SIPP Allocation

RD42

Hi All,
Some basic info:

• We are a couple, both aged 46
• Looking to draw a pension from SIPPS from age 57 (or 58 if rules change)  (10 Years @£40K / year, 30 Years @£30K / Year
• Will both get full state pension from 67 (of 68 if rules change)
• Not looking to take any lump sum
• Have combined pension put that just hit £500K (Hence this review)
• Have other savings / own house.  I will probably top up pension by £40K this year. (Getting maximum tax relief and keeping child benefit)

I am thinking that the following asset allocation and investments would be appropriate. I would plan to remain invested well into retirement (30+ years) keeping roughly this allocation:

• 15%  - US Shares : Vanguard FTSE North America UCITS ETF 
• 15% - US Shares : Vanguard S&P 500 UCITS ETF
• 7.5% - UK FTSE 100 : HSBC FTSE 100 UCITS ETF
• 7.5% - UK FTSE 250 : HSBC FTSE 250 UCITS ETF
• 7.5% - Europe Excluding UK : Vanguard FTSE Developed Europe ex UK UCITS ETF (GBP)
• 7.5% - Japan : Vanguard FTSE Developed Asia Pacific ex Japan UCITS ETF USD Distributing
• 10% - Other : Amazon & Microsoft shares (I already own these)
• 13% - Gold :  iShares Physical Gold ETF (GBP) (I already own this)
• 7% - Cash 
• 10% - Fixed Income: I have never held bonds, is now a good time, which fund?

I would like feedback on the choices I have suggested here, and in particular some info on selecting "Fixed Income" bond funds, if such a fund is a good idea.  Also, maybe I should just stick it all into a FTSE 100 fund, where the yield seems to be about 4% at the moment?
Thanks!

georgehere

With £500k now, 'other savings', 'own house' and still 10 years to go, I think you should do a bit more detailed planning first as you could find yourself in LTA territory - in which case the strategy over the next 10 years will need more careful thinking than just fund allocation for a SIPP. Also, with children, maybe you will also have inheritance tax considerations. Given you are still working/contributing, stop for a minute and work out the projected pot size for your SIPP at retirement and if LTA/IHT issues are in play, think about engaging an IFA.

dunstonh

I am thinking that the following asset allocation and investments would be appropriate. 

Where is Asia and Emerging Markets?

Why split between large cap and medium cap on the UK but not small cap?

Why the same split on Japan as Europe?

Also, maybe I should just stick it all into a FTSE 100 fund, where the yield seems to be about 4% at the moment?

After over 25 years of underperformance, why would you want to do that?  What makes you think that UK large cap is going to be the best option every year forever more?

and in particular some info on selecting "Fixed Income" bond funds, 

What sort of target volatility are you after?   Bonds can range from relatively safe through to highly speculative.   They come in variations too.   At the lower risk end they are not really in favour at the moment as gilts fill that role better.  However, at different times of the cycle, they will be.    So, as you are controlling your own asset allocation, you will no doubt be making the asset allocation changes yourself over the cycle.  Are you up to doing that or are your selections a little bit of a stab in the dark?

[Deleted User]

Agree with all of the above ^. 

Also,
- there ought to be a good reason for each ETF you hold. In general, the simpler the better.   Once you start splitting UK, N America and assigning a separate ETF to Japan (while missing other regions), you need to ask yourself “why”? There could be a good reason, eg tilt to small or value but thats not what you are doing. 

- Gold - thats a large allocation to something that has less than zero expected long term return. 

- Bonds: why do you want them? To time the market? In that case, no, its not a good time.  People hold bonds for various reasons, eg to reduce short term volatility of your portfolio, or to provide a safety cushion during major events. Rarely to time the market. The choice of specific vehicle depends on the reason you wantbonds

redpete

dunstonh said:

I am thinking that the following asset allocation and investments would be appropriate. 

Where is Asia and Emerging Markets?

Why the same split on Japan as Europe?

Interestingly the fund that the OP has labelled "Japan" excludes Japan :-)

As for Europe vs Japan - I have roughly equal amounts in Dev Euro (excl UK) and Dev Asia (incl Japan) because they are roughly equal size markets, I've got North America in proportion to it's size and then slightly overweight in Emerging markets (which are largely Asian) with the thought that Emerging markets might react differently to developed (more diversification) and overweight in UK all market because my spending is in the UK so inflation and currency variation sort of balance out, and some of the largest stocks in UK market make their money worldwide.

I've got approx 5% cash and 15% global bonds to give some protection against volatility for when I start drawdown (although not at all sure that bonds do that any more) and 2.5% in property funds to diversify a bit more.

The proportion in equity funds (77.5%) would be less if I didn't have the underlying security of 20yrs' worth of a defined benefit pension.

dunstonh

Interestingly the fund that the OP has labelled "Japan" excludes Japan :-)

That could well be a mistype on the Asia exc Japan. In which case, where is Japan?

As for Europe vs Japan - I have roughly equal amounts in Dev Euro (excl UK) and Dev Asia (incl Japan) because they are roughly equal size markets

The two together is not dissimilar to ours.     One by itself though is too much.  That said, there are some models that remove Asia at the lower risk end and only hold Japan.

I've got approx 5% cash and 15% global bonds to give some protection against volatility for when I start drawdown (although not at all sure that bonds do that any more) and 2.5% in property funds to diversify a bit more.

Global bonds are generally out of favour at the moment as a rise they don't offer much downside and a rise in Sterling could hit them hard.   Many of the fluid models are pulling right back on bonds and using cash and gilts (not index linked) to reduce volatility.   Mainly on the basis of those being the least worst option.

redpete

dunstonh said:

I've got approx 5% cash and 15% global bonds to give some protection against volatility for when I start drawdown (although not at all sure that bonds do that any more) and 2.5% in property funds to diversify a bit more.

Global bonds are generally out of favour at the moment as a rise they don't offer much downside and a rise in Sterling could hit them hard.   Many of the fluid models are pulling right back on bonds and using cash and gilts (not index linked) to reduce volatility.   Mainly on the basis of those being the least worst option.

The bonds are in the Vanguard Global Bond Index fund which contains just over 50% government issue - which unless I've misunderstood are gilts.  A lot are non-UK but it is hedged to mitigate some of the currency risk.

dunstonh

You always get funds that dont always do quite what they say on the tin.    

[Deleted User]

dunstonh said:

You always get funds that dont always do quite what they say on the tin.    

Is that a reference to Van Global bond fund? What does it do differently from the tin

AnotherJoe

OP, I would do something completely different (and simpler).

Based on -

-Why the large NA overlap?

-Why oh why oh why anything at all in UK 100/250 ?

-Why attempt your own allocations across geographies when that's mostly pointless these days, with the economy being mostly global? If you want to increase diversification split across industries not geographies.

-10% bonds seems like either too little or not enough and for 30 years, all equities is better

-I wont comment on gold other than 13% is a curiously specific amount. What you have now I presume.

-Cash - what's that for? Opportunities? And thus a changeable amount? Or for drawdown?

So, assuming you retain your amzn/msft and cash and gold I'd split the remaining 70% into a global fund and a small companies fund (which wont be small,  still talking about billion dollar companies).

Maybe 70/30, or 80/20, all numbers are arbitrary in the end.

So lets say roughly and rounding up

-55% global large

-15% global small cos

-10% amzn/msft

-13% gold

-7% cash or consider putting that in a chosen industry sector, perhaps  renewable, healthcare, something aimed at the future

And as others have said keep an eye on the LTA.

BritishInvestor

RD42 said:

Hi All,
Some basic info:

• We are a couple, both aged 46
• Looking to draw a pension from SIPPS from age 57 (or 58 if rules change)  (10 Years @£40K / year, 30 Years @£30K / Year
• Will both get full state pension from 67 (of 68 if rules change)
• Not looking to take any lump sum
• Have combined pension put that just hit £500K (Hence this review)
• Have other savings / own house.  I will probably top up pension by £40K this year. (Getting maximum tax relief and keeping child benefit)

I am thinking that the following asset allocation and investments would be appropriate. I would plan to remain invested well into retirement (30+ years) keeping roughly this allocation:

• 15%  - US Shares : Vanguard FTSE North America UCITS ETF 
• 15% - US Shares : Vanguard S&P 500 UCITS ETF
• 7.5% - UK FTSE 100 : HSBC FTSE 100 UCITS ETF
• 7.5% - UK FTSE 250 : HSBC FTSE 250 UCITS ETF
• 7.5% - Europe Excluding UK : Vanguard FTSE Developed Europe ex UK UCITS ETF (GBP)
• 7.5% - Japan : Vanguard FTSE Developed Asia Pacific ex Japan UCITS ETF USD Distributing
• 10% - Other : Amazon & Microsoft shares (I already own these)
• 13% - Gold :  iShares Physical Gold ETF (GBP) (I already own this)
• 7% - Cash 
• 10% - Fixed Income: I have never held bonds, is now a good time, which fund?

I would like feedback on the choices I have suggested here, and in particular some info on selecting "Fixed Income" bond funds, if such a fund is a good idea.  Also, maybe I should just stick it all into a FTSE 100 fund, where the yield seems to be about 4% at the moment?
Thanks!

Before thinking about fund selection it might be worth getting a handle on how much risk you:
a). Need to take: (to ensure your pot isn't exhausted given proposed contributions and withdrawals and using a range of historical market outcomes for growth assumptions)
b). Are happy taking (a portfolio that you would be happy to stick with if we were to have poor market outcomes (Great depression etc)).