Another 'feedback on pension fund allocation' please

longwalks1

Saw another poster on here and thought it a great idea.  Hope you don't mind.  How does this spread of funds look, all in my SIPP: (20% in each). Age 44

Fundsmith Equity I ACC

TB Amati UK Smaller Companies B

Vanguard FTSE Dev Wld ex-UK Eq Idx £ Acc

Vanguard Lifestrategy 80% Equity A Acc

VT AJ Bell Moderately Adv I Acc



I have a smaller work DC pot that i contribute to, but just asking about my SIPP diversification (or maybe, lack of) 

ex-pat_scot

What's your overall attitude to risk?
Other investments?
Pot value and level of contributions?
Desired date of retirement/ access to money?

All of these would potentially impact your decision.

I have made the pithy suggestion before that Vanguard LS #is# the investment strategy, not part of the investment strategy.
to me, an ardent passivist, a global diversified low cost tracker is my starting assumption, and the only decision is to the asset allocation across categories ie whether it's LS100, LS80 or LS60 etc.

If I were a 44 year old, with 13 years before minimum access to the funds, then I'd likely be looking at a very heavy equity bias. That would mean VLS100, or VWRL, or similar.  Your current approach is a bit muddled - it's not terribly clear what your investment strategy and approach are, and it would be very difficult to roll this up alongside other investments such as ISA, company pension (if you have a current GPPP) etc to give a combined asset mix/ investment strategy.  The VLS approach is cost effective and hugely simple.

[Deleted User]

Agree with the Scot.  

Nothing is really wrong with your funds. There is good diversification although some major tilts as well (like small UK).  You’ll probably do ok.  But the strategy isn’t apparent and the way you ask the question - without referring to your investment policy principles - sits badly with me.  A clear and transparent policy is useful; it helps to stick with it during major downturns. 

longwalks1

ex-pat_scot said:

What's your overall attitude to risk?
Other investments?
Pot value and level of contributions?
Desired date of retirement/ access to money?

All of these would potentially impact your decision.

I have made the pithy suggestion before that Vanguard LS #is# the investment strategy, not part of the investment strategy.
to me, an ardent passivist, a global diversified low cost tracker is my starting assumption, and the only decision is to the asset allocation across categories ie whether it's LS100, LS80 or LS60 etc.

If I were a 44 year old, with 13 years before minimum access to the funds, then I'd likely be looking at a very heavy equity bias. That would mean VLS100, or VWRL, or similar.  Your current approach is a bit muddled - it's not terribly clear what your investment strategy and approach are, and it would be very difficult to roll this up alongside other investments such as ISA, company pension (if you have a current GPPP) etc to give a combined asset mix/ investment strategy.  The VLS approach is cost effective and hugely simple.

Hi ex pat scot 

Many thanks for your reply.

My attitude to risk, I’d say medium to med-high. On my pension transfer I scored around 5 out of 7 on the various questions. 

My other investments are:

Employer DC pension, £80k value.  Putting in total of about £1,400 a month (combination of mine and employers contributions, and an additional 10% contributions by me). 

2 x ISA’s, both s&s.  Total value £80k. I don’t pay in to either and haven’t done for years. Growing from dividends and range trading a couple of shares I’ve followed for years.

Desired date of retirement is as soon as I’m 57, if not before. In an ideal world, will use my ISA’s to cover 2/3/4 years between stopping work and drawing pension. I am going to look into protected schemes to still be able to draw at 55, I know it was only recently thrashed out in government 

longwalks1

Deleted_User said:

Agree with the Scot.  

Nothing is really wrong with your funds. There is good diversification although some major tilts as well (like small UK).  You’ll probably do ok.  But the strategy isn’t apparent and the way you ask the question - without referring to your investment policy principles - sits badly with me.  A clear and transparent policy is useful; it helps to stick with it during major downturns. 

Thanks Mordko - I’ll be honest with you I don’t have an actual strategy.  I needed to invest the funds following a transfer into the SIPP and selected 5 of the recommended funds or top performers.  Checked previous performance from as far back as the charts went, and some of the funds holdings were similar to those my work DC pension is doing well in. 

Feel a bit stupid for not having an actual strategy, other than looking through the ‘top picks’, ‘favourite funds’ and ‘top performers’ charts 

[Deleted User]

britishboy said:

Deleted_User said:

Agree with the Scot.  

Nothing is really wrong with your funds. There is good diversification although some major tilts as well (like small UK).  You’ll probably do ok.  But the strategy isn’t apparent and the way you ask the question - without referring to your investment policy principles - sits badly with me.  A clear and transparent policy is useful; it helps to stick with it during major downturns. 

Thanks Mordko - I’ll be honest with you I don’t have an actual strategy.  I needed to invest the funds following a transfer into the SIPP and selected 5 of the recommended funds or top performers.  Checked previous performance from as far back as the charts went, and some of the funds holdings were similar to those my work DC pension is doing well in. 

Feel a bit stupid for not having an actual strategy, other than looking through the ‘top picks’, ‘favourite funds’ and ‘top performers’ charts 

Don’t feel bad. Most of us start by using the exact same approach. And what you ended up with would likely do fine.  You have decent diversification and its a fairly simple structure which is good.   Lots of ways to success; not just one.  

Having said this, there is a conceptual issue with picking best performing funds.  They are never the same for two consecutive decades. Changing funds  and chasing performance usually leads to poorer performance.  

This is your family’s financial security we are talking about. Worth investing some time in that.  Read a couple of books, then define the appropriate level of risk, then define asset allocation and only then pick the instruments (funds) to implement it.  I would recommend John Edwards’ book on DIY pensions and Bernstein’s series called “investment for adults”. These books will give you the basics and then some, and it will come from highly credible sources.  

And once you formulate your objectives, risk, asset allocation, tools, methods of adding funds and rebalancing, change control - I would write it all down, call it “IPS/Investment Policy Statement” and stick with it. 

Thrugelmir

britishboy said:

Saw another poster on here and thought it a great idea.  Hope you don't mind.  How does this spread of funds look, all in my SIPP: (20% in each). Age 44

Fundsmith Equity I ACC

TB Amati UK Smaller Companies B

Vanguard FTSE Dev Wld ex-UK Eq Idx £ Acc

Vanguard Lifestrategy 80% Equity A Acc

VT AJ Bell Moderately Adv I Acc



I have a smaller work DC pot that i contribute to, but just asking about my SIPP diversification (or maybe, lack of) 

Have you analysed your holdings for potential correlation? Sectors , companies, geography etc. 

Does the rationale you used for buying the holdings originally still hold? 

Have you considered the potential negative aspects of the holdings?  

Have you considered where the weakness or lack of exposure lies in your portfolio? 

JohnWinder

Until you get to the library for some of those books, here's something to get started on:

https://www.bogleheads.org/wiki/Investment_policy_statement#Investing_plan

Become very familiar with compound interest, and how it impacts returns if you're young if you factor in costs. One of your funds looks to cost about 0.7%/year more than an alternative global equities fund. Over forty years that could reduce your final benefit by 20% (£200k if it gets to £1M). That's a lot of money to hand over to someone else without thinking carefully about whether it's worth it.

[Deleted User]

JohnWinder said:

Until you get to the library for some of those books, here's something to get started on:

https://www.bogleheads.org/wiki/Investment_policy_statement#Investing_plan

Become very familiar with compound interest, and how it impacts returns if you're young if you factor in costs. One of your funds looks to cost about 0.7%/year more than an alternative global equities fund. Over forty years that could reduce your final benefit by 20% (£200k if it gets to £1M). That's a lot of money to hand over to someone else without thinking carefully about whether it's worth it.

Somehow I did not find this particular link when I was drafting my IPS. There are other examples on the web but bogleheads are awesome.  My IPS is quite a bit longer, partly because I wanted to provide justification, references and details for my spouse. 

longwalks1

Thanks again Mordko - I've just ordered the DIY Pensions book so will spend a few hours with it this weekend

longwalks1

Thrugelmir said:

Have you analysed your holdings for potential correlation? Sectors , companies, geography etc. 

Does the rationale you used for buying the holdings originally still hold? 

Have you considered the potential negative aspects of the holdings?  

Have you considered where the weakness or lack of exposure lies in your portfolio? 

Thanks Thrugelmir
There is an 'x-ray analysis' AJ Bell offer, here is the breakdown (in written form, it actually shows as a pie chart on their website)

Healthcare  31.83%
Technology  13.18%
Consumer Defensive 11.1%
Financial Services 11.58%
Consumer Cyclical  10.34%
Industrials 6.97%
Communication services 6.14%
Energy  2.78%
Basic Materials  2.92%
Real Estate   1.67%
Utilities 1.38%


Of which:

Defensive Sector 44.31%
Sensitive Sector  29.07%
Cyclical Sector  26.51%

My rationale still holds (mainly due to my lack of knowledge at present).  At the moment, I personally cant see much wrong with it, but once I've read a few books i may well be back to correct myself