What are my options in a Vanguard SIPP, if I wanted to give stocks a rest for a little while?

DraxDomax

This is a question about specific Vanguard instruments because even if I read a lot about gilts, bons, money market - I still need some pointers about the actual options that Vanguard offers.

I've been with Vanguard SIPP - VUSA (index fund tracking S&P500) and pretty happy with results, ease of use and clarity.

However, I personally feel the stock market is too volatile for my situation right now and have sold all my units.
My retirement pot is sitting in cash right now.

Wondering if there's someone here who is also with them and knows more about their non-stock options?

I tried looking into their website but it just splashes dozens of options and it's very hard to read into each one, understand the terminology and compare...

This is not financial advice, I am just looking into trimming my list of things I need to read about.
I am interested in Vanguard products that yield a risk-free return, even a small one.
The idea is to come back to VUSA when the news stops looking so bad or when at least the news are things that I understand and can judge for myself if it's bad or good long term.

QrizB

DraxDomax said:

However, I personally feel the stock market is too volatile for my situation right now and have sold all my units.
My retirement pot is sitting in cash right now.

That seems quite a bold move.

I am interested in Vanguard products that yield a risk-free return, even a small one.

Vanguard rate their funds from 1 to 7, with 1 being the lowest risk. The only risk rating 1 fund is the Sterling Short-Term Money Market fund:

https://www.vanguardinvestor.co.uk/investments/vanguard-sterling-short-term-money-market-fund-investor-gbp-income-shares/overview

I also think they pay about 2% on cash balances.

Albermarle

However, I personally feel the stock market is too volatile for my situation right now and have sold all my units.

The stock market is actually less volatile than usual. The S&P 500 you mention has been almost boring recently.

I can understand you wanting to maybe reduce some risk, but you have gone from a high risk single market index, straight to cash. Basically almost from one extreme to the other without stopping somewhere in the middle. It is an unusual strategy to say the least.

The idea is to come back to VUSA when the news stops looking so bad or when at least the news are things that I understand and can judge for myself if it's bad or good long term.

The news always looks bad, maybe a bit worse than normal at the moment, but there have been worse times. As soon as the news improves, VUSA will most likely be going up at a rate of knots and you will have missed the upswing.

Suggest you give some thought to a more middle ground strategy that does not involve diving in and out of the market. Have you had a look at the Vanguard target retirement funds, or the Life Strategy funds ?

Pat38493

You might wish to spend some more time reading up on some of the threads here and asking some questions.  It seems like you might be selling your equities because you believe that the news looks bad, and moving into cash.  This might feel like the right thing to do, but actually you are locking in your losses as the markets are generally down from their last peak which I think was in late 2021.  

Generally if you are running a low or no risk fund, you will need a much larger pot to get through your retirement.

Also look into how to diversify your risk - it sounds like you had all your funds invested in a single market and a single country (US).  Nothing wrong with having a significant % of US investments in your pot but most other posters don’t seem to have 100% in there.

To answer your specific question I think it’s as above ^^^ .  The Vanguard money market fund is by my understanding, in layman’s terms, a kind of pension savings account that is almost as safe as cash but should pay out a bit less than the BOE base rate at any given time.  Vanguard also pays interest on cash balances but it won’t beat inflation (and neither will the money market fund right now).

To put another way, you have swapped to a stategy that is pretty much guaranteed to make your pot shrink in real terms, from a strategy that you perceive is risky but you yourself admit you don’t fully understand the latest news about.  Long term, the S&P 500 you have invested in has outperformed cash or money market funds easily but may not do so in any given short term period of a few years.

DraxDomax

I guess I should have made the point more clear:
I struggle with my own anxiety right now and cannot deal with hearing about S&P500 going up or down.
Long term, I intend to reconfigure my portfolio to something more risk-on.

Of course it'll shoot up the moment I sell After decades of trading as hobby (mostly technically driven swing trades), I've learned to live with that effect.
They key is to concentrate on the realised profits - no body gone broke from taking profits

Thanks for the very thoughtful answers here. I really appreciate it!

Pat38493

DraxDomax said:

I guess I should have made the point more clear:
I struggle with my own anxiety right now and cannot deal with hearing about S&P500 going up or down.
Long term, I intend to reconfigure my portfolio to something more risk-on.

Of course it'll shoot up the moment I sell After decades of trading as hobby (mostly technically driven swing trades), I've learned to live with that effect.
They key is to concentrate on the realised profits - no body gone broke from taking profits

Thanks for the very thoughtful answers here. I really appreciate it!

This may be part of your risk tolerance that you don't want to take losses even in the short term. 

Out of curiosity, did you keep a long term record of how much profits or losses you made from your swing trades in total?   

I'm not a trading or investments expert by any means but I'm a bit confused that you are saying you have been investing as a hobby for decades, but in your OP you kind of seem to be saying that you don't understand the descriptions of the funds on the Vanguard website.  Maybe I'm wrong but I would have thought you would have needed that kind of knowledge to be successful in such trading.

Albermarle

I struggle with my own anxiety right now and cannot deal with hearing about S&P500 going up or down

Sorry to labour the point, but if you had a more mixed/medium risk  portfolio, then the effect of S&P 500 movements is more muted. 

A strategy for some on here is to invest in Wealth Preservation funds. Their aim is to grow slowly in the long term, whilst protecting your capital as much as possible in a downturn. 

barnstar2077

A globally diversified fund like Vanguards FTSE Global All Cap Index aims to follow the global market which (if history repeats itself) should go up over time regardless of some volatility.  Investing in such a fund and then ignoring it for years is the strategy I have chosen, and it may help you too.

Bravepants

For what it's worth I use some Vanguard Sterling Money Market fund in my ISA. (I also use Lyxor Smart Cash (CSH2), another MMF, for most of  my SIPP and likely will do for the next 5 years). I also have a good portion of my money in higher risk funds in my ISA to balance out my low risk components to allow growth though, so I'm not all low risk.

I have been tempted to cash in my growth funds and pop them into the Vanguard MMF for a year, but I think I already have enough in low risk funds.

In the long run though, despite all the info on MSE and the excellent contributions from forum members, you should do what YOU feel most comfortable with and whatever helps YOU sleep at night.

hara____

Drax,

Perfectly understandable if you want to reduce your equity exposure. Maybe you need to work out how much of your pot you are prepared to risk in equity funds?

You could then implement that yourself by having your preferred proportion of funds in VUSA or VWRL and the rest in cash or the MMF. 

Or if you are willing to have some in bonds, see if one of the Lifestrategy funds would work for you.

If you've not seen them before, I can recommend Lars Kroijer's videos and books that talk about selecting the right level of equity exposure for your risk tolerance. In my suggestion above, I mention cash rather than bonds just to make things even simpler than the approach Lars advocates.

As to how much you're willing to risk in equity, it is worth thinking ahead to a crash scenario and thinking about how you'd feel if the main equity markets fell by 30% or 50%

Albermarle

As to how much you're willing to risk in equity, it is worth thinking ahead to a crash scenario and thinking about how you'd feel if the main equity markets fell by 30% or 50%

This is good advice, but at the same time you can also think about how you would feel if the markets went up 30% and you missed out . 

To avoid both scenarios, then a mixed portfolio as you suggest, can mute the extremes in either direction.