Pension Dilemma

stringer_bell · 10 August 2018 at 1:16AM

Hey All,

I have a SIPP, I know non of this qualifies at investment advice, I would just like to bounce some ideas

so, circa £118k in, I have 10 percent spread around various funds, axa framlington biotech, various investment trusts.. what would be considered High Risk. I always thought having them all split minimises the risk, but someone mentioned they were high risk and could easily drop 70 percent in a crash.. not good

However, I have retirement age set at 55, so another 22 years. This may sound crazy, but I'm thinking about selling them all ( they are all 10+ plus at the moment in gains ) and sticking the full amount in scottish mortgage investment trust. Your crazy some might say, but surely 22 years is a decent timeframe to gain a decent amount of money from a high risk investment. Scottish Mortgage invests in some pretty stable tech companies

any flaw to my plan? Obviously keeping it all in cash is no good, and vanguard life strategy would be a sensible option, but hardly going to make me a fortune for my retirement, is it?

bowlhead99 · 10 August 2018 at 6:55AM

Are you saying your £118k is all in various high risk funds, 10% each? Or are you saying that within your £118k portfolio you have 10% (11.8k) which is spread around riskier funds and ITs while 90% is in more normal funds and ITs?

If the latter, I wouldn't worry at all for a 20+ year view. But as an aside, whether or not that £11.8k would be better in the basket of high risk funds or in SMT (itself a high risk fund), is unknowable.

If you're talking about giving up on having a diversified basket of 10 specialist funds at 10% each,totalling £118k, to replace with one investment in SMT of £118k, that is quite an extreme move. To be clear, SMT could also easily drop 70%+ in a crash, so if you think that state of affairs is "... not good" then it wouldn't be solved by putting all your eggs in the SMT basket.

A potential gain is in the fact that SMT is a large and relatively efficiently-run fund and so the operating costs are perhaps lower than buying a lot of niche specialist investment trusts - so could have value over time even if the gross investment performance is the same - but you are concentrating the risks if you give £118k to SMT and nothing to everyone else (also increasing exposure manager risk, fraud risk etc).

If you have a huge defined benefit pension or workplace DC pot, and this 118k is just fun money for the next couple of decades, then sure, stick it in something that gues up and down like a rollercoaster. If it's your primary pension provision I would spread it around a lot further than SMT (and I say that as someone with a relatively high risk appetite and capacity for loss).

FatherAbraham · 10 August 2018 at 7:00AM

stringer_bell wrote: »

any flaw to my plan? Obviously keeping it all in cash is no good, and vanguard life strategy would be a sensible option, but hardly going to make me a fortune for my retirement, is it?

For most people, it's not worth trying to retire with a fortune, because that implies also accepting the risk of retiring with very little.

dunstonh · 10 August 2018 at 10:43AM

so, circa £118k in, I have 10 percent spread around various funds, axa framlington biotech, various investment trusts.. what would be considered High Risk.

High risk or highly speculative? Axa Fram Bio is more than high risk for example.

. I always thought having them all split minimises the risk, but someone mentioned they were high risk and could easily drop 70 percent in a crash.. not good

Diversification helps. However, if all your funds are highly speculative then you have only diversified within that profile. Unstructured diversification can be a bad thing to. e.g. just putting 10% into 10 different funds is not a great idea.

A number of the niche industry targetted funds actually have loss potential of 90%. The Biotech fund hasnt quite managed that in its history but it did get almost 60% loss early on. And that was only during part of the dot.com period. Had it launched it bit earlier, you would well have seen 70-80% loss. Biotech funds were dire in the 90s and then had a short burst. Then poor (for the level of risk) for the next decade and then had had a recent burst. it is important to note level of risk as doubling over 10 years when using highly speculative investments is not good. A decent spread of higher medium risk can double over 10 years.

However, I have retirement age set at 55, so another 22 years. This may sound crazy, but I'm thinking about selling them all ( they are all 10+ plus at the moment in gains ) and sticking the full amount in scottish mortgage investment trust.

Slightly lower risk than the biotech fund but still a very high risk fund.

Scottish Mortgage invests in some pretty stable tech companies

Tech companies and stability are not really words that go together. Today's market leader is the next decade's failure. You are still in the 70% loss potential area. So, it doesnt achieve your objective.

and vanguard life strategy would be a sensible option, but hardly going to make me a fortune for my retirement, is it?

Depends on which version you are talking about. Archiias MAP moderate (a low risk fund close to VLS40) doubled its money between 2008 and 2018. Matching the performance of AXA fram biotech the previous decade.

Risk doesn't mean your returns will be better. The structure is where the difference is made (unless you are relying on blind luck and happen to get lucky).

At this point of the cycle, I wouldnt want to be gung ho on risk.

StellaN · 10 August 2018 at 11:21AM

If you did want to go all in with your £118K in one fund or IT, instead of SMT why don't you consider FRCL (Foreign & Colonial Investment Trust). It is far more diversified and will be less volatile than SMT?

stringer_bell · 10 August 2018 at 4:17PM

bowlhead99 wrote: »

Are you saying your £118k is all in various high risk funds, 10% each? Or are you saying that within your £118k portfolio you have 10% (11.8k) which is spread around riskier funds and ITs while 90% is in more normal funds and ITs?

If the latter, I wouldn't worry at all for a 20+ year view. But as an aside, whether or not that £11.8k would be better in the basket of high risk funds or in SMT (itself a high risk fund), is unknowable.

If you're talking about giving up on having a diversified basket of 10 specialist funds at 10% each,totalling £118k, to replace with one investment in SMT of £118k, that is quite an extreme move. To be clear, SMT could also easily drop 70%+ in a crash, so if you think that state of affairs is "... not good" then it wouldn't be solved by putting all your eggs in the SMT basket.

A potential gain is in the fact that SMT is a large and relatively efficiently-run fund and so the operating costs are perhaps lower than buying a lot of niche specialist investment trusts - so could have value over time even if the gross investment performance is the same - but you are concentrating the risks if you give £118k to SMT and nothing to everyone else (also increasing exposure manager risk, fraud risk etc).

If you have a huge defined benefit pension or workplace DC pot, and this 118k is just fun money for the next couple of decades, then sure, stick it in something that gues up and down like a rollercoaster. If it's your primary pension provision I would spread it around a lot further than SMT (and I say that as someone with a relatively high risk appetite and capacity for loss).

Thank you for response. Yes, I have 10 percent in around 8 to 10 different funds, it's quite messy

Having giving it some thought, the replies to this post are spot on. Putting all my money into SMT, might seem like a great option if it goes up 900 percent in 22 years, but lets say 3 years down the line, it drops 60 percent, will I have the nerve to hold on, well I will probably have no choice, but I won't be in a happy mood

I think I will do the sensible option, and split up this money. Maybe Vanguard Life Strategy for 50k, 18k in SMT.. and then 2 X 25 in 2 other global IT ( with no overlapping )

I've always worked for myself, so I have never had a workplace pension, so this is my lot. My SIPP, and whatever the state benefit is

stringer_bell · 10 August 2018 at 4:22PM

dunstonh wrote: »

High risk or highly speculative? Axa Fram Bio is more than high risk for example.

Diversification helps. However, if all your funds are highly speculative then you have only diversified within that profile. Unstructured diversification can be a bad thing to. e.g. just putting 10% into 10 different funds is not a great idea.

A number of the niche industry targetted funds actually have loss potential of 90%. The Biotech fund hasnt quite managed that in its history but it did get almost 60% loss early on. And that was only during part of the dot.com period. Had it launched it bit earlier, you would well have seen 70-80% loss. Biotech funds were dire in the 90s and then had a short burst. Then poor (for the level of risk) for the next decade and then had had a recent burst. it is important to note level of risk as doubling over 10 years when using highly speculative investments is not good. A decent spread of higher medium risk can double over 10 years.

Slightly lower risk than the biotech fund but still a very high risk fund.

Tech companies and stability are not really words that go together. Today's market leader is the next decade's failure. You are still in the 70% loss potential area. So, it doesnt achieve your objective.

Depends on which version you are talking about. Archiias MAP moderate (a low risk fund close to VLS40) doubled its money between 2008 and 2018. Matching the performance of AXA fram biotech the previous decade.

Risk doesn't mean your returns will be better. The structure is where the difference is made (unless you are relying on blind luck and happen to get lucky).

At this point of the cycle, I wouldnt want to be gung ho on risk.

Thank you for your detailed response, you should be on commission for the amount of great replies you post here!

I have only been investing since 2012, therefore I have never seen or experienced a crash, which is maybe a good, possibly a bad thing whichever way I want to look at it

For instance, my naive mindset is, I will see a crash coming. It will be all over the papers, SMT will drop 4 percent overnight, I will sell immediately

probably not the case though, is it? For instance, a few months ago in my ISA, SMT dropped 7 percent in one day, I immediately bought more, and it rebounded and I made some nice dough. However, a real crash and I think I would be having sleepless nights

I'm going to review a few funds with more medium risk, so I appreciate your feedback

MPN · 10 August 2018 at 4:23PM

StellaN wrote: »

If you did want to go all in with your £118K in one fund or IT, instead of SMT why don't you consider FRCL (Foreign & Colonial Investment Trust). It is far more diversified and will be less volatile than SMT?

Agreed, if I personally had to go for one holding then FRCL would be the one for me.

stringer_bell · 10 August 2018 at 4:23PM

StellaN wrote: »

If you did want to go all in with your £118K in one fund or IT, instead of SMT why don't you consider FRCL (Foreign & Colonial Investment Trust). It is far more diversified and will be less volatile than SMT?

I have that in my ISA, I have a very strange rule where, I dont want funds to overlap in SIPP/ISA/general investment account. I mean what is point in holding the same fund twice, right ?

ruperts · 10 August 2018 at 4:32PM

I think your rationale for dropping all the cellular joints in the 90's should provide more than enough first hand experience of why trying to play the markets often fails.

ArchBair · 10 August 2018 at 5:51PM

Another one for FRCL if all £118K were to be all held in one pot. I personally think it is the best global IT for income and growth at the moment. It's also very well diversified and less risky/volatile than the pure growth global IT's IMHO.

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