retirement funds, but you don't have a target date anyway). So if looking to invest in 'a bit of everything' for a timescale of 10+ years (which realistically would be fine given the facts you've outlined, where nobody actually needs the money in the next decade), it would make sense to me that you would use something from the Lifestrategy range - perhaps 60% equity and 40% bonds, or vice versa. I might even use the more volatile 80% equities version, if I knew I would never need the money in my lifetime and my heirs don't particularly need the money, and could keep what they receive invested in their own ISAs or pensions for a while. 

The 'Developed World ex UK' fund would be a strange choice. For a start, you said you were looking for something that doesn't require a 5-10 year investment period, while investing 100% into international equities is a course of action that produces a really volatile / high risk result over short timeframes and would be more suitable for 20 years or more. Risk gets diluted over time. Secondly, international equities is only one investment sector, so doesn't meet the 'invest in a bit of everything' remit that most people in your position would have for their portfolios.

It is a developed world equities fund so is missing emerging markets like China  and India etc; most crucially it is missing all companies listed on the UK stock exchange - the country in which you actually live; and it's missing all investment types that are not equities, such as government and corporate bonds, direct commercial property etc. So, a strange and poor choice, unless you're also going to buy a whole portfolio of other funds to balance it out. There is no point building a whole portfolio of specialist funds when you are only investing £3600 and the company already offers mixed-asset funds like the LifeStrategy range...

The bond funds would generally have lower volatility than the equity funds so might be thought of as more suitable for a cautious investor. However, they are still not without risk, as you can see from the performance charts that the returns over the last 5, 10, 20 years for bond funds have been more than their annual yield. Their capital value has increased due to worldwide interest rates generally lowering and governments buying some of them up as part of economic stimulus.

That creates risk for bond investors because it's something that could reverse over the years to come; corporate bonds fall in value if companies' creditworthiness declines (e.g. in a recession) or if interest rates rise (e.g. as we recover from a recession) or if equities become relatively more attractive (e.g. as market sentiment changes when we recover from a global pandemic...), while government bonds are broadly more stable but they pay a fixed coupon so will still fall in value significantly if market interest rates increase and existing bonds become less attractive. The interest yields are quite low and the capital return in any one year could be more negative than the positive you get from the interest receipt.

If you bought a bond fund you would need to decide which of their many different bond funds would be most suitable for your needs. Most people would find that a single type of bonds is not suitable for their needs, and would be better with a blend, in some proportion, but they don't know what proportion is suitable because they don't know much about global economics and credit markets, portfolio allocation methods or yield curves. With only £3600 it is not worth learning about them to build your own strategic/ tactical bond portfolio mix; in my opinion it's not worth putting the money exclusively in bonds anyway, when as mentioned earlier, 'a bit of everything' is more suitable - which can be accomplished by just buying a LifeStrategy fund.

There are other mixed asset funds from other providers which some would see as more useful alternatives than the LifeStrategy range, but fortunately you've already decided to exclude them by picking Vanguard as the pension provider before considering what sort of investment you want. So you just have to decide whether you want 40%, 60% or 80% equities.

I would disregard the 20% and 100% variants of the LS funds as they don't really have so much mix, in their mixed assets approach - being mostly bonds in the former, and exclusively equities in the latter.

Albermarle

Although you have a comprehensive answer above , I would just like to re-emphasise one point.
but obviously as I am in my 70's and re the present health crisis, I am looking for a fund/funds which does not require a 5/10 year investment window.
Another statistic you often hear is that if you reach age 65 , then on average a man will live to 85. Average means that 50% will live longer. If you are reasonably fit, have no serious underlying health problems , are not a smoker and are reasonably intelligent, the likelihood is that you will be in the 50% who live longer. As said statistically you would be pretty unlucky to catch Covid 19 and be badly affected by it . Latest prediction is for around 40,000 deaths over an 18 month period. In which time one million people will die in the UK anyway. 

dunstonh

but obviously as I am in my 70's and re the present health crisis, I am looking for a fund/funds which does not require a 5/10 year investment window.

Where you in your 70s?  It makes a big difference to life expectancy.

What will happen to the money on your death? (i.e. does it go to spouse who will continue the investment for another period of up to x years)

At £3600, a multi-asset fund makes perfect sense.  Which one will depend on your risk profile. capacity for loss and behaviour/knowledge.

Thrugelmir

Albermarle said:

Although you have a comprehensive answer above , I would just like to re-emphasise one point.
but obviously as I am in my 70's and re the present health crisis, I am looking for a fund/funds which does not require a 5/10 year investment window.
Another statistic you often hear is that if you reach age 65 , then on average a man will live to 85. Average means that 50% will live longer. If you are reasonably fit, have no serious underlying health problems , are not a smoker and are reasonably intelligent, the likelihood is that you will be in the 50% who live longer. As said statistically you would be pretty unlucky to catch Covid 19 and be badly affected by it . Latest prediction is for around 40,000 deaths over an 18 month period. In which time one million people will die in the UK anyway. 

Is Vanguard the right SIPP for you?  You might be better suited to one that allows monies to be placed onto fixed term deposit. No investment risk or volatility at all. 

macman

Leave it in cash and recycle it every year to get the minimum £720 tax uplift. The return on that will be far greater than any return you get on investing into equities or bonds.  

Alistair31

macman said:

Leave it in cash and recycle it every year to get the minimum £720 tax uplift. The return on that will be far greater than any return you get on investing into equities or bonds.  

I’ve heard this mentioned quite a few times but never actually understood how this works? May be of nterest to my mother and father who are both retired, both receive their DB pensions and will both soon be receiving state pension too. Are they even eligible to do this ? 

Username999

Alistair31 said:

macman said:

Leave it in cash and recycle it every year to get the minimum £720 tax uplift. The return on that will be far greater than any return you get on investing into equities or bonds.  

I’ve heard this mentioned quite a few times but never actually understood how this works? May be of nterest to my mother and father who are both retired, both receive their DB pensions and will both soon be receiving state pension too. Are they even eligible to do this ? 

Yes.
https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired#latest

Alexland

Username999 said:

Yes.
https://forums.moneysavingexpert.com/discussion/5580163/paying-2880-into-pension-when-retired#latest

However if they are already drawing enough income to use up their personal allowance each tax year then it won't yield the full £720 benefit as the £2880 becomes £3600 of which they would get 25% tax free and probably pay 20% basic rate on the remainder which would only give a benefit of £180 pa each. It works best in tax years when the 75% can be drawn tax free within their personal allowance.

Alistair31

Thanks both. 

Not worth the hassle for me (explaining/setting up) or them I think as they both pay tax on their income as it is before the state pension becomes payable. 

Albermarle

Alistair31 said:

Thanks both. 

Not worth the hassle for me (explaining/setting up) or them I think as they both pay tax on their income as it is before the state pension becomes payable. 

Maybe if you are saying that £180 free money is not worth it , then you might get banned from the forum