Pension (SIPP), ISAs and Retirement

the_medium_bear

I am interested in what people think should be a good mix of equities and bonds are for my sipp given my target retirement in about 7 years. Should I be reducing from 100% equities to something like one of the lifestrategy 80 60 or maybe even less 40? Given my age and SIPP pot or keep entirely in equity with the view any dip in the market would recover during early retirement 

Not sure how entirely 'safe' bonds are now given their bad time in the recent past and would lifestrategy give additional protection with it non equities not just being in bonds 

the_medium_bear

Oh and I should say thank you for all the advice I've received so far 

Albermarle

the_medium_bear said:

I am interested in what people think should be a good mix of equities and bonds are for my sipp given my target retirement in about 7 years. Should I be reducing from 100% equities to something like one of the lifestrategy 80 60 or maybe even less 40? Given my age and SIPP pot or keep entirely in equity with the view any dip in the market would recover during early retirement 

Not sure how entirely 'safe' bonds are now given their bad time in the recent past and would lifestrategy give additional protection with it non equities not just being in bonds 

There are many different opinions on asset allocation, but probably most would reduce from 100% equities at your age, but not everybody.
Firstly though do not be too focused on your actual retirement date, as the SIPP will presumably have to last you many years after that.
The recent 'bad time for bonds' was a one off event, probably not to be repeated in our lifetime. The extremely low interest rates in the previous decade boosted their value, but they returned to earth with a bang once rates normalised. So in future they should behave more normally.

dunstonh

The recent 'bad time for bonds' was a one off event, probably not to be repeated in our lifetime.

Indeed.  Reliable records started from 1915.   The period from Nov 2021 to Oct 2022 was the worst since then.  

(Some treat the Oct 2023 date as the end of that negative cycle, but the trough was Oct 22 with a second decline, not as deep, over the following year before they started going up again.  General gilt funds are up around 10% since Oct 23. and 14% since Oct 22)

the_medium_bear

dunstonh said:

The recent 'bad time for bonds' was a one off event, probably not to be repeated in our lifetime.

Indeed.  Reliable records started from 1915.   The period from Nov 2021 to Oct 2022 was the worst since then.  

(Some treat the Oct 2023 date as the end of that negative cycle, but the trough was Oct 22 with a second decline, not as deep, over the following year before they started going up again.  General gilt funds are up around 10% since Oct 23. and 14% since Oct 22)

i have been doing a little digging into gilts and in particular index-linked ones (so giving inflation protection) from what i can gather (in my limited investigations) you get a particular interest rate guarantee on the principle (paid twice a year) + inflation (CPI?) and at the end of the git term you will get that back as a minimum - although if the guild has gone up in value you may get more (but wont get less) You can also sell midway through the term (with either a gain or loss if the money is needed) Thats my 50,000ft take on it, but i may need to do a little more digging

seems that there a quite a lot of guilts (secondary brought through interactive investor - which is my trading platform) is an option - unclear what their holding fee is

they do seem to have a pretty low guaranteed interest rate ~1.125% i think for a longer term. there seems to be a lot of choice too, would a better option that but direcly an indevidual guit be to go for some kind of guilt fund 

the_medium_bear

Albermarle said:

the_medium_bear said:

I am interested in what people think should be a good mix of equities and bonds are for my sipp given my target retirement in about 7 years. Should I be reducing from 100% equities to something like one of the lifestrategy 80 60 or maybe even less 40? Given my age and SIPP pot or keep entirely in equity with the view any dip in the market would recover during early retirement 

Not sure how entirely 'safe' bonds are now given their bad time in the recent past and would lifestrategy give additional protection with it non equities not just being in bonds 

There are many different opinions on asset allocation, but probably most would reduce from 100% equities at your age, but not everybody.
Firstly though do not be too focused on your actual retirement date, as the SIPP will presumably have to last you many years after that.
The recent 'bad time for bonds' was a one off event, probably not to be repeated in our lifetime. The extremely low interest rates in the previous decade boosted their value, but they returned to earth with a bang once rates normalised. So in future they should behave more normally.

yes i was thinking that 100% equities at my age is perhaps a little high, kind of hard to know what percentage would be best 80? or 60? (or less?) was thinking perhaps 60% to allow for growth post actual retirement age (but then maybe 80% is better?) Wondering to myself out-loud here

what the general opinion on having the SIPP pot in something like one of the Lifestratagy mixes (so not having to manage the bond - non equity side myself as im sure fund managers would would do a better job than i could)

also looking at the vanguard target retirement funds (given a retirement year) less risk than a lifestratagy perhaps - well according the the risk rating. 

ideally i would pref bonds in some kind of managed/ fund type pot (kind of a fire and forget, but not closed to the idea of keeping a percentage of sipp as equities fund and then manually choosing bonds/gilts myself for the remaining percentage

would be interested to know opinions on this or just using a lifestratagy / retirement target style of fund. also ultimatly wondering what equities / bonds type allocation people thing would be applicable or wise give my age.

lots of waffle here i appreciate

masonic

the_medium_bear said:

dunstonh said:

The recent 'bad time for bonds' was a one off event, probably not to be repeated in our lifetime.

Indeed.  Reliable records started from 1915.   The period from Nov 2021 to Oct 2022 was the worst since then.  

(Some treat the Oct 2023 date as the end of that negative cycle, but the trough was Oct 22 with a second decline, not as deep, over the following year before they started going up again.  General gilt funds are up around 10% since Oct 23. and 14% since Oct 22)

i have been doing a little digging into gilts and in particular index-linked ones (so giving inflation protection) from what i can gather (in my limited investigations) you get a particular interest rate guarantee on the principle (paid twice a year) + inflation (CPI?) and at the end of the git term you will get that back as a minimum - although if the guild has gone up in value you may get more (but wont get less) You can also sell midway through the term (with either a gain or loss if the money is needed) Thats my 50,000ft take on it, but i may need to do a little more digging

seems that there a quite a lot of guilts (secondary brought through interactive investor - which is my trading platform) is an option - unclear what their holding fee is

they do seem to have a pretty low guaranteed interest rate ~1.125% i think for a longer term. there seems to be a lot of choice too, would a better option that but direcly an indevidual guit be to go for some kind of guilt fund 

The inflation linking is to RPI, which after 2030 will rise in line with CPIH. The overall return is inflation plus 1-2% for the longer duration issues, which is quite good. You would only get a guaranteed return from buying individually and holding to maturity.

A fund will keep reinvesting maturing gilts into new ones, so your return can differ, especially if interest rates rise around the time you want to sell units of the fund. There are short duration funds (e.g. iShares up to 10 year) where interest rate sensitivity is low and would be more suitable for a general defensive hedge.

Interactive Investor has no additional charges for holding them, but I think you need to trade them by phone. Only a couple of providers allow online trading.

DRS1

the_medium_bear said:

Albermarle said:

the_medium_bear said:

I am interested in what people think should be a good mix of equities and bonds are for my sipp given my target retirement in about 7 years. Should I be reducing from 100% equities to something like one of the lifestrategy 80 60 or maybe even less 40? Given my age and SIPP pot or keep entirely in equity with the view any dip in the market would recover during early retirement 

Not sure how entirely 'safe' bonds are now given their bad time in the recent past and would lifestrategy give additional protection with it non equities not just being in bonds 

There are many different opinions on asset allocation, but probably most would reduce from 100% equities at your age, but not everybody.
Firstly though do not be too focused on your actual retirement date, as the SIPP will presumably have to last you many years after that.
The recent 'bad time for bonds' was a one off event, probably not to be repeated in our lifetime. The extremely low interest rates in the previous decade boosted their value, but they returned to earth with a bang once rates normalised. So in future they should behave more normally.

yes i was thinking that 100% equities at my age is perhaps a little high, kind of hard to know what percentage would be best 80? or 60? (or less?) was thinking perhaps 60% to allow for growth post actual retirement age (but then maybe 80% is better?) Wondering to myself out-loud here

what the general opinion on having the SIPP pot in something like one of the Lifestratagy mixes (so not having to manage the bond - non equity side myself as im sure fund managers would would do a better job than i could)

also looking at the vanguard target retirement funds (given a retirement year) less risk than a lifestratagy perhaps - well according the the risk rating. 

ideally i would pref bonds in some kind of managed/ fund type pot (kind of a fire and forget, but not closed to the idea of keeping a percentage of sipp as equities fund and then manually choosing bonds/gilts myself for the remaining percentage

would be interested to know opinions on this or just using a lifestratagy / retirement target style of fund. also ultimatly wondering what equities / bonds type allocation people thing would be applicable or wise give my age.

lots of waffle here i appreciate

I was watching a youtube video the other day which said that there could be an issue with buying a single fund in drawdown (whether it is lifestrategy or target).  The issue is that if you are trying to protect against selling equities in a dip then you really need separate funds for the equities and the bonds so you can sell just the bonds.  In a single fund you will be selling both when you sell units in order to draw money out of the pension.

the_medium_bear

DRS1 said:

the_medium_bear said:

Albermarle said:

the_medium_bear said:

I am interested in what people think should be a good mix of equities and bonds are for my sipp given my target retirement in about 7 years. Should I be reducing from 100% equities to something like one of the lifestrategy 80 60 or maybe even less 40? Given my age and SIPP pot or keep entirely in equity with the view any dip in the market would recover during early retirement 

Not sure how entirely 'safe' bonds are now given their bad time in the recent past and would lifestrategy give additional protection with it non equities not just being in bonds 

There are many different opinions on asset allocation, but probably most would reduce from 100% equities at your age, but not everybody.
Firstly though do not be too focused on your actual retirement date, as the SIPP will presumably have to last you many years after that.
The recent 'bad time for bonds' was a one off event, probably not to be repeated in our lifetime. The extremely low interest rates in the previous decade boosted their value, but they returned to earth with a bang once rates normalised. So in future they should behave more normally.

yes i was thinking that 100% equities at my age is perhaps a little high, kind of hard to know what percentage would be best 80? or 60? (or less?) was thinking perhaps 60% to allow for growth post actual retirement age (but then maybe 80% is better?) Wondering to myself out-loud here

what the general opinion on having the SIPP pot in something like one of the Lifestratagy mixes (so not having to manage the bond - non equity side myself as im sure fund managers would would do a better job than i could)

also looking at the vanguard target retirement funds (given a retirement year) less risk than a lifestratagy perhaps - well according the the risk rating. 

ideally i would pref bonds in some kind of managed/ fund type pot (kind of a fire and forget, but not closed to the idea of keeping a percentage of sipp as equities fund and then manually choosing bonds/gilts myself for the remaining percentage

would be interested to know opinions on this or just using a lifestratagy / retirement target style of fund. also ultimatly wondering what equities / bonds type allocation people thing would be applicable or wise give my age.

lots of waffle here i appreciate

I was watching a youtube video the other day which said that there could be an issue with buying a single fund in drawdown (whether it is lifestrategy or target).  The issue is that if you are trying to protect against selling equities in a dip then you really need separate funds for the equities and the bonds so you can sell just the bonds.  In a single fund you will be selling both when you sell units in order to draw money out of the pension.

ah that makes a lot of sense and something i had not considered in a lifestratagy / target fund, but can definatly see the rational behing that, so possibly a portion in equities (FTSE 100 global all cap or LS 100) and some in a seperate bonds for when the market is down. 

Any particular recommendations for a bond fund (or self selected bonds like index linked GILTs) 

also what kind of spit with equities/ bonds would you recomend?

the_medium_bear

masonic said:

the_medium_bear said:

dunstonh said:

The recent 'bad time for bonds' was a one off event, probably not to be repeated in our lifetime.

Indeed.  Reliable records started from 1915.   The period from Nov 2021 to Oct 2022 was the worst since then.  

(Some treat the Oct 2023 date as the end of that negative cycle, but the trough was Oct 22 with a second decline, not as deep, over the following year before they started going up again.  General gilt funds are up around 10% since Oct 23. and 14% since Oct 22)

i have been doing a little digging into gilts and in particular index-linked ones (so giving inflation protection) from what i can gather (in my limited investigations) you get a particular interest rate guarantee on the principle (paid twice a year) + inflation (CPI?) and at the end of the git term you will get that back as a minimum - although if the guild has gone up in value you may get more (but wont get less) You can also sell midway through the term (with either a gain or loss if the money is needed) Thats my 50,000ft take on it, but i may need to do a little more digging

seems that there a quite a lot of guilts (secondary brought through interactive investor - which is my trading platform) is an option - unclear what their holding fee is

they do seem to have a pretty low guaranteed interest rate ~1.125% i think for a longer term. there seems to be a lot of choice too, would a better option that but direcly an indevidual guit be to go for some kind of guilt fund 

The inflation linking is to RPI, which after 2030 will rise in line with CPIH. The overall return is inflation plus 1-2% for the longer duration issues, which is quite good. You would only get a guaranteed return from buying individually and holding to maturity.

A fund will keep reinvesting maturing gilts into new ones, so your return can differ, especially if interest rates rise around the time you want to sell units of the fund. There are short duration funds (e.g. iShares up to 10 year) where interest rate sensitivity is low and would be more suitable for a general defensive hedge.

Interactive Investor has no additional charges for holding them, but I think you need to trade them by phone. Only a couple of providers allow online trading.

a thanks for the clarification. so with an inflation linked i "could" sell before maturity i just would not get the guaranteed initial capital back if the bond value had decreased, but if i kept to maturity then i would be guaranteed the initial purchase price back,so i could sell mid way through if the value had increaced

1-2% over say 10years + RPI/CPIH i guess would only be suitable for a split of the total SIPP as it would reduce the term i could say withdraw 4% from with the anticipated/potential >4% gain (if im correct here?)