Choosing an IFA

Linton

kjs31 said:

dunstonh said:

They haven’t performed particularly well vs the general market IMO over the last 6 years and they are withdrawing support shortly. 

Are you comparing like for like?
its very common for people to not realise that the investment they have is a different risk level to the ones they are looking at.   They blame the pension but in reality, its the investments and if the existing scheme has alternative investments to select from, then often you just change the investments and not the pension.

In the last 7 years, anything with a US equity bias has done better than those without a US equity bias.    However, that is the complete opposite to the cycle before where US equity was one of the worst performers.     These things tend to cycle.   So, make sure you are not relying on short term data when comparing.

“Please note that we are taking steps to withdraw support for the Levitas portfolios in due course, we will be contacting you again shortly with more information about this change and what it means for you.”

 A quick look indicates they are outperforming the markets linked to their underlying assets.  They are multi-asset funds (unfettered fund of funds) that use underlying passives (Fidelity, Vanguard etc).   So, they would underperform the general market in growth periods as they are lower risk (general market being stockmarket).   

Which one are you in and what you are comparing it to as an alternative?

I know that they are performing as well as the benchmark. I’m just not sure why I’m in those particular funds. I came out as medium risk I believe and I have 70% invested in Scottish Widows Levitas B and 30% in Levitas A. It’s that % due in part to my proximity to retirement I believe. If I had managed a flat return of 5% over the first 5 years I would be up on my investment now. I know that cash hasn’t returned 5% in previous years so it’s just a rough indication. But if a supposed lower risk option can’t return 5% PA over 5 years then I don’t see the benefit over cash. Maybe I’m missing something? 

 

Valuation         5% return 20/08/2018     756752 20/08/2019     805539         794589 20/08/2020     820187         834319 20/08/2021     926815         876035 20/08/2022     884012         919836 20/08/2023     838887         965828 12/08/2024     939571        1009091

Levistas B is highly invested in bonds (65%).  Bonds are meant to be much safer than equity (shares) which is why some pension scheme options increase the % of bonds as you approach retirement.

Unfortunately for you In the past couple of years bonds have had their worst returns for over 100 years thanks to the rapid rise in interest rates - why would investors want to buy old bonds paying interest rates of <1% when they can buy new ones paying >4%?

On the other hand Levitas A is nearly 90% equities.  So a very different and in normal circumstances much higher risk fund though also with much higher long term returns.

Both funds may well have performed in line with their benchmarks, but their benchmarks would be very different.

Note that now the bond crash is over one would expect Levitas B to behave nornally over the next few years.

kjs31

dunstonh said:

Bonds went through their worst period in over 100 years between Nov 2021 and October 2023.  That period will bring down any averaging you use.    However, bonds tend to do better when interest rates and inflation are heading down or staying low.

However, for over a decade before Nov 2021, bonds performed significantly better than their long term average.   Most of the 21-23 period was the unwinding of that excess.

You need to understand how the investments you have work before selecting alternatives.   Especially if you are looking at past performance.  Often the areas that go up more in one period are the ones that went down more in the previous and vice versa.  So, chasing best performance could see you suffer worst performance.

Yes I knew that bonds had imploded recently. Story of my life where investments are concerned 😉. I was chasing best performance (or trying to) with my workplace pension and had done pretty well investing in the US and tech over the last couple of years when I made a bit more effort with fund selections. At least I did a lot better than if I had opted for lifestyling where a large chunk of my investments would have been invested in annuity bonds (I never intended to buy an annuity so the approach seemed a bit bizarre to me plus those particular bonds had performed horrifically poorly so I was glad to dodge that particular bullet. Several of my colleagues in close proximity to retirement had seen their investments fall to the degree that they had to delay retirement for a while. 

I’m really just looking for investments that will be inflation proof. If I withdraw 3% of my pot each year, so circa 40k, then over 30 years (not taking inflation into account) I will still have money left in the pot. I doubt that I will even need to withdraw 3% once I get the state pension. So not chasing the best return necessarily but I don’t want to gamble it too heavily either to the extent that I could end up with an issue. 

kjs31

Linton said:

 

Levistas B is highly invested in bonds (65%).  Bonds are meant to be much safer than equity (shares) which is why some pension scheme options increase the % of bonds as you approach retirement.

Unfortunately for you In the past couple of years bonds have had their worst returns for over 100 years thanks to the rapid rise in interest rates - why would investors want to buy old bonds paying interest rates of <1% when they can buy new ones paying >4%?

On the other hand Levitas A is nearly 90% equities.  So a very different and in normal circumstances much higher risk fund though also with much higher long term returns.

Both funds may well have performed in line with their benchmarks, but their benchmarks would be very different.

Note that now the bond crash is over one would expect Levitas B to behave nornally over the next few years.

Bonds have been a nightmare for me over the short term for sure. I do want to move platform. The one I’m on only allows me to view my policy valuation. I can’t do anything else such as switch funds, put the policy into drawdown etc. Also as support is being withdrawn for Levitas soon I assume I will need to switch funds anyway (plus I don’t believe that Levitas funds are offered on many platforms). 

JohnWinder

You sound like you’re a bit familiar with personal investing, so I find this a bit strange:

‘I’m really just looking for investments that will be inflation proof. If I withdraw 3% of my pot each year, so circa 40k, then over 30 years (not taking inflation into account) I will still have money left in the pot. I doubt that I will even need to withdraw 3% once I get the state pension.’

Firstly, UK linkers all have a positive yield now except those  maturing in less than 3 years. That means you could buy linkers maturing all the way to 2060, and be assured that the investment would keep up with inflation and give you an extra 1%/year approximately.
Secondly, there’s the 4% rule (or for you the 3% rule). It says that a diversified portfolio will allow you to withdraw 3% of its value in the first year (and increase that amount for inflation for subsequent years) and very likely not see you run out of money over 30 years; in fact you’d probably have more than you started with after 30 years, assuming not too many fat fingers are in the pie during that time. Do some testing with https://firecalc.com/, or https://portfoliocharts.com/charts/retirement-spending/, or https://engaging-data.com/will-money-last-retire-early/, or https://ficalc.app/.

kjs31

JohnWinder said:

Firstly, UK linkers all have a positive yield now except those  maturing in less than 3 years. That means you could buy linkers maturing all the way to 2060, and be assured that the investment would keep up with inflation and give you an extra 1%/year approximately.
Secondly, there’s the 4% rule (or for you the 3% rule). It says that a diversified portfolio will allow you to withdraw 3% of its value in the first year (and increase that amount for inflation for subsequent years) and very likely not see you run out of money over 30 years; in fact you’d probably have more than you started with after 30 years, assuming not too many fat fingers are in the pie during that time. Do some testing with https://firecalc.com/, or https://portfoliocharts.com/charts/retirement-spending/, or https://engaging-data.com/will-money-last-retire-early/, or https://ficalc.app/.

For me I think it comes down to the fact that I was quite comfortable taking a reasonable amount of risk all the time I was continuing to pay into my pension (I’ve paid in the full 180k taking me to the top of the annual allowance over the last 4 years). If investments fell then I could continue buying at the lower price that hopefully would help to recover losses once there was an upturn. Sometimes I cut my losses and switched from a poor performer to a better one and in every case my return was better than just hanging on and hoping that I would recover the losses by retaining the original investments. 

Now that I’ve retired however my mindset has shifted somewhat and I’m thinking that what’s been invested in my pension is all that is ever going to be invested. Hence I am considering whether a more conservative approach might be appropriate to make absolutely sure that my money lasts. Why should I be bothered about having more money at the end of 30 years than I started out with? No doubt by then it would fall under inheritance tax which would just hand a chunk of it to the government. You can’t take it with you 😉

dustymil59

Hi All, I'm a newbie to the forum and keen on learning for our retirement plans. This thread has been an enormous help, so thanks to you all for your contributions. 

Ibrahim5

No worries. Glad I could be of assistance.