AVC choices for a 6.5 yr investment

Bobziz

Hi,

I'm trying to decide which prudential AVC funds to invest in for a period of 6.5 years. I want to take advantage of the ability to combine with the lgps main scheme to withdraw 100% of the AVC tax free.

There are only 4 funds to choose from:

Pru UK equity index fund - invests in UK companies.
Pru S3 long term growth index fund - invests in 40/60 UK/global equities
Pru WP fund - mult asset fund
Pru cash fund - money market fund

Which would you go for, would you just park it all the the cash fund ? I've not done the sums yet but I'm guessing that would negate the benefit of withdrawing it all tax free, so I would need to some growth to make it worth doing, but with minimal risk.

Thank you 🙏

dunstonh

There are only 4 funds to choose from:
Pru UK equity index fund - invests in UK companies.
Pru S3 long term growth index fund - invests in 40/60 UK/global equities
Pru WP fund - mult asset fund
Pru cash fund - money market fund

Yep, its a rubbish range of funds.

Which would you go for, would you just park it all the the cash fund ? I've not done the sums yet but I'm guessing that would negate the benefit of withdrawing it all tax free, so I would need to some growth to make it worth doing, but with minimal risk.

WP fund is the only one that matches your objective.

Albermarle

Which would you go for, would you just park it all the the cash fund ? I've not done the sums yet but I'm guessing that would negate the benefit of withdrawing it all tax free, 

Money market funds pay a return, similar to an easy access savings account ( 5%?) 

Although normally the WP fund would be the best bet for a medium term/6.5 years, with MM funds paying significantly above inflation, I would maybe think twice. 

Although the current gap between MM returns and inflation will probably disappear at some point, but nobody knows how long that would take.

Presume you can split your money into two funds if you want ?

Bobziz

Thanks both. My initial thoughts were 50/50 S3/MM, but conscious that I'd need a plan for when interest rates drop. 

My concern about the WP is that I'll potentially lose the benefit of smoothing because I'll be withdrawing at 60 rather than at SP age and may therefore be subject to a MVR.

Not looking to shoot the lights out, 5% nominal would be great.

Albermarle

Bobziz said:

Thanks both. My initial thoughts were 50/50 S3/MM, but conscious that I'd need a plan for when interest rates drop. 

My concern about the WP is that I'll potentially lose the benefit of smoothing because I'll be withdrawing at 60 rather than at SP age and may therefore be subject to a MVR.

Not looking to shoot the lights out, 5% nominal would be great.

If a WP fund has a significant MVR, then it means markets will have dropped a lot, so your S3 fund would be looking rather sad.