Switching Funds and Choices

Donpatch_2

Hi

If I can give some background that may help.

I went to a financial advisor at Barclays and took out a stakeholder pension with Norwich Union (now Aviva) in 2004, age 27. I was and still am self employed.

It started with £187 a month gross tha increased with RPI and I also increased recently with salary rise. As of Ocober is it £437 gross.

I have realised it was invested in about 50% equities and the rest mostly with profit bond and real estate. Over the last 8 years the with profit has been returning roughly 2.5% before the fees and the mixed shares average 7% before fees.  The fees are 1% and recently have a 0.2% rebate.  Total gross contributions have been £50k and it is now worth £75K. So I think this seems like a very cautious choice by the advisor given the age I was at the time.

I have been toying aorund with changing it for years but because my knowledge is limited, I didnt want to make wrong decisions so I back out, but I feel that not changing it may have been the wrong decision itself.

I have been reading about different funds and I have found the HSBC Global Strategy Dynamic Portfolio Accumulation C Fund. It looks more aggresive and I think I have 24 years to retirement. I saw it on the HL platform with a 0.19% fee.

I think what I am asking firstly, are my fears of changing fund unwarrated and also is the HSBC Fund too aggresive at 43? I'd like to make some ground if I can but not go from one extreme to the other.  Are there any suggestions or other funds I should think about?

Many thanks for reading

Albermarle

The original fund choice is medium risk and the return has been OK , if not brilliant . Also the charges are not that competitive .
So overall you can probably improve the situation but on the positive side you have been contributing and it has been growing .
I think what I am asking firstly, are my fears of changing fund unwarrated and also is the HSBC Fund too aggresive at 43? I'd like to make some ground if I can but not go from one extreme to the other.  Are there any suggestions or other funds I should think about?
You first need to think about your risk appetite. If you go to a higher % equity fund , it will be more volatile in the short term . Ask your self what you would do if it dropped 30% in a few days and was still dropping . Would you pull out/have sleepless nights  ? If you think you might, then you are better off staying at a similar risk level that you have now. Although you could still change to a more competitive offering at medium risk level. 

[Deleted User]

In my opinion the original asset allocation was completely wrong for a 27 year old.  Your expected 30 plus years of work income provided plenty of  income at that point.  Recommending a 27 year old a portfolio with just 50% equities is wrong. Should have been 100%.  For a 27 year old you took unacceptable, very high risk of not having enough funds when time comes to retire. 

A 27 year old has no business going overweight in Real Estate in his pension investments. A typical index already has 1-2% RE. 

Your with profit funds returned nothing over inflation. That’s poor; bonds typically did a lot better over the last 2 decades.

The return on the equity portion of your portfolio has been poor at 7% before fees and inflation, compared to typical benchmarks, given the years over which you were invested.  Not sure if this is money weighted or not. If it is, its even worse. 

Having an intermediary and high charges on top of an underperforming portfolio did not help.  

Once you subtract inflation, you investments have not returned very much at all and nowhere near what they should have returned. Particularly given very strong markets in the last ten years. 

I do not think your plan is overly aggressive. I would have done something similar. You do have time to right the ship. Consider adding fixed income once you get to within 10 years from retirement.

Once you change, you need to make sure you have intestinal fortitude not to panic when the markets (inevitably) drop.  Read a few books. Learning from others’ experiences does help. 

LHW99

You can always open a SIPP and start making extra monthly contributions to the HSBC fund, while continuing to contribute to the more cautious pension. You can run both in parallel as long as you stay within the maximum limits allowed, and can then see how you feel about the higher volatility that Albermarle mentions.

[Deleted User]

Leaving money in poor investment psychologically seems like an easy thing to do. 

The question to ask yourself is this: “I have 75k. If I started investing today, would I put them into a portfolio which has a proven track record of underperforming over 16 years?”  If the answer is “no” then get out of those investments. 

Donpatch_2

Thank you both very much for your comments.

I believe I have quite a high risk tolerance. To be honest I always thought that pensions were meant to go up and down so I have the stomach for that part at least! Would adding a lump sum of £10,000 from my savings make any long term difference at this point?  I'm basic rate tax payer so was going to put in S&S Isa.

I myself believe that the allocation was unsuitable and I should have addressed earlier, like I say the fear of making it worse took over me. Whats past is past and I will move forward with my plan, though with less worry in addressing any concerns I may have in future.

[Deleted User]

Isa would be fine but make it part of your retirement savings.  Track it as a portion of your overall retirement portfolio. Buy the same equity fund.
Although I personally would put it into pension.  Then you can also invest the extra tax you get back. 

dunstonh

I myself believe that the allocation was unsuitable and I should have addressed earlier, like I say the fear of making it worse took over me. Whats past is past and I will move forward with my plan, though with less worry in addressing any concerns I may have in future.

Older financial products are a bit like retail products.   They often go out of date.     In 2004, stakeholder pensions were the dominant pension product.   However, by 2005, personal pensions were coming back into play and by 2009, stakeholder pensions were niche.   It is likely that the stakeholder pension itself became uncompetitive for you around 2009ish.   its not a disaster difference but you could have improved upon it many years ago.

As for suitability on the funds, the average UK consumer is considered to be cautious.   Your comments suggest you had no prior investing history before starting this.   So, medium risk would not be considered unsuitable on that brief scenario.  Plus, you need to remember that in 2004, the stockmarkets had just had three years of losses.  Perceptions of risk then may have been different compared to today after 10 years of sustained growth.

[Deleted User]

I left UK in 2004.  I was 34. Left my pension fund in 100% equity, split 50/50 between US and UK indices. Not quite what I would have done today but not bad.  The return for that portion of my portfolio is a cumulative 264%. Overall portfolio return has averaged 8%/a. Every 1% percent makes a large difference to the outcome.  

An adviser at the time was telling us it was too risky.  We ignored his advice. Later on my wife took advice and followed it (in 2009).  Was completely inappropriate for our circumstances. We switched her money to self-management in 2015. Since leaving, her money did a heck of a lot better than the overpriced domestic focused balanced fund the adviser set up for her. 

Donpatch_2

@Dunstonh - That is good to know about the suitability of products changing, and you are right I had zero history of investing and I didnt know how to go about it. I absolutely should have addressed this years earlier when I started to become aware that my forecasts were getting lower and that is on me alone. If it wan't for reading this forum over the years I think I would still be entirely clueless, so I thank you all.

@Deleted_User - Thank you, I will look to add as part of my pension

[Deleted User]

Donpatch - a forum is good but there is always good and bad info. And hard to tell which is which.  Books are better. You can pick the ones written by the very best. And someone always checks them.