Assistance with improving my pension fund choices

Thrugelmir

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.

It hasn't been optimum historically and its grown less than it could have done because of that. 

Yesterdays heroes soon become todays villains. Pick any asset class and year to year there'll rank differently in terms of performance. Constantly adjusting ones portfolio according to historical data isn't the way to build a portfolio. 

danlightbulb

Thrugelmir said:

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.

It hasn't been optimum historically and its grown less than it could have done because of that. 

Yesterdays heroes soon become todays villains. Pick any asset class and year to year there'll rank differently in terms of performance. Constantly adjusting ones portfolio according to historical data isn't the way to build a portfolio. 

Im not trying to do that, Im trying to make the portfolio appropriately diverse based on the underlying principles.

However its very apparent that the funds Im currently in have not performed very well. If they were 'middle of the road' perhaps I would think differently however out of 83 funds, one of my funds has ranked 79th. What I have to figure out is whether this is a problem with the actual choice of fund, or is it a problem of market timing. If its the former then I need to do something about it?

Sailtheworld

danlightbulb said:

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.

The trouble you've got (IMO) is that you've painted yourself into a corner because you have no flexibility when it comes to your definition of optimal. Even if you cobble something together that looks the same it won't look like that for very long.

If you cut yourself some slack there have been plenty of options which, although not meeting your exact requirements, would be an improvement.

You didn't like the idea of investing the minimum into the workplace pension and then into VLS80 in a SIPP. What about using the workplace pension for the equity component and a SIPP for the bond / gilt element?

Sailtheworld

danlightbulb said:

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.

The trouble you've got (IMO) is that you've painted yourself into a corner because you have no flexibility when it comes to your definition of optimal. Even if you cobble something together that looks the same as VLS80 it won't look like that for very long.

If you cut yourself some slack there have been plenty of options which, although not meeting your exact requirements, would be an improvement.

You didn't like the idea of investing the minimum into the workplace pension and then into VLS80 in a SIPP. What about using the workplace pension for the equity component and a SIPP for the bond / gilt element?

danlightbulb

@Sailtheworld im not sure I do have many options? If I have missed something you've suggested along the way please do elaborate.

My options if I stick to the current workplace pension scheme seem to be either sticking with what Ive got or going for what's been called a 'frankenfund' where I am playing with the mixes across several funds to get the optimal mix because they all contain some equities.

The reason I don't want to go for a second separate fund is because:

• Id have to reduce my existing workplace contributions to the maximum matched level (which is 6%) and then take the extra in salary which would be taxed and pay NI.
• Whereas currently in smart pensions I get the contributions deducted off gross salary so they don't get taxed or NI paid on them. (Im vaguely aware that tax relief can be claimed on manual pension contributions but I don't know if this will be as much as I get from the smart pensions arrangement).
• Then I'd have to set up a manual monthly payment into a new scheme that was starting from scratch so would take years to build up a decent amount, unless...
• I transferred some of my existing fund over to the new scheme? I don't know if that would come with fees or if I can even do it with my scheme.

So on balance I'd really prefer to keep paying into my workplace pension fund direct from salary deductions and have it all in one place.

Sailtheworld said:

The trouble you've got (IMO) is that you've painted yourself into a corner because you have no flexibility when it comes to your definition of optimal. Even if you cobble something together that looks the same as VLS80 it won't look like that for very long.

Im not deliberately being inflexible. Ive tried to create a portfolio based on the advice here and things I have read. I don't know what I don't know, if that makes sense.

danlightbulb

Hi me again....

I have continued to look through the mixed funds I have available to me to try and find something with a better mix of bonds.

In summary what seems to be happening is the following:

• There are 7 multi asset funds available to me, all containing between 30 and 60% equities. I don't like the mix in any of these funds, and none of them have done that great over the past 5 years. Common issues with all these funds are:
• The equity mix is poor (eg high UK proportions)
• They often contain reasonably large proportions (5-15%) of metals and high risk bonds.
• They often contain high proportions of cash (10-20%) which to my mind is not doing me any favours at this stage in my investment cycle.
• They all look like a hodge podge of assets. Eg 1 to 2% in lots and lots of little areas that individually won't be doing me many favours and collectively are probably just trading each other off. This is why I think their performance has been relatively poor.

I do have 5 funds available to me which are badged as 'balanced' funds.

Three of these are very UK equity heavy, circa 55%. One is almost 100% equities (not sure how they can call this 'balanced'). However there is one left, Blackrock Consensus Index, which does appear to have a reasonable mix of equities and various bonds. Here is it's allocation:

It looks to be about 26% UK equities, 20% North America, 14% Europe, 5% Japan, 3% Pacific, 1% emerging. So it's possibly still a little UK heavy, but better than I currently have. That is about 70% equities in total.

On the bonds side, it looks to have 15% overseas government bonds, 8% UK gilts, 3% UK corporate bonds, 5% cash, and a bit of property. That's about 30% total.

So in theory, I could just use this one fund.

In terms of performance, it has ranked mid pack of my 83 funds over the past 5 years. It has performed better than my current combined equity fund and multi-asset fund. Presumably this is because of the lower UK equities, and that the fund doesn't include all the tiny hodge podge components that the multi asset fund does.

What do you think of using this fund on its own? The main problem is that the UK equities are still a bit high, and I don't know the split across sectors.

Sailtheworld

danlightbulb said:

@Sailtheworld im not sure I do have many options? If I have missed something you've suggested along the way please do elaborate.

My options if I stick to the current workplace pension scheme seem to be either sticking with what Ive got or going for what's been called a 'frankenfund' where I am playing with the mixes across several funds to get the optimal mix because they all contain some equities.

The reason I don't want to go for a second separate fund is because:

• Id have to reduce my existing workplace contributions to the maximum matched level (which is 6%) and then take the extra in salary which would be taxed and pay NI.
• Whereas currently in smart pensions I get the contributions deducted off gross salary so they don't get taxed or NI paid on them. (Im vaguely aware that tax relief can be claimed on manual pension contributions but I don't know if this will be as much as I get from the smart pensions arrangement).
• Then I'd have to set up a manual monthly payment into a new scheme that was starting from scratch so would take years to build up a decent amount, unless...
• I transferred some of my existing fund over to the new scheme? I don't know if that would come with fees or if I can even do it with my scheme.

So on balance I'd really prefer to keep paying into my workplace pension fund direct from salary deductions and have it all in one place.

Sailtheworld said:

The trouble you've got (IMO) is that you've painted yourself into a corner because you have no flexibility when it comes to your definition of optimal. Even if you cobble something together that looks the same as VLS80 it won't look like that for very long.

Im not deliberately being inflexible. Ive tried to create a portfolio based on the advice here and things I have read. I don't know what I don't know, if that makes sense.

Lots of options - none of them perfect. Such is life. Didn't realise you were getting a NI kickback so, yes, that turns the focus to your workplace pension. That means you've got to make your own call about the trade off between simplicity and optimisation.

I don't think anyone has said there's a hard and fast rule on diversification. It's obviously going to depend on your own circumstances. If it was me I'd leave as is and rejoice in the employer contributions and lower NI - they'll probably have a bigger overall impact on your future wealth than any lack of portfolio optimisation. Especially so when there's nothing particularly wrong with your portfolio as it stands now. 

coyrls

danlightbulb said:

What do you think of using this fund on its own? The main problem is that the UK equities are still a bit high, and I don't know the split across sectors.

I think it would be the most pragmatic choice.

danlightbulb

Ok so this is how things would change if I went 100% in the Blackrock Consensus Index.
Current split:


After:


I still don't like that it has 5% sat in cash, as that won't be doing anything.

I could still partially replicate the right hand side by using the fixed interest funds I have available, I just can't get 15% in overseas government bonds. Is that quite high, compared to only 8% in UK bonds? Also is only 2.5% in corporate bonds low?

What I could do, is put say 70% of my investment in this one fund to get the overall balance. And then spread 30% of my investment in another global equity fund and some more UK corporate and government bonds? That would lower the cash proportion and the overseas government bonds portion?

danlightbulb

Here is an attempt to use the Blackrock Consensus Fund in conjunction with some other funds to reduce the cash and overseas government bonds holdings, and increase the UK government bonds holdings, and also to lower the UK equities as its still quite high in the single fund. However to get this I have to use 6 separate funds, some in quite small proportions.



How important are overseas government bonds, because essentially that is all the Blackrock Consensus Index fund is being used for here, to get me some of those as there is no other dedicated fund that can provide them?