Another 'feedback on pension fund allocation' please

longwalks1

JohnWinder said:

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.

Thanks Mr Winder - i hadn't even considered your comment regarding ongoing fees, so will look deeper into this.  I took the newbie approach of 'I'd be happy to pay 0.96% fee p/a for a fund that grows 10% p/a, over a fee of 0.2% p/a that grows 4% or 5% p/a'.  Ignorance I know.  I'm assuming you picked up on the fee's for the Fundsmith Equity Acc fund.  I had noticed they were higher than the rest, but guess I justified it with the higher return

MallyGirl

britishboy said:

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 

If you are not working and not drawing pension aren't you are wasting those 2/3/4 years of nil rate tax band on £12k (ish)

longwalks1

Hi MallyGirl - I'm going to be very (too) honest with you and say I don't know what that is, and have never heard of it, apologies

bostonerimus

This looks like a good example of a portfolio that has grown organically by picking things that look "like a good idea". That's a dangerous thing to do as it can bias the portfolio to things like small cap and make your life unnecessarily complicated through duplication. VLS80 would be a good choice on it's own and maybe keep a bit of Fundsmith if you like the active strategy or the Vanguard ex UK fund if you want to reduce VLS80's UK bias. At age 44 I might get a bit defensive, so keep some money in cash and very short bonds as well or maybe pay down the mortgage depending on the interest rate you have.

MallyGirl

britishboy said:

Hi MallyGirl - I'm going to be very (too) honest with you and say I don't know what that is, and have never heard of it, apologies

Everyone has a nil rate band and can earn £12.5k a year without paying any tax.

Say you have £37.5k in a DC pension and £37.5k in your ISA.

If you take £12.5k out from your ISA for 3 years (and none from any pension) then you pay no tax because you haven't taken any income but the £37.5k still in your DC pension will be liable for tax when you do take it out (combined with whatever other pensions you are going to draw on at the time). Nil rate band wasted opportunity

If you take £12.5k out from your DC pension for 3 years (and none from any ISA) then you pay no tax (it is under the nil rate or 0% income band) but the £37.5k is still sitting in your ISA for tax free withdrawal whenever you like since all withdrawals from ISAs are tax free.

If you are never going to withdraw more than £12.5k a year then it makes no difference how you space the withdrawals. Most people need more than that.

All this mention of £12.k is based on you having already withdrawn your 25% tax free leaving the remaining 75% fully liable for tax.

cfw1994

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.

I don't disagree with what you wrote....but I am also conscious through experience that sometimes a more expensive fund might give better results.

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 

I sometimes fee "strategy" is a funny word for picking funds.  
http://kroijer.com suggests you might be best off just 'owning the world', & I feel it makes a lot of sense.   I don't follow it slavishly - working in tech has driven me to invest a lot in the US tech sector, but spreading things around the globe seems a reasonable way to behave.
Nobody has a crystal ball, so pretending there is a strategy that could guarantee a particular return is moderately nonsensical....

Having a proper plan for how you want to live, with a disaster plan for your dependants if you peg out early, is, of course, hugely important.   I was saddened today to read of Sean Lock passing away - far too young, a very entertaining comedian....serves to remind me that we are all here on limited time: never feel stupid about your choices, just always aim to improve and refine them!

eta - just seen your summary x-ray - looks decent enough to me!

AlanP_2

britishboy said:

JohnWinder said:

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.

Thanks Mr Winder - i hadn't even considered your comment regarding ongoing fees, so will look deeper into this.  I took the newbie approach of 'I'd be happy to pay 0.96% fee p/a for a fund that grows 10% p/a, over a fee of 0.2% p/a that grows 4% or 5% p/a'.  Ignorance I know.  I'm assuming you picked up on the fee's for the Fundsmith Equity Acc fund.  I had noticed they were higher than the rest, but guess I justified it with the higher return

That isn't ignorance, that is common sense.

Something that pays 10% after fees of 0.96% is better than something that pays 4/5% after fees of 0.22%.

Whether FS will continue to perform as well in to the future is the unknown. 

dunstonh

AlanP_2 said:

britishboy said:

JohnWinder said:

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.

Thanks Mr Winder - i hadn't even considered your comment regarding ongoing fees, so will look deeper into this.  I took the newbie approach of 'I'd be happy to pay 0.96% fee p/a for a fund that grows 10% p/a, over a fee of 0.2% p/a that grows 4% or 5% p/a'.  Ignorance I know.  I'm assuming you picked up on the fee's for the Fundsmith Equity Acc fund.  I had noticed they were higher than the rest, but guess I justified it with the higher return

That isn't ignorance, that is common sense.

Something that pays 10% after fees of 0.96% is better than something that pays 4/5% after fees of 0.22%.

Whether FS will continue to perform as well in to the future is the unknown. 

And that is the judgement call that everybody has to make.  Some people are not prepared to make that judgement call and just decide cheap = best.   However, if that was really the case, they would just leave their savings in cash where there is no explicit charge.

It is also why hybrid investing is extremely popular nowadays.  i.e. use trackers where passive is best and use managed where managed is best.   That way you are not biased to any particular method but consider both an make a decision on what you feel is correct.

[Deleted User]

cfw1994 said

I don't disagree with what you wrote....but I am also conscious through experience that sometimes a more expensive fund might give better results.



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 

I sometimes fee "strategy" is a funny word for picking funds.  
http://kroijer.com suggests you might be best off just 'owning the world', & I feel it makes a lot of sense.   I don't follow it slavishly - working in tech has driven me to invest a lot in the US tech sector, but spreading things around the globe seems a reasonable way to behave.
Nobody has a crystal ball, so pretending there is a strategy that could guarantee a particular return is moderately 

You need to compare like with like.  Once you properly  account for risk and compare over sufficiently long periods of time, the evidence that expensive funds do not provide better results becomes overwhelming. 

Owning the world is a strategy.  I am not aware of anyone with a good strategy wh claims that having a strategy gives guaranteed results. Thats not the reason for having one.

[Deleted User]

dunstonh said:

AlanP_2 said:

britishboy said:

JohnWinder said:

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.

Thanks Mr Winder - i hadn't even considered your comment regarding ongoing fees, so will look deeper into this.  I took the newbie approach of 'I'd be happy to pay 0.96% fee p/a for a fund that grows 10% p/a, over a fee of 0.2% p/a that grows 4% or 5% p/a'.  Ignorance I know.  I'm assuming you picked up on the fee's for the Fundsmith Equity Acc fund.  I had noticed they were higher than the rest, but guess I justified it with the higher return

That isn't ignorance, that is common sense.

Something that pays 10% after fees of 0.96% is better than something that pays 4/5% after fees of 0.22%.

Whether FS will continue to perform as well in to the future is the unknown. 

And that is the judgement call that everybody has to make.  Some people are not prepared to make that judgement call and just decide cheap = best.   However, if that was really the case, they would just leave their savings in cash where there is no explicit charge.

An impressive straw-man argument. You need to compare like with like. Despite of what you apparently think, stocks  and cash are not the same thing, no.