What risk level at 37?

Everythingbysea

Hi there - hoping for some quick advice.
I'm 37, have £90k in a workplace pension. I pay 13% in to the pot each month and things are going OK I suppose.
I'm currently on the 'balanced approach' with Scottish Widows (pens portfolio 2).
My question/s:

1) At the age I am and what's in the pot - should I be on the 'adventurous approach' (higher risk / higher reward)? I was thinking I should be on adventurous until i'm closer to retirement and I want less risk.

2) I would put 50% in a more adventurous approach only but I don't think I can do that on the the management fee I currently pay. Worth paying a bigger fee to do so?

Looking to retire at the average age to do so, with the average income for south east living.

Any thoughts?

Thanks

AlanP_2

Assumuing you have ~25/30 years to go until retirement then taking more risk at this stage makes sense.

You would need to ask your provider about what your options are for changing / mixing investments.

You haven't given enough information to get sensible comments on whether you will have enough in the pot to cover your desired income.

For example do you have spouse /kids ? morgtgage or rent? will you have paid mortage off by retirement? Have a look at the "number" thread - there is no obvious average retirement income, and a mathematical average may not meet your needs.

Everythingbysea

AlanP_2 said:

Assumuing you have ~25/30 years to go until retirement then taking more risk at this stage makes sense.

You would need to ask your provider about what your options are for changing / mixing investments.

You haven't given enough information to get sensible comments on whether you will have enough in the pot to cover your desired income.

For example do you have spouse /kids ? morgtgage or rent? will you have paid mortage off by retirement? Have a look at the "number" thread - there is no obvious average retirement income, and a mathematical average may not meet your needs.

Thanks Alan, I think I've got what I need already to get a feel for income levels in retirement and the commitment it'll take - so really you answered my question I had "should I be on a riskier approach" 

Malthusian

Everythingbysea said:

2) I would put 50% in a more adventurous approach only but I don't think I can do that on the the management fee I currently pay. Worth paying a bigger fee to do so?

Are you sure about that? It would be a strange charging structure that charged you extra for having two funds or "approaches" instead of one.

The Adventurous fund might have a slightly higher charge than the Balanced fund but the difference should be marginal. Especially for a workplace pension which would have its charges capped by law.

(You would expect higher charges for a fund investing in exotic and illiquid assets but an "adventurous" fund isn't one of those; it is likely to invest in largely the same things as the Balanced approach with a different split between bonds and equities.)

Everythingbysea

Malthusian said:

Everythingbysea said:

2) I would put 50% in a more adventurous approach only but I don't think I can do that on the the management fee I currently pay. Worth paying a bigger fee to do so?

Are you sure about that? It would be a strange charging structure that charged you extra for having two funds or "approaches" instead of one.

The Adventurous fund might have a slightly higher charge than the Balanced fund but the difference should be marginal. Especially for a workplace pension which would have its charges capped by law.

(You would expect higher charges for a fund investing in exotic and illiquid assets but an "adventurous" fund isn't one of those; it is likely to invest in largely the same things as the Balanced approach with a different split between bonds and equities.)

I'm pretty sure this is what I was told on the phone a while back, and the online portal certainly won't let me assign a percentage of my fund to one risk approach, and the rest to another. Will double check though if that sounds unusual.

TVAS

Average
Why cant people state the facts.  State what age you would like to retire as there is no such thing as an average age. There is the State Pension Age (SPA) yours will probably be 70. There is the minimum pension age which is 10 years before the SPA when you can take benefits from personal pension schemes. Lastly, there is the age you want to retire and your retirement plans should be directed to the age you actually want to retire and by this I mean stop working.

Average Salary
£38,600 as per Office of National Statistics (ONS)
 
Attitude to Risk
You are talking about risk and in particular you are talking about taking high risk.

Years ago I worked for E&Y they said only exceptional customers can take high risk. An exceptional customer is someone who earns well above average a minimum of 100k, is degree educated, in a professional job, lawyer, financial controller, director or has his or her own business such as a a chain of something not just one bricks and mortar shop.

There is also a wide belief which I subscribe to that the younger one is the more risk one can take because one has the time to ride out market volatility. 

The question you have to ask yourself is are you a risk taker. It is okay talking about high risk in theory. It is another matter when you see your fund halve in value due to a financial event. Those who then transfer to cash are not risk takers and by doing so they have crystallised their losses. Those who remain in the fund are risk takers and are psychologically prepared for severe market downturns.  

You have a 30 year time span so you can take risk and I echo the others that an adventurous fund via a workplace pension should not have higher fund charges. Good luck.

Everythingbysea

TVAS said:

Average
Why cant people state the facts.  State what age you would like to retire as there is no such thing as an average age. There is the State Pension Age (SPA) yours will probably be 70. There is the minimum pension age which is 10 years before the SPA when you can take benefits from personal pension schemes. Lastly, there is the age you want to retire and your retirement plans should be directed to the age you actually want to retire and by this I mean stop working.

Average Salary
£38,600 as per Office of National Statistics (ONS)
 
Attitude to Risk
You are talking about risk and in particular you are talking about taking high risk.

Years ago I worked for E&Y they said only exceptional customers can take high risk. An exceptional customer is someone who earns well above average a minimum of 100k, is degree educated, in a professional job, lawyer, financial controller, director or has his or her own business such as a a chain of something not just one bricks and mortar shop.

There is also a wide belief which I subscribe to that the younger one is the more risk one can take because one has the time to ride out market volatility. 

The question you have to ask yourself is are you a risk taker. It is okay talking about high risk in theory. It is another matter when you see your fund halve in value due to a financial event. Those who then transfer to cash are not risk takers and by doing so they have crystallised their losses. Those who remain in the fund are risk takers and are psychologically prepared for severe market downturns.  

You have a 30 year time span so you can take risk and I echo the others that an adventurous fund via a workplace pension should not have higher fund charges. Good luck.

Thanks for the repsonse. To be honest I didn't think detail would help much as I presumed there's a fairly common rule of thumb like;
All things equal - the majority of under 50's go adventurous. The majority of over 50's go balanced.

Also, it's not that the website won't let me go 'adventurous' - it's that it won't let me split my pension pot in two and have half 'balanced' and half 'adventurous' to mitigate some risk. It has to be all balanced or all adventurous it seems.

Albermarle

Everythingbysea said:

Malthusian said:

Everythingbysea said:

2) I would put 50% in a more adventurous approach only but I don't think I can do that on the the management fee I currently pay. Worth paying a bigger fee to do so?

Are you sure about that? It would be a strange charging structure that charged you extra for having two funds or "approaches" instead of one.

The Adventurous fund might have a slightly higher charge than the Balanced fund but the difference should be marginal. Especially for a workplace pension which would have its charges capped by law.

(You would expect higher charges for a fund investing in exotic and illiquid assets but an "adventurous" fund isn't one of those; it is likely to invest in largely the same things as the Balanced approach with a different split between bonds and equities.)

I'm pretty sure this is what I was told on the phone a while back, and the online portal certainly won't let me assign a percentage of my fund to one risk approach, and the rest to another. Will double check though if that sounds unusual.

Might be worth telling us who the provider is .
All things equal - the majority of under 50's go adventurous. The majority of over 50's go balanced.
The majority at any age class them selves normally as medium risk , or even risk averse. Most pension investors have their money in a medium risk default fund anyway due to inaction/lack of knowledge.
Investors who are better informed and more aware of what risk means in a long term context would be more likely to go for a higher risk strategy at a younger age . However even there , as pointed out , they can still panic when their investments drop 40% .

Thrugelmir

Everythingbysea said:

TVAS said:

Average
Why cant people state the facts.  State what age you would like to retire as there is no such thing as an average age. There is the State Pension Age (SPA) yours will probably be 70. There is the minimum pension age which is 10 years before the SPA when you can take benefits from personal pension schemes. Lastly, there is the age you want to retire and your retirement plans should be directed to the age you actually want to retire and by this I mean stop working.

Average Salary
£38,600 as per Office of National Statistics (ONS)
 
Attitude to Risk
You are talking about risk and in particular you are talking about taking high risk.

Years ago I worked for E&Y they said only exceptional customers can take high risk. An exceptional customer is someone who earns well above average a minimum of 100k, is degree educated, in a professional job, lawyer, financial controller, director or has his or her own business such as a a chain of something not just one bricks and mortar shop.

There is also a wide belief which I subscribe to that the younger one is the more risk one can take because one has the time to ride out market volatility. 

The question you have to ask yourself is are you a risk taker. It is okay talking about high risk in theory. It is another matter when you see your fund halve in value due to a financial event. Those who then transfer to cash are not risk takers and by doing so they have crystallised their losses. Those who remain in the fund are risk takers and are psychologically prepared for severe market downturns.  

You have a 30 year time span so you can take risk and I echo the others that an adventurous fund via a workplace pension should not have higher fund charges. Good luck.

Also, it's not that the website won't let me go 'adventurous' - it's that it won't let me split my pension pot in two and have half 'balanced' and half 'adventurous' to mitigate some risk. It has to be all balanced or all adventurous it seems.

What are you trying to achieve by creating a hybrid portfolio?  Risk is priced for good reason. 

green_man

In my opinion I would at the minimum put all your new monthly payments into the Adventurous fund until 5-10 years before you retire (and possibly longer depending on how you intend taking your pension [annuity/drawdown etc]).   

Whether you actually move all your current balanced fund into the Adventurous is a separate (but related) question.  This may depend on your view of current market levels and whether you think you can wait for a crash before making the switch.

Everythingbysea

green_man said:

In my opinion I would at the minimum put all your new monthly payments into the Adventurous fund until 5-10 years before you retire (and possibly longer depending on how you intend taking your pension [annuity/drawdown etc]).   

Whether you actually move all your current balanced fund into the Adventurous is a separate (but related) question.  This may depend on your view of current market levels and whether you think you can wait for a crash before making the switch.

Thank you, that's a good suggestion. If I can - I think i'll make all new payments go into an  adventurous approach from now on essentially banking what I've built up already. I'll monitor how things go (my emotional state when things become volatile).

Thanks to everyone that's commented!