SIPP/Financial Advisor

dunstonh

Ed means that, as one cannot invest in (lower risk) cash & gilts via a PP,
the PP does not offer the same level of risk reduction.

Some personal pensions can invest in cash and gilts directly. However, most dont. Remember Ed doesnt know the products that are available and makes assumptions that may fit old school legacy products but not the current products.

In reality though, for most people, the use of funds is enough. If you have a fund supermarket pension with over 1000 funds which include cash, gilts, money market etc then there is plenty of risk reduction options available. Even with 1000 funds to choose from, most only end up in 5-10. So, using a SIPP as an excuse for "risk protection" is not valid. So far, the valid reason in your case is the desire to hold direct investments.

EdInvestor

dunstonh wrote: »

So, using a SIPP as an excuse for "risk protection" is not valid. So far, the valid reason in your case is the desire to hold direct investments.

Since it's the direct nature of the investment that provides the risk protection, this is just semantics. Additionally, direct holdings are almost cost free and reducing the drain of charges on your fund is another way of reducing risk.

whiteflag_3

EdInvestor wrote: »

Since it's the direct nature of the investment that provides the risk protection .

Ed, Im struggling to understand this statement , any chance you could explain why direct investment reduces risk. Im thinking, for example how holding Nothern Rock shares within a SIPP would have reduced risk?

EdInvestor

Direct investment (suitably diversified of course) involves no charges once you've bought the shares.Dividend income is paid in at no cost. There are no AMC or hidden transaction charges to pay.

Charges increase the risk of drawdown because they eat into returns - effectively they act as losses.If your income requirement is 7% a year and your fund makes a 7% return, but total charges are 2% (conservative, as hidden charges can add 1%) the charges are 'eating' more than a quarter of your income and you are having to dig into capital to replace it.

Depleting capital, especially at a time of market volatility like now, can mean that your funds decrease in value quite rapidly. This can mean in turn that your maximum permitted income goes down at the next revaluation.

whiteflag_3

EdInvestor wrote: »

Depleting capital, especially at a time of market volatility like now

Yes, but this is a result of markets dropping, not increased charges. Direct investment ( especially by the novice) can only increase the risk of capital depletion.

Its interesting that you ignore the "time" cost element to running your own portfolio. There are some people that value their "time" as much as their wealth and I think your quite wrong never to consider that as issue. After all we only have life, so theres got to be more interesting things to be doing than managing your own "suitably diversified" portfolio.

EdInvestor

whiteflag wrote: »

Its interesting that you ignore the "time" cost element to running your own portfolio. There are some people that value their "time" as much as their wealth... After all we only have life, so theres got to be more interesting things to be doing than managing your own "suitably diversified" portfolio.

Doesn't take much time if it's rarely traded. The investment of time is all at the start when you set it up. Much of that "rebalancing' lark so beloved of industry people is just as excuse for churning IMHO.You can usually accommodate any profit taking that might be needed at the same time as activate your CGT allowance for the year.

I think they call it multi-tasking

coachpotato

dunstonh wrote: »

This is not a place to take an anti IFA or pro IFA stance. There are people reading these posts without commenting who may make decisions based on their content. We have seen evidence on these forums before when people have invested in SIPPs and ended up in more expensive funds with worse past performance than what they had on their stakeholder or personal pension. QUOTE]

Well said.

I am one of those people.

Although having said that, I have now commented.

jem16

coachpotato wrote: »

Although having said that, I have now commented.

Thanks for doing so.

Perhaps you could tell us more about your situation? It might help others.

coachpotato

As you will be aware i've not posted for some time so sorry I didn't reply Jem16!

I've been trying to sort out a gaggle of pensions I have, and don't appear to be getting anywhere with them as they are seemingly tied up.
They aren't worth fantastic amounts, one, a frozen PPP is for about £4k, I have a deferred Final Salary Scheme which is worth about £8k per annum on retirement at 65 and I have Standard Life Group AVC's worth about £10K which are stopped as they were with the deferred FS Pension.
I am presently in a Final Salary Scheme and take share options with this scheme.
I cannot transfer the deferred FS Pension as the credits in there are of a type that limit my transferrable amount to lower than £10k which means my present FS scheme won't allow the transfer as the value is too low.
I am a novice financially and thought if I checked on the site I might be able to see a way forwards, but as yet the water still appears muddied!!
Ideally i'd like to take the monies I have and start making them work in a better way, but then, some will say, I shouldn't have my eggs in one basket I suppose!
I thought I could transfer the frozen pension and AVC's into a SIPP or similar as neither are showing growth recently, not surprisingly, and i've been told to leave the deferred FS Pension alone and take it when I retire along with the present FS sceme and my State pension.
All very confusing. But shouldn't it be easier to sort out your retirement than this?