SIPP Transfer Strategy

[Deleted User]

1. Minimize time out of the market. Reinvest as soon as the money becomes available.  On average the market goes up, so the longer you stay out of the market, the lower your probability weighted net worth.  

2. Do not try to time the market.  Valuations depend on future interest rates and profits. Unless you know the future, you have no idea if the valuations are high or low. Timing is a recipe for staying out of the market way too long. See point 1.

3.  To me, VLS60 is low risk compared to something like VLS20.  The latter is very likely to return a loss in real terms by the time you want to retire.  And its going to be less turbulent with faster recoveries than something like VLS 80. So not a bad choice for a conservative investor of your age. 

Steve182

shortseller09 said:

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. 

That's a very broad brush remark concerning equities being overvalued. Certainly true of most US equities, but not all countries or sectors fall into that category.

I own shares in plenty of companies with forward P/E's of around 4

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Edited to add that Amazon's forward P/E is currently at an all time low.

Thrugelmir

Deleted_User said:

Valuations depend on future interest rates and profits. Unless you know the future, you have no idea if the valuations are high or low. 

At a macro level. Profit can only be generated from an increase in revenue or income. Global GDP therefore places a lid on companies ability to expand their empires. The cake is only so big. 

barnstar2077

I would definitely invest straight away.  If you google it you can find studies that prove it to be on average the best strategy.  As was said above, the prices tend to drift up, otherwise why would we all invest in the first place? 

With a fifteen year window a globally diversified fund of 100% equities would give you on average the better outcome.  You have the ability to reduce the volatility whenever you choose, so why not just pick a time, eight to twelve years etc from now to de-risk when it looks good.  I know you say you are risk averse, but sometimes we just have to do things that make us uncomfortable for a better outcome long term.  Like going to the dentist, or taking a roof off in order to replace it. 

Joey_Soap

barnstar2077 said:

I would definitely invest straight away.  If you google it you can find studies that prove it to be on average the best strategy.  As was said above, the prices tend to drift up, otherwise why would we all invest in the first place? 

With a fifteen year window a globally diversified fund of 100% equities would give you on average the better outcome.  You have the ability to reduce the volatility whenever you choose, so why not just pick a time, eight to twelve years etc from now to de-risk when it looks good.  I know you say you are risk averse, but sometimes we just have to do things that make us uncomfortable for a better outcome long term.  Like going to the dentist, or taking a roof off in order to replace it. 

Absolutely correct. The biggest risk I see here is the OP not being 100% invested in the very class of asset that is going to provide the bulk of investment returns in the next 15 years. That is a very large risk. OP needs to be fully invested in the global stock market(s). Anything less is at a big risk of not generating enough return on investment.

Secondly, someone mentioned "irrational exuberance", where exactly is that today? Some stocks are expensive. Most are not, on a long term view. But that's just how the market functions.

Hope that helps.

[Deleted User]

While I generally agree that stocks are a less risky investment over long periods, outperformance over 15 years isn’t guaranteed. Its vitally important that an investor is comfortable and won’t jump as the shares crash, as they will. And as we are approaching retirement, sequence risk becomes an issue.  I don’t see anything fundamentally wrong with a balanced portfolio. 

Joey_Soap

Deleted_User said:

While I generally agree that stocks are a less risky investment over long periods, outperformance over 15 years isn’t guaranteed. Its vitally important that an investor is comfortable and won’t jump as the shares crash, as they will. And as we are approaching retirement, sequence risk becomes an issue.  I don’t see anything fundamentally wrong with a balanced portfolio. 

There are no guarantees. Indeed 15 years isn't long enough. But it is what it is. Since the OP cannot contribute more, (already at £40k a year) if he/she doesn't go full out now with 100% equities, OP is quite likely to have to work longer on a 60% equity portfolio SIPP. On a 100% equity SIPP, OP might be surprised and be able to quit work earlier than planned, I would suggest.

I am now fully retired and have no intention to be less than 100% equity invested.

Thrugelmir

barnstar2077 said:

With a fifteen year window a globally diversified fund of 100% equities would give you on average the better outcome.  

10 years ago it was a 60/40 portfolio that dominated. In 2030 there'll be a new topic of conversation. 

barnstar2077

Thrugelmir said:

barnstar2077 said:

With a fifteen year window a globally diversified fund of 100% equities would give you on average the better outcome.  

10 years ago it was a 60/40 portfolio that dominated. In 2030 there'll be a new topic of conversation. 

Was that 60/40 portfolio just the latest trend, or was it backed up by the numbers like the current thinking?

Thrugelmir

barnstar2077 said:

Thrugelmir said:

barnstar2077 said:

With a fifteen year window a globally diversified fund of 100% equities would give you on average the better outcome.  

10 years ago it was a 60/40 portfolio that dominated. In 2030 there'll be a new topic of conversation. 

Was that 60/40 portfolio just the latest trend, or was it backed up by the numbers like the current thinking?

Once trends become mainstream then returns diminish. Better returns are then to be found elsewhere. 

Conversation naturally gravitates to the best performing sectors in recent memory.