Simple DC pension options

Roger175

I think you've done a pretty good job with your analysis and you certainly seem more than capable of going DIY. I did exactly this twenty years ago and whilst I have always had a propensity to over complicate things and have undoubtedly made many mistakes/misjudgements along the way, these have been more than covered by the saving in fees (besides which, who's to say those mistakes/misjudgements wouldn't have been made anyway?).

Given that you have 20 years to go, the saving in fees, when compounded up, will make a significant difference to your final pension pot.

Regards transaction costs, whilst you should allow something, these could in truth be minimal if you stick to funds and deal in reasonably hefty chunks. I'm with A J Bell who charge £1.50 to buy/sell funds, so on big lumps, that is pretty insignificant, whereas I also have a reasonably large portfolio of individual shares which used to cost £10/trade (now reduced to £5) and when I was reinvesting dividends etc and doing several trades a month, this could become a reasonably significant cost.

barnstar2077

ComicGeek said:

barnstar2077 said:

ComicGeek said:

Ok, I've taken a few hours this afternoon looking through a few examples against my current funds.

Current True Potental funds (75% equity) have achieved average annual returns of 6.48% over the last 5 years - annual fees of £5,200, net increase of £20,720 (with fees deducted).

Fidelity Multi Asset Allocator Growth Fund W-Accumulation (60% equity) would have achieved average annual returns of 4.85% over the same 5 years - annual fees of £1,600, net increase of £17,800.

Fidelity Multi Asset Allocator Adventurous Fund W-Accumulation (80% equity) would have achieved average annual returns of 5.88% over the same 5 years - annual fees of £1,600, net increase of £21,920.

Fidelity Index World Fund P Accumulation (98% equity) would have achieved average annual returns of 11.32% over the same 5 years - annual fees of £1,280, net increase of £44,000. But much higher risk level than I could tolerate!

Vanguard LifeStrategy 60% Equity Fund would have achieved average annual returns of 5.04% over the same 5 years - annual fees of £1,480, net increase of £18,680.

Vanguard LifeStrategy 80% Equity Fund would have achieved average annual returns of 8.08% over the same 5 years - annual fees of £1,480, net increase of £30,840.

Obviously been a higher return from higher proportion equity funds over this period - if I'm comfortable with 75% equity at the moment, then I should be looking at Vanguard LifeStrategy 80% Equity fund from the info above.

My wife would be more comfortable at 60% equity which matches her current risk level. Currently net increase of only £7520 under TP, would be £18,680 with Vanguard LifeStrategy 60%.

So based on this I should be moving across to Vanguard, as currently (as expected) we're paying too much for a 'managed' portfolio that isn't performing any better.

Not necessarily looking for any feedback, just wanted to get my thoughts down

You have twenty years to go, but you don't trust 100% equities, the most you can do is 75%?  What do you think would happen to the extra 25% of equities that couldn't happen to the first 75%?

I think you are just limiting your growth potential for not much of a safety blanket to be honest.  If you were sub ten years away and you were very cautious then I could understand.

What would your numbers say if you just invested in Vanguard's FTSE Global All Cap Index fund on their own platform?  A fund that is much closer to the global market than their Lifestrategy funds.

They charge a 0.15% platform fee capped at £375 for the year, with a fund charge of 0.23%.  With a cumulative performance of 59.62% for the last five years.  You maybe able to invest in the same fund a bit cheaper on another platform, but I have stayed with Vanguard because I don't really want to pay per transaction or think about drawdown charges etc, I just want to pay in every month and forget about it (I may change my mind as my fund grows though.)

Yes, 100% equity funds go up and down a lot, but you have a long way to go.  When it goes down just think of it as buying that months slice of the pie a bit cheaper!

When I answer the risk profiler questionnaires honestly I always come out as 'moderately adventurous'. And that's what my funds have been selected against to date. You're absolutely right that it never really takes into account the length of time for investments - if I wasn't asked any questions I would certainly pick a higher growth, higher risk category. 

I think I need to read specifically about risk and equities/bond risks.

The FTSE Global All Cap Index is an ETF then, seems to also have one off costs on trades. I think I've slightly overestimated Vanguard platform fees, as I hadn't capped it at £375/yr. 

I'm pretty much decided on moving across to Vanguard, just need to do more reading and research on what funds. The good thing is that my wife's pension is virtually the same amount but she has a much lower comfort for risk - I can look to balance out the risk level between the two pensions.

The FTSE Global All Cap that I invest in is a fund, it doesn't charge transaction fees.  It maybe available as an ETF as well, I do not know as I have never been interested in them.

Albermarle

Vanguard LifeStrategy 60% Equity Fund would have achieved average annual returns of 5.04% over the same 5 years - annual fees of £1,480, net increase of £18,680.

I was a bit surprised to see the VLS 60 outperforming the equivalent Fidelity fund, as the higher UK % in VLS has resulted in a little bit lower returns in recent times.
Checked with 3 different data providers and got 3 different answers! One concurred with your 5.04%, one said 4.9% and one ( Morningstar) said 4.49%. I do not know the reason for that.

More importantly an often mentioned alternative to VLS is the HSBC global strategy range. They do not stick to an exact equity % and instead are risk managed. Normally you would compare VLS60 with HSBC global strategy Balanced, which has an annualised 5 year growth of 6.4%. There are also 'Adventurous' and 'Dynamic' which are more like VLS80.
Of course future performance can not be predicted.
Also these funds are not available on the Vanguard platform, but are readily available elsewhere.

ComicGeek

Albermarle said:

Vanguard LifeStrategy 60% Equity Fund would have achieved average annual returns of 5.04% over the same 5 years - annual fees of £1,480, net increase of £18,680.

I was a bit surprised to see the VLS 60 outperforming the equivalent Fidelity fund, as the higher UK % in VLS has resulted in a little bit lower returns in recent times.
Checked with 3 different data providers and got 3 different answers! One concurred with your 5.04%, one said 4.9% and one ( Morningstar) said 4.49%. I do not know the reason for that.

More importantly an often mentioned alternative to VLS is the HSBC global strategy range. They do not stick to an exact equity % and instead are risk managed. Normally you would compare VLS60 with HSBC global strategy Balanced, which has an annualised 5 year growth of 6.4%. There are also 'Adventurous' and 'Dynamic' which are more like VLS80.
Of course future performance can not be predicted.
Also these funds are not available on the Vanguard platform, but are readily available elsewhere.

Thanks, that's interesting. I won't rush into anything yet, will do some more reading - but I can't be sat here in the same position in 6 months time, I need to make a decision even if it's not the absolute best fund on the absolute best platform. 

Would I invest in a single fund, like VLS 80 or HSBC Adventurous, rather than multiple funds? One IFA I met last week suggested multiple funds with different risk levels, but I thought that was already built into the risk level of the fund and didn't make sense. Risk/probability is an area that interests me, would be a good topic to do more reading on.

MallyGirl

I use HSBC funds rather than Lifestrategy - I have a mix of Balanced and Dynamic (more Bal than Dyn) in my SIPP but only Dynamic in my ISA. Putting the higher risk/hopefully higher gain in the vehicle that won't incur tax on withdrawal.

Albermarle

ComicGeek said:

Albermarle said:

Vanguard LifeStrategy 60% Equity Fund would have achieved average annual returns of 5.04% over the same 5 years - annual fees of £1,480, net increase of £18,680.

I was a bit surprised to see the VLS 60 outperforming the equivalent Fidelity fund, as the higher UK % in VLS has resulted in a little bit lower returns in recent times.
Checked with 3 different data providers and got 3 different answers! One concurred with your 5.04%, one said 4.9% and one ( Morningstar) said 4.49%. I do not know the reason for that.

More importantly an often mentioned alternative to VLS is the HSBC global strategy range. They do not stick to an exact equity % and instead are risk managed. Normally you would compare VLS60 with HSBC global strategy Balanced, which has an annualised 5 year growth of 6.4%. There are also 'Adventurous' and 'Dynamic' which are more like VLS80.
Of course future performance can not be predicted.
Also these funds are not available on the Vanguard platform, but are readily available elsewhere.

Thanks, that's interesting. I won't rush into anything yet, will do some more reading - but I can't be sat here in the same position in 6 months time, I need to make a decision even if it's not the absolute best fund on the absolute best platform. 

Would I invest in a single fund, like VLS 80 or HSBC Adventurous, rather than multiple funds? One IFA I met last week suggested multiple funds with different risk levels, but I thought that was already built into the risk level of the fund and didn't make sense. Risk/probability is an area that interests me, would be a good topic to do more reading on.

It can make sense if you decided VLS70 was your objective, so 50% VLS60 and 50% VLS 80.

Also as said the HSBC funds have performed better than VLS in recent years, but there is no guarantee that will continue. So maybe some in both makes sense.
It is true that the idea of these funds is a one stop shop. However in line with the above comments and the fact you have quite a large fund, I would tend to diversify a bit. Only my opinion though.

ComicGeek

Albermarle said:

ComicGeek said:

Albermarle said:

Vanguard LifeStrategy 60% Equity Fund would have achieved average annual returns of 5.04% over the same 5 years - annual fees of £1,480, net increase of £18,680.

I was a bit surprised to see the VLS 60 outperforming the equivalent Fidelity fund, as the higher UK % in VLS has resulted in a little bit lower returns in recent times.
Checked with 3 different data providers and got 3 different answers! One concurred with your 5.04%, one said 4.9% and one ( Morningstar) said 4.49%. I do not know the reason for that.

More importantly an often mentioned alternative to VLS is the HSBC global strategy range. They do not stick to an exact equity % and instead are risk managed. Normally you would compare VLS60 with HSBC global strategy Balanced, which has an annualised 5 year growth of 6.4%. There are also 'Adventurous' and 'Dynamic' which are more like VLS80.
Of course future performance can not be predicted.
Also these funds are not available on the Vanguard platform, but are readily available elsewhere.

Thanks, that's interesting. I won't rush into anything yet, will do some more reading - but I can't be sat here in the same position in 6 months time, I need to make a decision even if it's not the absolute best fund on the absolute best platform. 

Would I invest in a single fund, like VLS 80 or HSBC Adventurous, rather than multiple funds? One IFA I met last week suggested multiple funds with different risk levels, but I thought that was already built into the risk level of the fund and didn't make sense. Risk/probability is an area that interests me, would be a good topic to do more reading on.

It can make sense if you decided VLS70 was your objective, so 50% VLS60 and 50% VLS 80.

Also as said the HSBC funds have performed better than VLS in recent years, but there is no guarantee that will continue. So maybe some in both makes sense.
It is true that the idea of these funds is a one stop shop. However in line with the above comments and the fact you have quite a large fund, I would tend to diversify a bit. Only my opinion though.

I guess it also depends on what the underlying equity funds are in each overarching fund. It won't really be diversified if they are investing in the same groups of companies. I've done a lot of share purchases/sales outside of pensions in the past so I have a good knowledge of that area - but that's been a few thousand pounds for fun, and not nearly £800k.

Ultimately what risks are we are trying to reduce by diversifying? Nothing is going to protect against a major global crash, and a single company failure is unlikely to create an issue. Recessions and other events have been a short term blip in the market, and just needs time in the market to recover. I need to read more about risks and how that relates to fund types and proportion of equities.

Albermarle

ComicGeek said:

Albermarle said:

ComicGeek said:

Albermarle said:

Vanguard LifeStrategy 60% Equity Fund would have achieved average annual returns of 5.04% over the same 5 years - annual fees of £1,480, net increase of £18,680.

I was a bit surprised to see the VLS 60 outperforming the equivalent Fidelity fund, as the higher UK % in VLS has resulted in a little bit lower returns in recent times.
Checked with 3 different data providers and got 3 different answers! One concurred with your 5.04%, one said 4.9% and one ( Morningstar) said 4.49%. I do not know the reason for that.

More importantly an often mentioned alternative to VLS is the HSBC global strategy range. They do not stick to an exact equity % and instead are risk managed. Normally you would compare VLS60 with HSBC global strategy Balanced, which has an annualised 5 year growth of 6.4%. There are also 'Adventurous' and 'Dynamic' which are more like VLS80.
Of course future performance can not be predicted.
Also these funds are not available on the Vanguard platform, but are readily available elsewhere.

Thanks, that's interesting. I won't rush into anything yet, will do some more reading - but I can't be sat here in the same position in 6 months time, I need to make a decision even if it's not the absolute best fund on the absolute best platform. 

Would I invest in a single fund, like VLS 80 or HSBC Adventurous, rather than multiple funds? One IFA I met last week suggested multiple funds with different risk levels, but I thought that was already built into the risk level of the fund and didn't make sense. Risk/probability is an area that interests me, would be a good topic to do more reading on.

It can make sense if you decided VLS70 was your objective, so 50% VLS60 and 50% VLS 80.

Also as said the HSBC funds have performed better than VLS in recent years, but there is no guarantee that will continue. So maybe some in both makes sense.
It is true that the idea of these funds is a one stop shop. However in line with the above comments and the fact you have quite a large fund, I would tend to diversify a bit. Only my opinion though.

I guess it also depends on what the underlying equity funds are in each overarching fund. It won't really be diversified if they are investing in the same groups of companies. I've done a lot of share purchases/sales outside of pensions in the past so I have a good knowledge of that area - but that's been a few thousand pounds for fun, and not nearly £800k.

Ultimately what risks are we are trying to reduce by diversifying? Nothing is going to protect against a major global crash, and a single company failure is unlikely to create an issue. Recessions and other events have been a short term blip in the market, and just needs time in the market to recover. I need to read more about risks and how that relates to fund types and proportion of equities.

It is a good question and probably it is just a mental feeling to not put all your eggs in one basket ( even as you say you probably are anyway). On the other hand they all have very similar fees so does not cost you anything.
With £800K some people will split it between two SIPP providers. Here there is more logic as major IT meltdowns could make money inaccessible for a while. Although it is possible you maybe be paying more fees for doing this. However if you sleep better at night it could be worth it.

ComicGeek

Update: I've spent a lot of time speaking with local IFAs over the last 5 week, and have decided to just sort this out myself. All of the 5 local IFA firms that I've spoken to use a single set of actively managed funds, and aren't interested in providing anything else. So it looks like I'll save myself the fees and sort myself.

As the pensions are 100% employer contributions, Vanguard isn't an option as I can't set up a monthly direct debit with them from my company. Interactive Investors would be slightly cheaper, but I already have accounts with Fidelity so have decided to go with them for ease.

To spread the risk I've decided to use 3 multi asset funds - in the absence of any scientific approach I will split everything evenly between the 3, with future contributions also to be split evenly.

1/3rd into Vanguard FTSE Global All Cap Index Fund GBP Acc
1/3rd into Fidelity Index World Fund P Acc
1/3rd into Vanguard LifeStrategy 100% Equity Fund A Acc (to provide a more UK biased fund)

I still have 20+ years of contributions before retiring, so have decided on 100% equities to maximise growth for now.

Saving initial setup fees of £15k, additional annual charges of 1.1%, and the main fact that all of the actively managed funds proposed have a poorer historical performance compared to the above.

Thanks to everyone for comments, and I feel ready to take this forward now after feeling very negative about it all.