2 Scottish Widows Funds - is there really a step difference in risk?

RNV

Gratefully looking for opinions of wise folks here please.

I'm in a default "Balanced" Pension Investment Approach via a workplace plan with Scottish Widows. And this means Pension Portfolio 2.   

Recently got a retire early bug, hence trying to see what I can easily do to make it happen.  Going to self management is a step too far for me right now (still learning basics), so have to stay within available packages for numpties and try not to make jerky costly moves.

I have got an option of switching to "Adventurous"  risk category.  


On comparison, Portfolio 2 very closely follows the trend of Portfolio 1 with worse results.


Is it a no brainer and I will not be in a much different risk profile with Portfolio 1 anyway so should consider switching ?




I'm 50 this year.  Hoping to be able to retire at 55 with flex drawdown. Current DC pot value is £285k.  Hoping to get to £500k by 55, have recently significantly increased salary sacrificing to achieve at least 40k/year (have got a lot of carry forward as well but will not be able to afford to use much of it). 


Many thanks for your time and opinions!

MallyGirl

5 years is quite a short timeframe for comparison

dunstonh

You really want to be comparing 2000-2009 and 2009 to date.  Too quite different cycles containing very different issues and different sectors performing in different ways.

In recent years, portfolio 1 would have done better.  However, a period similar to the 2000-2009 would have been the other way around.

 

Albermarle

Do SW know your proposed retirement age? Or is it maybe defaulted to 65? IN which case they will be treating you as still 10 years before retirement , when you actually want to start drawdown.
Although everyone has different opinions , normally people over 50 start to derisk , rather than the other way around . Funds like One or Two above could easily drop by a third ( or more ) in a short space of time 
On the other hand you do not want to overdo the derisking , otherwise your fund could stagnate during a hopefully long drawdown period. 
If you are relying heavily on this DC pot then personally I would not be going 'adventurous' just 5 years out from retirement .
If this DC pot is just an added bonus on top of other investments, final salary pensions, then you can afford to look at more risk .

RNV

Thank you all !

65 is default and I intend to leave it as such - do not want to de-risk completely until I know for sure whether I'm actually retiring (or rather leaving current stressful job for something less demanding).

This DC pot is my only pension provision (apart from SP), so yes heavily relying. However, this is limited to my personal dependence on it, if you wish, not family's  There are other assets available but I will loose my personal financial independence  if all goes completely wrong with this DC.  I will have to work post 55 but this is still quite early. So, I probably have a bit of scope to increase the risk for the next 5 years in a hope for better outcome.  I need to think hard and try to research more. 

Thanks again.

Thrugelmir

RNV said:

So, I probably have a bit of scope to increase the risk for the next 5 years in a hope for better outcome.  

Risk is a double edged sword. Returns can indeed be higher. Likewise there is a possibility of a greater fall in value or permanent loss of capital. Only time can recover what's been lost. Set your risk level to meet your personal objectives. 

Albermarle

RNV said:

Thank you all !

65 is default and I intend to leave it as such - do not want to de-risk completely until I know for sure whether I'm actually retiring (or rather leaving current stressful job for something less demanding).

This DC pot is my only pension provision (apart from SP), so yes heavily relying. However, this is limited to my personal dependence on it, if you wish, not family's  There are other assets available but I will loose my personal financial independence  if all goes completely wrong with this DC.  I will have to work post 55 but this is still quite early. So, I probably have a bit of scope to increase the risk for the next 5 years in a hope for better outcome.  I need to think hard and try to research more. 

Thanks again.

Probably on balance you maybe need to rethink your plan to retire at 55 . It is still quite early to give up on regular income unless you have a very large pot / are OK to live quite frugally. Another 2 or 3 years working can make the financial situation much more relaxed.

RNV

Thanks, fully agree but currently at the state of hating full time work commitments/ lack of time/constant pressure/basically no escape from not thinking about the work. 5 years seem like a timeframe I can sacrifice but cannot bare thinking of carrying much longer.

Changing the job  - yes but will not get similarly well paid job without upping the stress level if I move so instead of 5 years will have to work longer to achieve the same. 

My needs/wants are not high but at the same time cannot live frugally, need to be able to afford little pleasures that do not always make financial sense... And cannot ask for money. OH will be able to support the family if I stop working now but I will struggle without access to my own money, hence 55 when can access the pension. 

Catch 22....

kinger101

What basis do you have for knowing £500K would be enough to retire @ 55?  Bearing in mind, you'll need to wait another 12 years before you can collect state pension.  I'd say it's possible if you can live on £15-£18K a year after tax, but there's not much breathing room for sequence of returns risk etc.

RNV

Not much science, as you prob. can see left, right and centre of my questions.  All I'm fixated with at the moment is to get to that figure asap. I've read about the concept of SWR of 4-5%;  £25-20k/year drawdown (more initially, reducing later) doesn't feel too bad considering OHs contribution to family finances and the fact that mortgage of ~2k/month will be paid by that time. Will be a completely different story if I end up on my own. That's all my science at the moment. Hopefully, will get a bit wiser/calmer by the time I reach that magic £500k.

Thrugelmir

There's no shortage of concepts and academic papers using hindsight to analyse historic data. The only real certainty when investing is uncertainty.  Reach your objective first then plan from there. Most people only get one shot. For those that get it wrong the final outcome can be costly.