What is low risk free way of getting 6-7% I/C from a £470k SIPP?

newby52

I have a £470k SIPP in drawdown and £79k in protected rights both were invested in commercial property until I escaped recently with £40k losses. My funds are now in cash and secure funds only. I am currently with James Hay as a SIPP provider but am thinking of switching as I do not like their customer service.
I have recently seen an IFA who was no help at all – he had the pension qualifications and said he could help but was only interested in inheritance tax planning and wanted me to buy a flexible options bond but gave me no investment advice I complained and managed to get £100 off the fee. However, this experience is in complete contrast to the IFA posts I see on this board who certainly know what they are talking about.
I have therefore decided to manage my own SIPP and would like to achieve 6-7% income P/A in as risk free way as possible. My thoughts on this are to invest £200k in A+ minimum rated Stirling bonds such as Halifax, Tesco, EIB, HBOS – 200k in PIBS such as bank of Ireland, Nationwide B/S - £70k into an Income fund such as Invesco perpetual High Income. This should yield around £24k plus any income from the fund. Does this strategy make sense or could the income be improved without increasing the risk dramatically.
Finally I am not sure what to do with the PR fund which is with Standard Life - I would like to get some income from it but I am not sure of the cost effective way of doing this as moving it to something like the Suffolk Life mastersipp seems expensive..
Any suggestions on my investment plans or PR fund would be appreciated.

AlexGreen_2

You will struggle to get 6%-7% no risk unless you can find a SIPP provider with a top paying cash rate which is unlikely.

Risk and reward are obviously linked so it's hard to increase one without the other. But age does also come into the equation so how old are you and when are you planning to retire?

averageguy11

Newby...u happen to know of a website that gives the daily prices of corporate bonds like the ones u mentioned

purch

happen to know of a website that gives the daily prices of corporate bonds

www.Bondscape.net (closing prices)

My thoughts on this are to invest £200k in A+ minimum rated Stirling bonds such as Halifax, Tesco, EIB, HBOS – 200k in PIBS such as bank of Ireland, Nationwide B/S

You could consider Preference Shares too.......

That'll generate the Income you seek, but won't protect you against the 'erosion' of your Capital value through inflation, so you need to factor that concept into your planning

As far as risk goes, you will be assuming SOME risk with this strategy, but in order to generate a 7% income you will have to assume risk.

P.S. I use HL for my SIPP, and I would not necessarily recommend their 'trading' desk if you wish to invest in Fixed Income products........the people I have experience of speaking to there are usually 'clueless'

averageguy11

Many thanks for reply purch

newby52

Risk and reward are obviously linked so it's hard to increase one without the other. But age does also come into the equation so how old are you and when are you planning to retire?

I am 56 and retired - I have a small property income but need drawdown from my sipp which is why I am more interested in income than growth.

Purch - Investment grade bond ratings can be founf on the FT site
http://markets.ft.com/ft/markets/researchArchive.asp?report=GIG

You could consider Preference Shares too.......

Do preference share prices move up and down in line with ord shares ?

purch

Do preference share prices move up and down in line with ord shares ?

Not really. Their price action is more in line with a Bond, and reflects the true running yield you receive. Of course anything that affects the Ordinary share price, especially in a negative way may have a knock on effect on the price of the pref share also.

I hold a few Bonds, PIB's and Pref's in my SIPP as the 'cautious' part of the portfolio (strangely enough most of those you mention), and a 'guaranteed' return of 6-7% pa, increased by compounding shouldn't be sniffed at IMO.

AlexGreen_2

Purch

You're right, if you can get a 'guaranteed' return of 6%-7% it's not to be sniffed at. The key as you say lies with the compounding which really is THE best friend of the long term investor.

It's a shame that many more people don't realise the effect that compounding plays and why with it on your side you don't need to shoot for super returns which will always increase the risk on a portfolio.

averageguy11

purch do u bother with gilts when there r bonds on top names such as tescos..national grid and barclays paying btr yields

newby52

where can the price of preference shares be monitored ?

purch

do u bother with gilts when there r bonds on top names such as tescos..national grid and barclays paying btr yields

I have an Index-Linked Gilt, but in the main I will always buy a 'Supranational' Bond such as European Investment Bank or World Bank, as they yield 20 to 30 basis points more for a similar duration, with a virtually identical ( and maybe lower ) risk.

With other Bonds it is a 'risk-reward' call. National Grid, Transco, Network Rail all have good yields to risk, as do many other 'Blue Chip' names.

As with all investing it is a good idea to spread risk, and I wouldn't want to hold too many Bonds from one sector.

No major UK Bank has ever missed a divi payment on a Preference Share, and no major Building Society has missed a coupon payment on a PIB, but in the current climate I would be wary of holding all my fixed interest holdings in that sector.

where can the price of preference shares be monitored ?

A Preference Share is traded in the same way as any other Share, and current market prices should be available whenever the market is open. Digital Look http://www.digitallook.com is a 'great' site with lots of information on shares, and also relatively up to date prices.