more SIPP dilemmas

jbrassy

Deciding where to invest in a pension is not a straightforward decision. 

The first thing to note is that, over the long run, fees are a major drag on investment. That is why SJP is a bad idea. It has a terrible reputation when it comes to fees.

Vanguard's SIPP is a good choice since it's fees are some of the lowest you can get. I personally have a Vanguard SIPP for this reason.

Another important thing when investing is to get adequate diversification, i.e. make sure you're invested across a wide variety of countries, industries, and company sizes, as well as asset classes (i.e. equities and bonds).

The easiest way to do this is to invest in Global Equity Index funds and Global Aggregate bond funds.

Vanguard's FTSE Global All Cap fund is a good example of a Global Equity Index fund: https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview

And Vanguard's Global Bond Index fund is a good example of a Global Aggregate bond fund: https://www.vanguardinvestor.co.uk/investments/vanguard-global-bond-index-fund-gbp-hedged-acc/overview

There's a rule of thumb which says you should invest 100 minus your age into equities. So if you're aged 30, you should invest 70% of your money in equities, and 30% in bonds. These two assets will grow at different rates, so you should rebalance your portfolio once a year to make sure you stick to this ratio.

I personally invest 80% in equities and 20% in bonds, because I'm happy to take the additional risk and potentially higher returns associated with equities (full disclosure: I invest in the two funds above). 

However, if you invest in the above funds using my suggested strategy, I don't think you can go too far wrong. 

I personally find the following website useful for explaining the basics of investing: https://www.bankeronwheels.com/

ColdIron

martin7575 said:

onee other thing is that ive seen conflicting info about how much i can invest,as its my first year can i still invest 60k or do i have to max at last years profit (41k)

Not an area I'm familiar with but this could be worth a read

https://www.1stformations.co.uk/blog/company-director-pension-contributions/

martin7575

@jbrassy thanks for your extensive reply, much appreciated and very helpful.

im 49 in a few months, so 50/50 pretty much....

do you take dividends or keep within the fund?

thanks again for taking the time to reply

ColdIron

The multi-asset funds mentioned so far are constructed by the fund house often with a mix of trackers, e.g. 60% equities and 40% bonds. They may use 10 or more underlying funds to achieve this

A single tracker, such as a global tracker, usually tracks a single index, e.g. either equities or bonds but not both, so there are precious few multi asset ones available. You would need to roll your own. The advantage of multi asset funds is this is all handled for you in a single fund

martin7575 said:

do you take dividends or keep within the fund?

You are working and don't need the income so you would keep them in the fund to maximise growth. An Accumulation class fund would do this for you automatically

martin7575

one other thought, do people split sipps over multiple platforms for safety - ie not wanting to accumulate more than 85k in one institution?

and  @jbrassy with vanguard - 'DIY' vs 'we do it for you' - if buying broad funds like the ones you have is there much point in going for the more managed route?

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/investment-choice

gm0

Most do not.  And not across lots.
And some do a bit. 

With a view to hedging impact on total assets of business interruption/failure, major IT failures.
A fuller explanation can be found on other threads where I have laid out my reasoning.

Many trust based occupational pensions use an "insured" type of pension fund and then offer a 100% FSCS protection - not 85k as is offered by retail to consumer SIPPs.

For both - the custody arrangements for exchange traded investments and the separation of client from platform assets *should* mean that the risk to funds above the 85k line in a SIPP being lost rather than temporarily inaccessible is extremely low.

The law on this is complex.  And until actually tested by a liability shedding major crisis and lawsuits the outcomes are - uncertain.

But I have two providers (three with ISAs) - one is 100% protected because it uses insured fund types (common in trust based occupational DC).  And the other is a SIPP 85k.  

Which I mostly use for added range beyond what the other provider offers.

martin7575

@ColdIron i thought that apart from. these suggested earlier which seem to be all bond or all equities

Vanguard's FTSE Global All Cap fund is a good example of a Global Equity Index fund: https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview

And Vanguard's Global Bond Index fund is a good example of a Global Aggregate bond fund: https://www.vanguardinvestor.co.uk/investments/vanguard-global-bond-index-fund-gbp-hedged-acc/overview


what is your view on the merits of a  managed option vs picking a global fund as already discussed 

https://www.vanguardinvestor.co.uk/what-we-offer/personal-pension/investment-choice

Hoenir

hewhohuntselves said:

Albermarle said:

LHW99 said:

GeoffTF said:

artyboy said:

...to a very specific set of funds within the Vanguard range (unless you're planning on buying an annuity at a specific date, why would you want one of their target funds?),

Vanguard's Target Retirement Funds are aimed primarily at people who want to go into drawdown, rather than buy an annuity. (There are no index linked annuities in the US, where target date funds are very popular.) These funds gradually reduce the equity percentage both before and after retirement. The attraction of these funds is that you only have to decide on your likely retirement date and leave the rest to Vanguard. (In contrast, life-styling reduces the equity percentage to zero before retirement, to hedge against changes in annuity prices.)

I would have said the opposite - Llifestyling is intended to ensure that the fund becomes less sensitive to equity volatility closer to the date you want an annuity (hence people wanting to turn it off). Annuity rates I believe are related to bond yields, so that if bonds go down in actual value, you turn them into an annuity of much the same income level as before the dip.

If you want to drawdown, you don't want too much equity turned into bonds,as you need the likely long term growth that equities are more likely to provide (as you would remain invested over 20-30 years (hopefully)

It used to be that most traditional pension providers lifestyle funds were aimed at someone buying annuity, so reduced the equity % to zero or close in the last year or two before retirement.
Nowadays you are usually offered a choice of lifestyle options e.g. Annuity; long drawdown; short drawdown etc and the drawdown one is now often the default.
Although it seems from a few posts on here last year, some people are still in the wrong one.

However even with the drawdown ones, they seem to tend to reduce equity further than is probably ideal ( opinions vary ) 

My Aviva target drawdown will go to 50/50 on current plans.  It’s a little low, but my other investments will hopefully balance it out (or, if not, I can obviously change it).  I’m relaxed about it.  I don’t think I would want more than 65% equities in retirement.

You'll only know what your comfortable with when you experience a full on bear market first hand. Markets have been benign for so long now. Likely to be a sobering experience for many investors. 

ColdIron

martin7575 said:

@ColdIron i thought that apart from. these suggested earlier which seem to be all bond or all equities

Vanguard's FTSE Global All Cap fund is a good example of a Global Equity Index fund: https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview

And Vanguard's Global Bond Index fund is a good example of a Global Aggregate bond fund: https://www.vanguardinvestor.co.uk/investments/vanguard-global-bond-index-fund-gbp-hedged-acc/overview

Those two are index trackers, they track a single index. The Vanguard LifeStrategy multi-asset funds already include them, plus maybe 10 more trackers to fine tune their allocations

what is your view on the merits of a  managed option vs picking a global fund as already discussed

Using individual trackers would require you to build something where you would make decisions regarding the allocations and require you to rebalance occasionally as those allocations get out of kilter amongst other management tasks

Something else you might consider is that the global tracker will have something like 60% US and 4% UK. Some people think that's too much in one geography and too little in the other. There is no right answer but if you agreed you would need more than one equity tracker to balance it out. It starts to become more involved than just banging two trackers together

At your stage of your investment journey do you think you have the knowledge, or the inclination, to do this well?

The multi asset funds do this all for you. They are intended to be one stop shop, fire and forget, professionally constructed solutions. A good choice for both novices and more experienced investors who just want to get on with their life

Sometimes it's more important to make a start with something you can have confidence in, you can worry about portfolio construction further down the line

Albermarle

hewhohuntselves said:

Albermarle said:

LHW99 said:

GeoffTF said:

artyboy said:

...to a very specific set of funds within the Vanguard range (unless you're planning on buying an annuity at a specific date, why would you want one of their target funds?),

Vanguard's Target Retirement Funds are aimed primarily at people who want to go into drawdown, rather than buy an annuity. (There are no index linked annuities in the US, where target date funds are very popular.) These funds gradually reduce the equity percentage both before and after retirement. The attraction of these funds is that you only have to decide on your likely retirement date and leave the rest to Vanguard. (In contrast, life-styling reduces the equity percentage to zero before retirement, to hedge against changes in annuity prices.)

I would have said the opposite - Llifestyling is intended to ensure that the fund becomes less sensitive to equity volatility closer to the date you want an annuity (hence people wanting to turn it off). Annuity rates I believe are related to bond yields, so that if bonds go down in actual value, you turn them into an annuity of much the same income level as before the dip.

If you want to drawdown, you don't want too much equity turned into bonds,as you need the likely long term growth that equities are more likely to provide (as you would remain invested over 20-30 years (hopefully)

It used to be that most traditional pension providers lifestyle funds were aimed at someone buying annuity, so reduced the equity % to zero or close in the last year or two before retirement.
Nowadays you are usually offered a choice of lifestyle options e.g. Annuity; long drawdown; short drawdown etc and the drawdown one is now often the default.
Although it seems from a few posts on here last year, some people are still in the wrong one.

However even with the drawdown ones, they seem to tend to reduce equity further than is probably ideal ( opinions vary ) 

My Aviva target drawdown will go to 50/50 on current plans.  It’s a little low, but my other investments will hopefully balance it out (or, if not, I can obviously change it).  I’m relaxed about it.  I don’t think I would want more than 65% equities in retirement.

That seems OK. I have seen some that go lower on equities than 40%, which in theory is not ideal ( opinions vary)