SIPP Transfer Strategy

Spoony1908

Thanks to the comments and advice on here I have decided to take the leap to move my old pension to a SIPP and invest in VLS60 (I want utter simplicity, have a fairly low risk tolerance and am looking at ~15years before possible early retirement).

ii is likely my platform of choice due to the set fees and free trade each month and I will likely move my Charles Stanley ISA of £40k there next April .

I'll be transferring ~£400k and this will be converted to cash upon transfer. Moving forwards I will be contributing ~£40k pa in monthly installments.

I'm mildly aware of £ cost averaging and so I am wondering what the best approach with the £400k is.   Should I attempt to 'time' when I buy, buy in chunks or am I overcomplicating things and I do a bulk buy as soon as the money lands in the sipp account?

HappyHarry

As the money is already invested, there is little sense in delaying a re-investment.

The question, asked another way, is "should I take my investments out of the market for a few months?" Most people would answer with a resounding "No".

Albermarle

Moving forwards I will be contributing ~£40k pa in monthly instalments.

Presumably you mean £40K gross ( including the added tax relief ) and that you earn at least £40K of taxable income each tax year ?

dunstonh

and invest in VLS60 (I want utter simplicity, have a fairly low risk tolerance and am looking at ~15years before possible early retirement

VLS60 is not consistent with someone who says they have a fairly low risk tolerance.    One persons low risk is another persons high risk. So, it could be that your wording is unclear but generically, saying low risk would mean VLS60 would not be suitable.

I'm mildly aware of £ cost averaging and so I am wondering what the best approach with the £400k is. 

In which case, you would know that in around 80% of timescales, pound cost averaging results in lower returns over that period.

shortseller09

Current equity valuations are overvalued by almost every metric, so I would definitely break the lump into periodic contributions. The bubble could continue to inflate for years, and could cost you some gains, but pound cost averaging at this point of the 'irrational exuberance' makes sense, especially if you have a low risk profile. 

Secret2ndAccount

Since you have the money, the best way to go is to invest it all at once. That's true on average. There are two reasons for pound-cost-averaging:
1. It's for people who don't have the money ready to invest. They pay in a portion of their salary every month as they earn it. They naturally average their way in to the market. If markets are down they are happy because they get more shares for their money this month. If markets are up they can still be happy because the money they already have invested is growing. They don't have the option to invest a lump sum because they haven't earned it yet.
2. For peace of mind, or feelgood factor. To reiterate, in the average case, and in the majority of cases, you are better off investing the entire 400k straight away. However, consider this:
If you put in 40k/month, and the market goes up 1%/month, each month you are wasting £400 for each 40k that isn't invested. That's a lot, but in the scheme of things you can forgive yourself. If you invest the full 400k and, the next day, the market falls 30%, you are down 120k and you feel like a fool.
So you might feel more comfortable averaging in, but it will likely cost you money, and not just pennies. In the above 1%/mth growth scenario it would cost you 20k.
In my view you should get the lot invested as fast as possible. Uninvested funds will rot, earning 0 or 0.5% in a world of 3% inflation.

jamesd

shortseller09 is right about valuations but that's not a reason not to invest. If you want to act on that use Lifestrategy 40 or a mixture of 40 and 60 to get to 50%.

The problem is that there's no way to know when markets will move so the best you can do is shift a bit based on the probabilities - which currently imply lower equity holdings - but stay invested.

The catch for me and you is that it's probabilities and it's entirely possible that regular investing as suggested by shortseller09 will turn out to have been the best choice.

Use your best judgement to make a decision and resist kicking yourself later it it turns out that the markets delivered you the other side of the probability range.

Spoony1908

Albermarle said:

Moving forwards I will be contributing ~£40k pa in monthly instalments.

Presumably you mean £40K gross ( including the added tax relief ) and that you earn at least £40K of taxable income each tax year ?

Yes, apologies for not being clearer, exactly that!

Spoony1908

Thanks once again all, the different perspectives are really helpful and assist me in forming my views.

This one is not clear cut!

Part of me thinks lump sum (on the assumption I'm likely to put another 400k in over 10years , month by month if all goes to plan) bur part of me thinks possibly splitting into 4 transactions over 1-2 weeks .   
I'll ponder and keep an eye on the fluctuations

LHW99

To me, 4 transactions over 1-2 weeks doesn't really seem much different to putting it all in at once.

Spread over 6-12 months, rather than as a lump sum, yes maybe that would be a decision to weigh up.

MX5huggy

Stay invested the best investors are dead investors (ie the ones that do nothing). 1 to 2 weeks will make no difference over your investment horizon. 

Your regular contributions are going to smooth out your purchase cost.

There could be something said for keeping some “dry powder” so you have some funds ready to invest for a fall but your choice of LS60 is already doing this if stocks fall and bonds don’t or rise it will end up moving funds to pickup the cheap stock to maintain the 60/40 ratio.