Is passive for pensions & active for S&S ISA a sensible approach? Also please review my plans.

traveladdict241

deltrotter said:

What's your edge in choosing the active component?
Do you know something others don't?
Will the funds you have chose always outperform the passive (if indeed they ever do)?
What is your criteria for culling/changing your active funds? Is it that they underperform for a set period of time?
If yes, what do you swap to? Is it a fund that has outperformed for a set period of time?
If yes, will it continue to do so?
And so the merry go-round continues...
Why not take a look at some of the evidence of how many active funds outperform the market over X number of years?
I love the way you have got such a handle on your finances at such an age. If it were me, and this is no advice, I'd be 100% global tracker.
Go to a compound interest calculator type in the amount you can invest, give it a 5% interest/compound for 25 years and then ask yourself if you would be happy with that figure...
Note: I say 5% as a relatively conservative figure for after inflation returns on a global tracker.
If you are NOT happy with that then go to Line 1 above!
All IMHO
Del

Thanks Del, I've put some of the thought process in the above post. But I don't think I have an edge, I hope I'm investing wisely in people that do that have shown consistent performance and invest based on a winning formula based on their many years of experience. It's been interesting listening to the Rathbone manger (who has his own wealth in the fund) talk about the mistakes he's made and how he's altered the fund makeup based on these experiences. I don't see what I've picked as just index huggers and each fund has different attributes I'm hoping complement each other.

Another reason I like the idea of active, and I don't think I've mentioned this, is I would take comfort when things start going badly in the markets that I have smart teams of people reacting accordingly and defensively with my invested money. Something that matters less with a 30y timeframe of the pension against a much shorter one for the ISAs. And again they could potentially see the signs of impending doom sooner and react accordingly. Things you maybe don't get when you simply 'own the market' at all times. I know I'm making a ton of assumptions that these are smart people making smart decisions.

I think if I go with these 4 actively manged funds I'll hold them for 5y regardless and pay in the same amount each month regardless, and see where we end up. Perhaps rebalance but again perhaps not - if I have picked them assuming growth in a volatile market how do I know when that best growth will come for each one, it could be in year 5. Buy and hold and reassess against my benchmark after 5 years, perhaps change the funds then. Easy to say this as an inexperienced investor yet to see a massive crash.

And yes I'd be very happy to see 5% growth, if that were to be the case I could pay off my mortgage in 10 years and still have £82k left over!

traveladdict241

hoc said:

If doing one active and one passive, logically before retirement it should be the other way. S&S has the flexibility of access at any time. Passive with less volatility is more suitable for any time access.

Interesting point although the four I've picked have slightly lower 5y volaility when combined versus the passive HSBC/Vanguard funds. Although I suspect it may be the other way round if it weren't for covid and it's dip/recovery. I guess I look at it differently, perhaps wrongly, that I go 'safe' with the pensions as it's our future to protect and it's long term.

JohnWinder

traveladdict241 said:

Having given it further thought I think I would be more annoyed if the four funds I've chosen outperformed the HSBC/Vanguard FTSE Global All Cap over 5 years and I hadn't gone for them, than if they underperformed say by a couple of % -....
I appreciate I'm saying here I hear what you are saying and am going to ignore it

Thanks for troubling to reply in detail. No need for concern about not adopting my ideas. What's important is that you get as much useful information as possible, then take your own informed path not mine. I only hope to avoid someone going blindly or half-sighted somewhere.

I'll regret if your active choices do their jobs, having not followed your ideas myself. Regret is inevitable in investing, since there's always something different one could have done to get better results. The trick is to have a way of responding to the regret which isn't destructive to you, like panic selling in a crash or hopping on the last decade's hot trend as it collapses. Mine is 'at least I got market returns, my fair share for investing', and it settles the demon regret. It seems like you've got your regret strategy sorted out, so you're in a good place.

deltrotter

Best of luck chasing the dragon traveladdict241!

AlanP_2

Fund choices are all reasonable in my view, nothing there I wouldn't hold if it came to it.

Personally I would add more to pension and less to ISA and gain the tax benefit if, as you say, the ISA funds aren't for anything in particular anyway. Not totally as you still need to live for today.

Also, I would suggest S&S LISAs for both of you, £4k a year topped up by Rishi to £5k and tax free at 60 so same uplift as pension for BR tax but no tax on the way out.

As for how to split them between Pension and ISA - Higher (hoped for) returning funds in ISA and Safer (expected) funds in Pension is my take as why would I want £500k taxable in pension and £200k non taxable in ISA if I could try and get them the other way round? Numbers are totally made up but hopefully illustrate the point.

We are in our early 60s and about to start drawing on some of our investments so we will arrange it as best we can to get funds and ITs with a higher proportion of Bonds assets in the pension choices and much higher equity content in the ISA choices whilst maintaining the overall ratio we are aiming for.

bostonerimus

Thrugelmir said:

deltrotter said:

I love the way you have got such a handle on your finances at such an age. If it were me, and this is no advice, I'd be 100% global tracker.
Go to a compound interest calculator type in the amount you can invest, give it a 5% interest/compound for 25 years and then ask yourself if you would be happy with that figure...
Note: I say 5% as a relatively conservative figure for after inflation returns on a global tracker.

I never knew investing was so easy. 

Investing can be as simple or as complicated as you want to make it. I chose to keep things simple. While I don't endorse 100% allocation to a global tracker in most circumstances, I do agree with the basic point that the post is making; investing can be simple, but not necessarily easy because it requires discipline. A few broad tracker funds or a multi-asset fund will provide an adequate portfolio for most people that will need very little management. Then let time do it's thing. You won't make the most money possible, but you won't make the least either, you'll probably be in the middle of the pack. 

traveladdict241

AlanP_2 said:

Fund choices are all reasonable in my view, nothing there I wouldn't hold if it came to it.

Personally I would add more to pension and less to ISA and gain the tax benefit if, as you say, the ISA funds aren't for anything in particular anyway. Not totally as you still need to live for today.

Also, I would suggest S&S LISAs for both of you, £4k a year topped up by Rishi to £5k and tax free at 60 so same uplift as pension for BR tax but no tax on the way out.

As for how to split them between Pension and ISA - Higher (hoped for) returning funds in ISA and Safer (expected) funds in Pension is my take as why would I want £500k taxable in pension and £200k non taxable in ISA if I could try and get them the other way round? Numbers are totally made up but hopefully illustrate the point.

We are in our early 60s and about to start drawing on some of our investments so we will arrange it as best we can to get funds and ITs with a higher proportion of Bonds assets in the pension choices and much higher equity content in the ISA choices whilst maintaining the overall ratio we are aiming for.

Good luck to you as you start drawing down and reaping the benefits you've built up, sounds like you know what you are doing anyway.

I did consider a LISA but as I can salary sacrifice to contribute to pension the NI savings seems to make it more attractive for now and as I'm just starting out I'm obviously miles away from hitting pensions lifetime allowance. It was hard to pick a ratio of pension to ISA but settled on all higher rate pay into pension, figuring I may have a need for the ISA savings I don't yet know.

bostonerimus

AlanP_2 said:

As for how to split them between Pension and ISA - Higher (hoped for) returning funds in ISA and Safer (expected) funds in Pension is my take as why would I want £500k taxable in pension and £200k non taxable in ISA if I could try and get them the other way round? Numbers are totally made up but hopefully illustrate the point.

Well you'd have to see if deferring tax on the pension investments and then paying income tax on the way out is better or worse than paying tax at your marginal rate first and then having the investments tax free. This will depend on your marginal tax rate through time. In many cases the deferring of tax works out to be the better strategy.

bluefukurou

bostonerimus said:

Thrugelmir said:

deltrotter said:

I love the way you have got such a handle on your finances at such an age. If it were me, and this is no advice, I'd be 100% global tracker.
Go to a compound interest calculator type in the amount you can invest, give it a 5% interest/compound for 25 years and then ask yourself if you would be happy with that figure...
Note: I say 5% as a relatively conservative figure for after inflation returns on a global tracker.

I never knew investing was so easy. 

Investing can be as simple or as complicated as you want to make it. I chose to keep things simple. While I don't endorse 100% allocation to a global tracker in most circumstances, I do agree with the basic point that the post is making; investing can be simple, but not necessarily easy because it requires discipline. A few broad tracker funds or a multi-asset fund will provide an adequate portfolio for most people that will need very little management. Then let time do it's thing. You won't make the most money possible, but you won't make the least either, you'll probably be in the middle of the pack. 

Good post. Get the discipline aspect right, which basically means not selling when markets drop, and be sure to minimise fees. Do that over the long term and it's more likely that you'll be nearer the front of the pack. The recent thread about Baillie Gifford American is a classic example of why so many retail investors harm their own cause by chopping and changing based on past performance. 

Thrugelmir

bostonerimus said:

Thrugelmir said:

deltrotter said:

I love the way you have got such a handle on your finances at such an age. If it were me, and this is no advice, I'd be 100% global tracker.
Go to a compound interest calculator type in the amount you can invest, give it a 5% interest/compound for 25 years and then ask yourself if you would be happy with that figure...
Note: I say 5% as a relatively conservative figure for after inflation returns on a global tracker.

I never knew investing was so easy. 

Investing can be as simple or as complicated as you want to make it.

I'll rephrase my observation. I never knew making money was so easy.  Gamification of investing in the past year or so hasn't been healthy. My gut instinct is that there'll only be one outcome for many.