low risk bonds or equities in SIPPs

jazzy23

Hi I am starting to derisk my SIPP from equities and rather than put in to cash within it I wondered about bonds or low risk equities (is there one i wonder?)  - what are other people doing for this?
I have cash in ISAs and premium bonds and also a managed equity Isa already. - thanks

InvesterJones

Of course, there are a range of risks for equities, just as there are for bonds. You can reduce the risk by going for diversified funds of equities rather than individual equities for example.

It's important to understand how the different asset types perform in different situations before you invest - it's not as simple as saying 'bonds are less risky' - and as mentioned, there are many different types of bonds, and also bond funds, which will behave quite differently so may or may not reduce your risk as much as you wish.

At the moment cash is paying very well for the risk level, but if you have a longer time horizon then long duration gilts can lock in an even higher rate (>4.5% for 10yr, >5% for 20yr etc.) - though of course you've got inflation risk as time goes on.

dunstonh

Hi I am starting to derisk my SIPP from equities and rather than put in to cash within it I wondered about bonds or low risk equities (is there one i wonder?) 

Moving from equities to equities doesn't reduce the risk unless you have smaller cos and are moving to large caps.  Or individual share holdings and moving to general equity funds.  Or specialist focused equity funds (industry focused for example) and move to general equity funds.

Typically, people lower their equity content when they want to reduce risk by using Short Term Money market, gilts and bonds.   However, it is worth noting that you can get higher risk gilts and bonds.  So, you need to be careful what you select.

SIPPs, assuming yours is a SIPP and not a pretend one or a mistaken reference, also have a range of deposit options.

chiang_mai

You can reduce risk by moving from single company equities to equities funds containing anywhere from 35 to several hundred companies. You can further derisk by moving from equities funds to mixed asset funds containing both equities funds and bond funds, in whatever ratio your risk tolerance is happy with. You can also mix and match to suit your comfort level. For example, I currently hold 50% equities and 50% other things, including 25% cash and 20% bonds. Within the 50% equities funds element I hold one fund that is quite high risk, two funds that above average risk, a couple that are average and a couple that are below average. But if you want to go completely hands free, something like Vanguard Life Strategy may suit, using anywhere from 20% equties to 80% or more, based on your preference.  I suggest that you try to define and quantify what you mean by re-risk and to what level you want to reduce your risk.

Albermarle

You will find quite a lot of similar type questions/threads on the Pensions forum board, especially recently .
Probably because the equity markets have done some well and some kind of correction is expected, although it may not happen for a long time of course.

chiang_mai

I'm always looking for lower risk options to the funds that I hold but ususally this means a trade off with earnings. I recently bought Prem Miton Global Cautious which is a Mixed Asset fund that scores 44 on the M/S risk scale and is Kiid level 4, for only having 55% in equities it's been doing well. Fidelity Global Divi scores 48 on the same scale but is Kiid level 5, it's mostly very large European companies (which was the hole I wanted to plug) so the earnings wont be exciting, only lower risk and fairly reliable. I don't really want to go much below 50% equties so there's no room for further risk reduction there. My bond holdings are also slightly boring and safe, they are all short duration, high quality, corp/gov splits so again, not exciting but fairly safe. Those things leave me holding over 20% cash that is not earning very much and mostly regional trackers........again, a broad spread of risk. If I could find other mixed asset funds that both perform well, have the right mix of asset classes plus they tick my safety boxes, I would certainly buy. I like the idea of having the fund decided the bonds because I know very little about them. But on average, my portfolio scores 49 on the risk measurement scale that I have adopted, that's down from 55 and 53 in the past few months so I may be doing something right. Another possible contender is Trinity Bridge Conservative Managed.
 

Bostonerimus1

jazzy23 said:

Hi I am starting to derisk my SIPP from equities and rather than put in to cash within it I wondered about bonds or low risk equities (is there one i wonder?)  - what are other people doing for this?
I have cash in ISAs and premium bonds and also a managed equity Isa already. - thanks

What are your plans for the money in your SIPP? Are you thinking of drawdown using a dividend strategy or total return or are you thinking of an annuity? Your answers will influence your asset allocation choices.

aroominyork

Do you understand the corporate bond landscape? If you want a landing place between equities and cash, that's an obvious place to look. It's more complicated than equities, IMHO, but worth getting to grips with.

SimonSeys

This is a good thread on gilts.

https://forums.moneysavingexpert.com/discussion/6596493/explain-gilts-bonds-to-me-like-i-am-5-years-old-please

i am now thinking if / when I should derisk by moving from equities to gilts. 

LHW99

Another possible contender is Trinity Bridge Conservative Managed.

This looks like a fund of funds, is that right? I see it's annual charge (on HL) is 1%, which is raher higher than I would personally choose.

I tend to avoid FofF types, as it's not so easy to see "under the bonnet" as it were.

redpete

I'm in the draw-down phase for my SIPP. When I got there I moved approx half my money into bond funds, money market funds and gilts. Of this I use directly-bought UK gilts to cover approx 5 years' of withdrawals; as each matures I take out a UFPLS lump sum withdrawal. To keep this at a rolling 5 years I take income from these funds to reinvest in gilts and will sell-off from the funds periodically if this falls short of what I need for the 5 yr timescale.
With the equity funds (almost all index tracking) I rebalance maybe once a year to maintain my desired spread across different market sectors. Whenever the equity funds have increased by around 20% I sell-off 20% and move the cash into the 'bond' half of the SIPP.