Assistance with improving my pension fund choices

bowlhead99

danlightbulb said:

My initial allocation wasn't entirely arbitrary, I attempted to get a close match to the bonds side of the Vanguard Life Strategy 80/20 fund, using the funds I had available to me.

But realistically you did a poor job of it by most measures, if you were attempting to 'match' what Vanguard did with their allocation, because:

The Vanguard 80% equity fund decided to put about 10% of its bonds in UK index linked gilts and 12.5% in other gilts, and 8% in UK corporate bonds, leaving about 70% if its bonds to be covered by a general global bond index (of which 95% is ex-UK, hedged to sterling).   

Your method to 'get a close match' of this was to put 60% in UK index linked gilts (instead of 10%), and then the other 40% in a sterling corporate bond tracker (majority of the issuers being UK).

Those things won't give the same results as each other.

As a side note if you are trying to figure out how to build a bond allocation, you may only get a simplistic view by looking at how a high-equities fund like VLS80 does it because their bond allocation isn't much of a priority for that sort of fund. The VLS40 or VLS60 or various other bond-heavy funds would likely use a more granular set of building blocks; so if you are trying to build your own product that is 100% bonds you could look at those.  Of course, if may be fruitless if you simply don't have any of those building blocks available but at least you might get more of an insight into how people do things.

 only seven of them are multi-asset funds. Of these seven, three are very small funds, under £5m.

You keep mentioning across a few of your posts in this thread that some of the funds on offer are 'very small'.  What you are seeing available to you through the Aegon scheme is simply the Aegon-wrapped version of a fund operated by some external fund manager, and you can't really compare  the size of Aegon's packaged offering with other funds you see outside in the real world. 

For example, Standard Life Investments have their GARS fund; they are managing £4bn+ (at one point it was double digit billions), and the generic version of it is available to purchase through most investment platforms. If you had a Scottish Widows pension and wanted their version of it you would be participating in a £33m segregated vehicle run for SW customers and if you are using Aegon and bought it the fund size says £71m on your screenshot above. It does not mean that Standard Life are really just trying to run a £33m or a £71m standalone investment vehicle with all the terrible inefficiencies that go along with that; the reality is that they are running billions and Aegon are just repackaging a tranche of a few million of it to their own customers.

So likewise your earlier chart shows 'only' £32m under Aegon Blackrock Index Linked Gilt but in reality that's just a branded version of a £2+bn fund that Blackrock offer to whoever wants it.   If the Aegon product is only a few million it may indicate it doesn't have a great deal of demand from other Aegon customers, but that doesn't mean its in any real danger of ceasing to exist; and if they did discontinue it they would just move you to something similar.

Sailtheworld

Prism said:

Sailtheworld said:

danlightbulb said:

AnotherJoe said:

Or just pick a big gobal fund (the sharia one) and have it done by default. Or does the sharia come bundled with some other garbage? I forget now....

No they re saying (pardon me csg if im wrong) that a lot of your money will be invested for at least 15 years so why would you tie such a large amount of it in bonds for that time when it shoudl be in equities.

On your second point - the answer was because I was aiming for 70/30 between equities and bonds? Are you saying that mix is too conservative?

Appetite for risk should be influenced by the length of the investment period. A 'cautious' 20 year old with a 50 year investment journey ahead would just be throwing money away by owning any gilts / bonds. They have the timescale to ride out a number of crashes, recessions & other events so don't need to accept a performance drag for downside protection they don't need. A nervous 20 year old would be best served by a 100% equity portfolio and a disinterest in the markets.

I agree but it should also be based on the likelihood that the investor isn't disinterested in the markets and begins to dabble when things are looking tough. Its the hard bit to judge before you see it unfold before your eyes and based on the number of panicked posts around March this year disinterested investors of any age can become very interested all of a sudden when things take a turn for the worse.

A general disinterest is likely to lead to higher gains / lower losses as would a general interest coupled with discipline. Lowering risk because of a lack of discipline is treating a symptom rather than the disease and you may as well throw £10 notes out the window.

It's not as if the disease is that difficult to treat. The number one thing is to pick the strategy and commit to reviewing in 5 years (if that). Choose different metrics of success such as savings rate or costs instead of short term investment performance and obsess about them instead - at least they're under your own control.. Don't subscribe to internet forums and avoid the news. I'd avoid all discussions at work about investments - you might miss Tesla but you'll avoid Premier Oil too.

Lots of little things add up. I update my stock prices weekly. When prices fall for a sustained period I update them less - anything to avoid doing anything clever. I remember a time not so long ago when getting an annual pension statement seemed more than sufficient.

Also we shouldn't forget that people posting here are niche and not representative. Most people are naturally completely disinterested in investments - the irony is their workplace pensions will probably perform better than the active interested investor. Of course, this disinterest comes with a general lack of interest in finances generally so their spending will be too high, savings too low, they'll be spending more than they need to on mortgages, utilities etc. so it's a case of finding the right balance.

Sailtheworld

danlightbulb said:

My initial allocation wasn't entirely arbitrary, I attempted to get a close match to the bonds side of the Vanguard Life Strategy 80/20 fund, using the funds I had available to me.

Why not leave the workplace pension as is? Pay in the minimum you need to ensure you get the employer contribution and just forget about It for the next couple of decades. There's nothing wrong with what you're doing and you get access to 'free' money - what's not to like?

Then rather than trying to replicate VLS80 with a hotchpotch of funds set up a SIPP and buy VLS80.

Prism

Sailtheworld said:

Prism said:

Sailtheworld said:

danlightbulb said:

AnotherJoe said:

Or just pick a big gobal fund (the sharia one) and have it done by default. Or does the sharia come bundled with some other garbage? I forget now....

No they re saying (pardon me csg if im wrong) that a lot of your money will be invested for at least 15 years so why would you tie such a large amount of it in bonds for that time when it shoudl be in equities.

On your second point - the answer was because I was aiming for 70/30 between equities and bonds? Are you saying that mix is too conservative?

Appetite for risk should be influenced by the length of the investment period. A 'cautious' 20 year old with a 50 year investment journey ahead would just be throwing money away by owning any gilts / bonds. They have the timescale to ride out a number of crashes, recessions & other events so don't need to accept a performance drag for downside protection they don't need. A nervous 20 year old would be best served by a 100% equity portfolio and a disinterest in the markets.

I agree but it should also be based on the likelihood that the investor isn't disinterested in the markets and begins to dabble when things are looking tough. Its the hard bit to judge before you see it unfold before your eyes and based on the number of panicked posts around March this year disinterested investors of any age can become very interested all of a sudden when things take a turn for the worse.

A general disinterest is likely to lead to higher gains / lower losses as would a general interest coupled with discipline. Lowering risk because of a lack of discipline is treating a symptom rather than the disease and you may as well throw £10 notes out the window.

It's not as if the disease is that difficult to treat. The number one thing is to pick the strategy and commit to reviewing in 5 years (if that). Choose different metrics of success such as savings rate or costs instead of short term investment performance and obsess about them instead - at least they're under your own control.. Don't subscribe to internet forums and avoid the news. I'd avoid all discussions at work about investments - you might miss Tesla but you'll avoid Premier Oil too.

Lots of little things add up. I update my stock prices weekly. When prices fall for a sustained period I update them less - anything to avoid doing anything clever. I remember a time not so long ago when getting an annual pension statement seemed more than sufficient.

Also we shouldn't forget that people posting here are niche and not representative. Most people are naturally completely disinterested in investments - the irony is their workplace pensions will probably perform better than the active interested investor. Of course, this disinterest comes with a general lack of interest in finances generally so their spending will be too high, savings too low, they'll be spending more than they need to on mortgages, utilities etc. so it's a case of finding the right balance.

All that works, and should create a good result if the original strategy is good but the problem is getting that right. My original 'fire and forget' Aviva pension was quite similar to what you describe. Started contributing early in my career, picked a risk level from the choices given, checked the yearly statements for over 10 years and that was it. However fund choice was wrong (looking back), fees were too high (they were ok at the start but not 10 years later), 50% UK allocation didn't help or hinder at the time but still glad I eventually spotted it. Performance was pretty poor by the end. So in hindsight that wasn't the correct thing to do. I should have been paying more attention, understanding my risk level better, looking for cheaper fees and selecting better funds.

We can do better than that even if it means opening up to the possibility that paying more attention to what our pensions and ISAs are invested in we end up making poor decisions from time to time.

csgohan4

it's important to take an interest in what your invested in and change things if you can. Obviously some pensions you have no control over investments, like the NHS pension. But if you can or setup a SIPP you can really make a sound investment to help your retirement planning

It doesn't need to be stellar and load up with Tesla/ apple shares. Something simple as a global index tracker and as you get more confident, add in more satellite funds to improve the diversity of your diversity


However as above, if you have  a strategy which is not working, one should try to understand why and formulate a better one 

We all make mistakes and sometimes investments don't come to fruition, that's life. But the key is not to put all your eggs in one basket. 

However the exception will be the global passive trackers which will beat active investors in the long run. 

AnotherJoe

danlightbulb said:

AnotherJoe said:

Or just pick a big gobal fund (the sharia one) and have it done by default. Or does the sharia come bundled with some other garbage? I forget now....

No they re saying (pardon me csg if im wrong) that a lot of your money will be invested for at least 15 years so why would you tie such a large amount of it in bonds for that time when it shoudl be in equities.

The sharia fund I was looking at is very technology heavy - like 40%+, and its only 2% UK equities. I decided that was too far to move. I have selected the Blackrock global equity ex-UK index to run in conjunction with the Blackrock 50/50 global equity index to get the right mix of regions and a more even split of sectors.

On your second point - the answer was because I was aiming for 70/30 between equities and bonds? Are you saying that mix is too conservative?

If you'll be investing for another 30 years, yes. All it will do is provide a slightly smoother but less steep growth.

Sailtheworld

Prism said:

Sailtheworld said:

Prism said:

Sailtheworld said:

danlightbulb said:

AnotherJoe said:

Or just pick a big gobal fund (the sharia one) and have it done by default. Or does the sharia come bundled with some other garbage? I forget now....

No they re saying (pardon me csg if im wrong) that a lot of your money will be invested for at least 15 years so why would you tie such a large amount of it in bonds for that time when it shoudl be in equities.

On your second point - the answer was because I was aiming for 70/30 between equities and bonds? Are you saying that mix is too conservative?

Appetite for risk should be influenced by the length of the investment period. A 'cautious' 20 year old with a 50 year investment journey ahead would just be throwing money away by owning any gilts / bonds. They have the timescale to ride out a number of crashes, recessions & other events so don't need to accept a performance drag for downside protection they don't need. A nervous 20 year old would be best served by a 100% equity portfolio and a disinterest in the markets.

I agree but it should also be based on the likelihood that the investor isn't disinterested in the markets and begins to dabble when things are looking tough. Its the hard bit to judge before you see it unfold before your eyes and based on the number of panicked posts around March this year disinterested investors of any age can become very interested all of a sudden when things take a turn for the worse.

A general disinterest is likely to lead to higher gains / lower losses as would a general interest coupled with discipline. Lowering risk because of a lack of discipline is treating a symptom rather than the disease and you may as well throw £10 notes out the window.

It's not as if the disease is that difficult to treat. The number one thing is to pick the strategy and commit to reviewing in 5 years (if that). Choose different metrics of success such as savings rate or costs instead of short term investment performance and obsess about them instead - at least they're under your own control.. Don't subscribe to internet forums and avoid the news. I'd avoid all discussions at work about investments - you might miss Tesla but you'll avoid Premier Oil too.

Lots of little things add up. I update my stock prices weekly. When prices fall for a sustained period I update them less - anything to avoid doing anything clever. I remember a time not so long ago when getting an annual pension statement seemed more than sufficient.

Also we shouldn't forget that people posting here are niche and not representative. Most people are naturally completely disinterested in investments - the irony is their workplace pensions will probably perform better than the active interested investor. Of course, this disinterest comes with a general lack of interest in finances generally so their spending will be too high, savings too low, they'll be spending more than they need to on mortgages, utilities etc. so it's a case of finding the right balance.

All that works, and should create a good result if the original strategy is good but the problem is getting that right. My original 'fire and forget' Aviva pension was quite similar to what you describe. Started contributing early in my career, picked a risk level from the choices given, checked the yearly statements for over 10 years and that was it. However fund choice was wrong (looking back), fees were too high (they were ok at the start but not 10 years later), 50% UK allocation didn't help or hinder at the time but still glad I eventually spotted it. Performance was pretty poor by the end. So in hindsight that wasn't the correct thing to do. I should have been paying more attention, understanding my risk level better, looking for cheaper fees and selecting better funds.

We can do better than that even if it means opening up to the possibility that paying more attention to what our pensions and ISAs are invested in we end up making poor decisions from time to time.

I was the same. It seemed like every available fund was just another play on FTSE100 components and fees were scandalous. 

At least young people starting out today picking a default workplace pension fund will have something with a semblance of diversification and sensible costs built in. Worth checking in on every now and again; every five years (?) or when changing jobs etc.

danlightbulb

Sailtheworld said:

danlightbulb said:

My initial allocation wasn't entirely arbitrary, I attempted to get a close match to the bonds side of the Vanguard Life Strategy 80/20 fund, using the funds I had available to me.

Why not leave the workplace pension as is? Pay in the minimum you need to ensure you get the employer contribution and just forget about It for the next couple of decades. There's nothing wrong with what you're doing and you get access to 'free' money - what's not to like?

Then rather than trying to replicate VLS80 with a hotchpotch of funds set up a SIPP and buy VLS80.

Because leaving it as it is will not be optimum. It hasn't been optimum historically and its grown less than it could have done because of that. Has it been of any lower risk in return for that lower growth, well not really as it still has a big proportion of UK equities in it.

The thing is that if I keep that fund as it is and start again, then it will be years before that 2nd investment portfolio is of any significant size to matter what I invest in. But here and now there is £80k sitting in a sub-optimal set of funds. Now is the time that my investment choices will make a significant difference as that fund grows over the next 25 years.

@bowlhead99 thanks for the detailed post above. I need to go away and consider what other funds I have to choose from. I'll try and see what funds have more of a global mix of bonds. What I really need is something like my existing multi-asset fund but without the cash & equities. However there is something I don't understand about the existing multi-asset fund I have. If bonds have grown (dedicated bond funds have grown alot), and equities have grown (dedicated equity funds have grown alot), then why has this multi-asset fund not grown? There must be something in this multi-asset fund that is holding it back.

@anotherjoe I don't think I'd be comfortable going 100% equities. I should have done that 20 years ago, not now. However the bonds funds have had substantial growth as well, as much as the equity funds in some cases, which I'm confused by. 

Sailtheworld

danlightbulb said:

Sailtheworld said:

danlightbulb said:

My initial allocation wasn't entirely arbitrary, I attempted to get a close match to the bonds side of the Vanguard Life Strategy 80/20 fund, using the funds I had available to me.

Why not leave the workplace pension as is? Pay in the minimum you need to ensure you get the employer contribution and just forget about It for the next couple of decades. There's nothing wrong with what you're doing and you get access to 'free' money - what's not to like?

Then rather than trying to replicate VLS80 with a hotchpotch of funds set up a SIPP and buy VLS80.

Because leaving it as it is will not be optimum. It hasn't been optimum historically and its grown less than it could have done because of that. Has it been of any lower risk in return for that lower growth, well not really as it still has a big proportion of UK equities in it.

The thing is that if I keep that fund as it is and start again, then it will be years before that 2nd investment portfolio is of any significant size to matter what I invest in. But here and now there is £80k sitting in a sub-optimal set of funds. Now is the time that my investment choices will make a significant difference as that fund grows over the next 25 years.

Sometimes there are cross purpose discussions when it comes to diversification. The point is I don't have the foggiest idea whether the UK will perform better or worse than anywhere else - that's why I diversify. You seem to be coming at this from a different angle in that you think less UK exposure will lead to better future returns - that's an altogether different call.

It should be easy for you. You've identified the problem (a sub optimal portfolio), you know the solution (reduce UK exposure) and you even know it's so urgent that you can't diversify away with future payments. Don't you just swap what you've got for something which is as close to optimal as is available from your workplace pension. From what you've said that's 80% in the closest thing to a world equity tracker and 20% to the closest thing to gilts.

Then the only decision is whether to actually direct additional contributions towards VLS80 directly in a SIPP.

danlightbulb

Sailtheworld said:

It should be easy for you. You've identified the problem (a sub optimal portfolio), you know the solution (reduce UK exposure) and you even know it's so urgent that you can't diversify away with future payments. Don't you just swap what you've got for something which is as close to optimal as is available from your workplace pension. From what you've said that's 80% in the closest thing to a world equity tracker and 20% to the closest thing to gilts.

The problem I'm having is finding the right funds. I will end up with a right hodge podge of funds to get the right equity mix because there are no diverse bond funds available. So if I keep the multi-asset fund I currently have (but why would I, its performance is poor compared to most other bond funds), I'll have to mess about with the allocations in the other equity funds to compensate for the equities contained in the multi-asset fund. It can be done, but it will be really messy.

Id prefer not to make independent payments into an alternative fund because currently I get the tax relief from my workplace offering smart pensions. They take my contributions off my gross salary.