Could you please look at my investment plan for the forthcoming financial year and provide feedback

stevieg

Looking for some advice on my plans if anyone is willing to have a look. 

My wife and I are both 33 and in full time employment. We have £231k left on our mortgage fixed at 1.69% for the next 5 years. The house is worth £330k so 70% LTV and I expect we will be around 60% LTV bracket at the end of the 5 year fix.

I have no short term or long term financial goals with no upcoming planned expenditure, children might come along in the next few years however. We are very happy in our house so won't be looking to upgrade this, possibly ever.

We are both higher rate tax payers and salary sacrifice the higher rate element into our pensions so our take home pay is taxed only at standard rate.

My original plan was to overpay our mortgage but having read up about the wonders of compound interest am now thinking S&S ISA is the way to go. We have a modest emergency fund built up having survived without one up until now! And no other debt other than the mortgage.

I feel putting £24k into our pensions and £24k into S&S ISAs gives a good balance. I expect to not touch the ISAs for 5 or 10y but assuming mortgage rates don't jump dramatically I'd probably keep this money invested and let the mortgage run itself down. My plan is to put £24k into S&S ISA per year for the next 5Y at least, drip fed at £2k per month. I believe this is achievable whilst still allowing us to maintain our current lifestyle.

I am probably 7/10 and my wife 6/10 in terms of risk tolerance. I'm confident I won't panic if I see a market drop and happy to keep buying in while prices are low. Aiming between 70-80% equities in a globally diverse portfolio is what I'm thinking.

For the ISAs Baillie Gifford Managed, Liontrust Sustainable Future Managed and Royal London Sustainable World Trust have performed well over many years so and seem to fit my risk/diversification needs. For balance I also like the look of HSBC Global Strategy Balanced Portfolio as a less risky option to make up 25% of our investment (and also brings up our proportion of Asian shares and down our UK percentage too).

For the pension I have to invest in the People's Pension B&CE GI (up to 85% shares) to get the employer contribution, but have opened a SIPP for the other part of the salary sacrifice. 

My wife's workplace pension is with Aviva and it's been 100% My Future Growth but I thought of making this 50% and she can invest in the Liontrust Sustainable/Baillie Gifford Managed via this platform so thought 25% each. The Aviva pension fund has done ok historically and is a passive fund with low fees, but I thought we could go a bit riskier with the other 50% to try and seek higher returns over 25y+.

Could you please have a look at my plans and provide any advice/feedback. I have considered passive investing eg via vanguard but am happy to pay a little extra fees for managed funds and a chance to perform a bit better, and the funds I've picked seemed to have done very well over a long period.

A summary of my plans can be found here:

https://imgur.com/a/ZWwAdGW

Links to our funds:

https://www.trustnet.com/factsheets/o/bg79/baillie-gifford-managed

https://www.trustnet.com/factsheets/o/i5wq/liontrust-sustainable-future-managed-6-acc

https://www.trustnet.com/factsheets/o/gvwj/royal-london-sustainable-world-trust-c-acc

https://www.trustnet.com/factsheets/o/g1hd/hsbc-global-strategy-balanced-portfolio

https://www.trustnet.com/factsheets/p/kovu/bce-the-peoples-pension-global-investments-up-to-85-shares-0.5-pn

https://www.trustnet.com/factsheets/p/i6zf/av-mym-my-future-growth-pn

Thank you!

stevieg

Can anyone provide any advice, in particular thoughts on the funds selected. Thank you.

underground99

...my wife 6/10 in terms of risk tolerance...

My wife's workplace pension is with Aviva and it's been 100% My Future Growth but I thought of making this 50% and she can invest in the Liontrust Sustainable/Baillie Gifford Managed via this platform so thought 25% each. The Aviva pension fund has done ok historically and is a passive fund with low fees, but I thought we could go a bit riskier with the other 50% to try and seek higher returns over 25y+.

So, "well, my wife is only 6/10 on the risk scale but I thought, screw that, she could make more money over the long term if we forget the passive low fee mixed asset fund she has, and invest a quarter of it in the Baillie Gifford fund that I like which is 76% equities and aggressively chases high- growth companies, and I'll put another quarter of her money into a 100% equity fund which focuses on currently-trendy 'sustainability' criteria".

am happy to pay a little extra fees for managed funds and a chance to perform a bit better, and the funds I've picked seemed to have done very well over a long period.

"I've considered simply using low cost index tracking funds for efficiency, but frankly if I could have just gone back in time and picked whatever ended up going up the most in a long period ending recently, I would have got a better result. So I think I should pick those funds now on the assumption that they'll also be the best thing going forwards."

stevieg

underground99 said:

...my wife 6/10 in terms of risk tolerance...

My wife's workplace pension is with Aviva and it's been 100% My Future Growth but I thought of making this 50% and she can invest in the Liontrust Sustainable/Baillie Gifford Managed via this platform so thought 25% each. The Aviva pension fund has done ok historically and is a passive fund with low fees, but I thought we could go a bit riskier with the other 50% to try and seek higher returns over 25y+.

So, "well, my wife is only 6/10 on the risk scale but I thought, screw that, she could make more money over the long term if we forget the passive low fee mixed asset fund she has, and invest a quarter of it in the Baillie Gifford fund that I like which is 76% equities and aggressively chases high- growth companies, and I'll put another quarter of her money into a 100% equity fund which focuses on currently-trendy 'sustainability' criteria".

am happy to pay a little extra fees for managed funds and a chance to perform a bit better, and the funds I've picked seemed to have done very well over a long period.

"I've considered simply using low cost index tracking funds for efficiency, but frankly if I could have just gone back in time and picked whatever ended up going up the most in a long period ending recently, I would have got a better result. So I think I should pick those funds now on the assumption that they'll also be the best thing going forwards."

Bit of a needlessly hostile post devoid of constructive advice.
Trustnet has the risk of her pension at 60, 25% of the other 2 funds brings the average to 63.25 - so not exactly the huge jump up in risk you describe. Her aviva pension is actually higher in equities than the other two at 80% but less risky as more spread I would imagine. You are incorrect about the "trendy" Liontrust fund it is actually 75% equities too.

Baillie Gifford Managed B Acc	67.00
Liontrust Sustainable Future Managed 6 Acc	66.00
Av MyM My Future Growth	60.00
	63.25

My thinking behind it is that it's less risky really than having all her eggs in one basket, also from a fca perspective should there be a lehman brothers collapse for example.
And I take your point about selecting those funds. However they have been selected on the basis of being amongst the best perfroming IA 40-85% funds and going back many years, and the fees don't see excessive either. But open to alternative suggestions that was kind of the point of the post.
Perhaps be a little less hostile in future, some of us are only starting out and trying to learn.

TheAble

You're probably getting a bit too bogged down in the nitty gritty. Investing a good chunk of change in low cost index trackers over the long term, you'll do just fine.

Thrugelmir

stevieg said:

For the ISAs Baillie Gifford Managed, Liontrust Sustainable Future Managed and Royal London Sustainable World Trust have performed well over many years so and seem to fit my risk/diversification needs. 

How many years is "many" ?  

stevieg

Thrugelmir said:

stevieg said:

For the ISAs Baillie Gifford Managed, Liontrust Sustainable Future Managed and Royal London Sustainable World Trust have performed well over many years so and seem to fit my risk/diversification needs. 

How many years is "many" ?  

First two since 2000, royal london since 2010 by the looks of this history?
 https://citywire.co.uk/funds-insider/fund/baillie-gifford-managed-fund/c8087
https://citywire.co.uk/funds-insider/fund/liontrust-sustainable-future-managed-fd/c63054
https://citywire.co.uk/funds-insider/fund/royal-london-sustainable-world-trust/c249799
This article I found from 2019 was encouraging too 
https://www.trustnet.com/News/2277095/the-most-consistent-ia-mixed-investment-40-85-shares-funds-of-the-decade

underground99

stevieg said:
You are incorrect about the "trendy" Liontrust fund it is actually 75% equities too.

Apologies, I had mixed the name 'my future growth' with 'liontrust sustainable future managed' to come up with 'liontrust sustainable future managed growth', which is their 80-100% equity product rather than the 60-85% equity product you meant.

Still, picking a fund that has doubled over five years does not really sound like only six out of ten on the risk scale - and if you're picking it with the hindsight of seeing it sit in the top few fund performers ahead of most of the hundreds in its "40-85% equity" sector, be aware that the sector is very broad - encompasses funds which might only be using 45% equity while yours may have been 75-85% for all of the period. It's above average risk for the ABI sector it's in, so above average performance in good markets is to be demanded.

The Baillie Gifford managed fund is a decent one by all accounts and I use it in my workplace pension via SW. They hope for their outperformance to come entirely from stockpicking rather than asset allocation and have been particularly successful over recent years which favoured the 'growth' equities that their house style favours.

If you look at the chart for the last three years they were more volatile than the broader market for the first two years and gave back all the ~20% gains they'd made when covid hit; but then from the bottom week last March, they put on 60% in a year - so their performance for the last three years is about 60%. Not something you'd expect to get every three years, and it's down over the last 3 months while the overall sector average is up . And so although they have a solid long term performance record, it may be a bumpy ride.

My thinking behind it is that it's less risky really than having all her eggs in one basket, also from a fca perspective should there be a lehman brothers collapse for example

If this is her workplace pension, investing in an Aviva-managed pension product, isn't it 100% covered by FSCS like most insured pension schemes? If so, in the event of a 'lehman brothers collapse' it might have been counterproductive to extract the money from that secure place and invest via a SIPP into the OEIC funds you linked at trustnet.

Of course, FCA / FSCS don't insure general market risk, it is only a safety net in the case of specific failings.

stevieg said:

Perhaps be a little less hostile in future, some of us are only starting out and trying to learn.

Point taken.

It's not uncommon here to see people chase higher levels of volatility because they have seen attractive returns on a product which doesn't dampen the risk as much and gave great results in the good times. 

On the whole, people using investment forums probably have higher than average risk preferences, as they have more understanding about what might happen and how ups and downs don't really matter over the long term as long as you get to a decent place to be able to start accessing the pension in thirty years or whatever. In terms of getting a good outcome in a pension, 100% equities in your early thirties may well be fine, as long as you are not going to look at it and see those occasional 30-50% drops and be scared off.

However, when you are planning for people other than yourself, some extra caution might be warranted. For example, here you mention your wife has a lower risk preference than you and I guess that as you're the one with the forum account, she may not have much interest in investment concepts. If you take her out of the default fund because *you* don't mind extra risk, remember it will be *her* receiving the reports showing that even after contributing extra money in the year she may be in a position from time to time where the balance has fallen a lot.  

So " I thought we could go a bit riskier with the other 50%..." is the kind of thing that can cause friction in a relationship. When challenged about why these new funds have fallen further than her old ones, she may not want to hear: "please understand they are supposed to do that, it's part of making more money in the end, but please cut me some slack because I'm only starting out and trying to learn."

For the best overall result, you should take a holistic view of the family finances and not consider one element of the portfolio as being a completely independent piece from the others. But if you know your wife has a lower risk tolerance than you do, perhaps do more of the 'trying to learn' stuff with your own holdings while keeping the stuff in her name a bit more cautious.

You mention

For the pension I have to invest in the People's Pension B&CE GI (up to 85% shares) to get the employer contribution, but have opened a SIPP for the other part of the salary sacrifice

Note that 'salary sacrifice' is a specific term for where you agree to have your headline salary reduced by your employer, as a sacrifice or exchange for them to give you more employer pension contributions. It's a very efficient method as your lower salary in your payslip saves national insurance in addition to tax, so particularly on the part of your income below £50k where NI rates are high, it can give you a great boost to the contributions.

It's very unusual that you can sacrifice part of your headline salary into the employer's agreed scheme for some minimum level of matching and then have them contribute more money from 'the other part of the salary sacrifice' into a private SIPP arrangement.  So, I wonder whether the extra contributions you're making will really be done on a 'salary sacrifice' basis, or if you just have the wrong terminology. If a salary sacrifice contribution method is available but you're not using it, you're perhaps missing a trick.

stevieg

Not sure how you quote bits and not the whole post.

I'm glad you like Baillie Gifford one, from what i've read I like the sound of it, but trying to stay diversified and spread risk around is how I came up with the Liontrust and Royal London which seemed to me similar types of funds - albeit the Royal London seemingly more risky and I'm not as sure about that one tbh.

The Aviva pension being 100% insured I wasn't aware of so will look into this, perhaps changes my thinking a little on this.

Your point about a family approach is bang on, we don't have my money and her money, so by me saying her 6/10 and me 7/10 was to try and say our overall strategy is aimed for about 6.5/10. With lower risk on the ISA money as we could need that in 10y for unforeseen reasons (hence the HSCB Balanced fund to balance out riskier other three), but happy to take on a bit more risk for the long term pension knowing we won't need it for at least another 22y min. Whose name each investment is in is an irrelevance as long as we are agreed on the overall strategy at a suitable level of risk. I'm pretty confident I can ride out volatility and be happy I'm then still buying in while the price is low and it should bounce back - yet I've never encountered this scenario so who knows how I'd react. With regards to the 6.5 I'm aiming for I'm not sure if I'm reading too much into the trustnet risk ratings, I know they aren't out of 100, but I thought at least it's something to base decisions on - "FE fundinfo Risk Scores define risk as a measure of volatility relative to the UK Leading 100 shares, which has a risk rating of 100, and rebased to sterling. Instruments more volatile than the UK Leading 100 shares have a score above 100 and vice versa giving a reliable indication of relative risk." Whilst I am chasing higher level of risk as you say I wasn't thinking the overall strategy was too risky. When I talk to people who are into investing they tend to say 100% equities at my age but I don't think that fits our profile, which is why I was aiming for about 75% equities/bonds for example.

My own definitely will be salary sacrifice directly into a SIPP and I'm aware it's unusual, the People's Pension has a limited range of investment options which is why I've done this.

Albermarle

Not sure how you quote bits and not the whole post.

Just cut & paste 

Thrugelmir

stevieg said:

When I talk to people who are into investing they tend to say 100% equities at my age but I don't think that fits our profile, which is why I was aiming for about 75% equities/bonds for example.

Equities come in many forms. Those that simply opt for a 100% allocation may not understand the actual risk that they are exposed to. Likewise "bonds" aren't just Government stocks. Diversification is key to any portfolio. Simply taking a higher level of  risk doesn't guarantee a better long term return. 

Most investment discussion relates to the past. Unfortunately hindsight isn't always the best guidance for the future.