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Investments

Discuss investments with other users on our Investment forum. For more advice read our tips for saving for your child's future.

Pensions / investments thread

39 replies

amandass · 08/10/2023 13:06

Hello, I can’t find the original threads but some of us were pooling ideas / motivation etc with regard to pensions and investments … and I can’t find the thread anywhere.

So my question is - my pensions are all performing less well recently. I’m sure this is universal but erm what’s everyone else’s strategy?

I’m 15 years away from retirement… I’m now a low earner due to poor health. I have various pensions totalling about £160k in different places.

OP posts:
amandass · 08/10/2023 15:26

Bumping!

OP posts:
Medee · 08/10/2023 17:20

Are you happy with the funds? With 15 years to go you likely want 100% equity, in low fee, broad based index funds, such as Vanguard global all cap. Avoid any life strategy type things.

but not sure what advice you’re looking for. Markets are volatile, and they’ve been down recently. But they’re likely to go up again.

CurlyhairedAssassin · 08/10/2023 18:35

Medee · 08/10/2023 17:20

Are you happy with the funds? With 15 years to go you likely want 100% equity, in low fee, broad based index funds, such as Vanguard global all cap. Avoid any life strategy type things.

but not sure what advice you’re looking for. Markets are volatile, and they’ve been down recently. But they’re likely to go up again.

Why avoid Life Strategy?

amandass · 08/10/2023 21:10

I have quite a few LifeStrategy items… ! Happy to reconsider them. Just not sure what’s wrong with them?

OP posts:
Medee · 08/10/2023 22:16

They're often higher fees as actively managed and have a portion in bonds not 100% equity and with that time horizon you don't need bonds. My opinion of course, not financial advice!

YankeeDad · 08/10/2023 23:16

my opinion (not advice since I do not know your complete circumstances): 100% equities is extreme, except for a person with a very high risk tolerance and capacity for loss.

Fact: bonds offered very little return for most purchases during the period from roughly 2009-2022, but UK government bonds now offer a 4.5%-5.0% return for most maturities, which in my opinion (again not advice) is not that bad.

amandass · 09/10/2023 11:51

i have LifeStrategy 60% and 80% plus a spread of other funds.

interesting about the return on bonds.

Vanguard is cheaper than most other platforms?

OP posts:
YankeeDad · 09/10/2023 12:41

Vanguard certainly has lower fees than active funds, and it brings much lower fees than buying active funds through a financial advisor who would charge an advice fee on top of the active fund fees.

Some people may definitely benefit enough from advice to more than justify the cost, thanks to the help they would get in identifying the right asset allocation, optimising the use of tax wrappers, and then avoiding to react to market moves by buying high and selling low. Some people may not need advice to accomplish that.

If your circumstances and behaviour are such that you feel confident choosing your own investment vehicle(s) without formal advice, and if you are able to avoid selling out during crashes or buying all-in during booms, then you may well fall in the second group. In that case, you will find that objectively, Vanguard is one of the well-respected firms with relatively low costs that has an offering on the UK market.

amandass · 09/10/2023 14:39

Thank you for your input @YankeeDad

OP posts:
BorgQueen · 09/10/2023 20:13

The only Vanguard we have is VLS 80, it’s in DH’s Sipp and is 20% of our whole portfolio.
I prefer HSBC Global strategy funds, they are managed for volatility but very low cost, we both have the Dynamic version.
We also have Fidelity World index and HSBC ftse index world as 100% equities and DH has Fundsmith as 10% of his portfolio. Those are our only funds, plus a Short term money market fund for cash as interest rates are high enough at the moment.
I’ve just finalised our plans for early retirement at 64 in five years and beyond up until age 77.
It all hinges on your actual plans for your pension income, Annuity or Drawdown.
If Annuity then you need to move into bonds over 5-10 years.
If Drawdown then a ‘bucket’ strategy, either using income funds to build a cash pot or selling funds in good years to do the same, OR, if interest rates are high enough, Money Market funds or a combination.
Our plans involve enough cash funds within our Sipps to cover the 3 years of early retirement until State pension age, using UFPLS to maximise tax free income ( we can get £30k a year tax free if we need to) along with DH’s military pension, which uses up 75% of his personal allowance if they don’t rise by 2029.
We have started building that Now with income and money market funds and will be adding extra in 2025, from DH’s military pension lump sum.
For the 10 years after age 67, we will only draw tax free lump sums as income, in the form of cash from income funds - a 1.7% withdrawal rate will easily cover it.
We shouldn’t NEED the income if we are both still alive at that age so it will go into ISAS for extra tax free income after 77.

It’s our old age I’m unsure about, without a crystal ball how do you decide?
What if one of us dies? What if one needs care?

I think that fixed term 5 year annuities with a payout at the end is looking most likely but it’s almost 20 years away so it’s 90% equities for us in the meantime.
As you can tell, I’ve thought about this a LOT recently.

snowlaser · 11/10/2023 12:54

I'd second the post above about Lifestyle type funds not being simply "bad" but rather they have a purpose - they gradually switch your investments over time. If you use one you need to make sure that the purpose is right for you

  • it is switching to the right retirement age (don't want it to put loads in cash at 60 if you're not planning to retire until 65 or 67)
  • it is switching to the right thing (bonds are helpful to reduce volatility if you want to buy an annuity, but not necessarily so for drawdown)
Woollyguru · 11/10/2023 16:03

I think rather than a lifestyle fund it's better than have a separate bond and equity fund so you can control the time and proportion of bonds to equity to suit you.

We have a combination of equities and mmf. I don't understand bonds so am not investing in them. Bond funds seem risky to me even though they're meant to be safer and smooth out volatility. Even though equities are also very risky I understand them so feel more comfortable with them.

@BorgQueen you've got a very comprehensive and well thought out plan.

We're planning on retiring in 2030 and I've made a rough plan but there are so many variables it's not really a proper plan.

But we're probably going to go with the bucket strategy.

I wish I'd looked at our finances a lot sooner than I have done. I only looked at things in detail last year and found out both mine and DHs pensions were in the wrong sort of funds for our requirements.

There really should be free regular financial education for people with DC pensions. I'm sure 90% of people never look at or understand their pension and leave it in the usually poorly performing default fund.

BorgQueen · 11/10/2023 18:07

I wish I’d started sooner too.

My understanding of Bonds is:
you either buy individual Gilts and keep them till maturity, so it doesn’t matter what happens in between, you still get the income and the full worth at the end, people tend to build a bond ladder, so they mature every year or two, which is good for regular guaranteed income. Obviously rates aren’t spectacular so only really good for a 5-10 year time frame. You would still need equities for long term growth.
Or, you switch into bonds as you get close to retirement IF you plan to buy an annuity.
The Bonds crash that happened didn’t affect those who were buying annuities because annuity rates rose as Bonds fell, You would have got 37% more when buying an annuity last year against buying in 2017, so bond prices were irrelevant.

It’s the uninformed retirees in default lifestyle funds who weren’t planning to buy annuities who saw their pensions fall by up to 40%.

Woollyguru · 11/10/2023 19:10

@BorgQueen thanks for the explanation about bonds. I seem to have a mental block and just can't get my head around them. Especially duration risk and inverted yield curve. Even the fact that "bond yields soaring" sounds good but it's bad as it means bond prices are falling.

Would you buy a single bond within a SIPP? I don't think I can within my work pension or SIPP. I can buy bond funds but definitely won't be doing that.

Bonds also have a dirty and clean price. The best thing I can see is if you make a capital gain if you sell before it matures it's CGT free. But the interest is taxable as income so if buying for income it needs to be in a tax wrapper.

I've learnt all the jargon by watching endless financial YouTubers! It's become an obsession!

messybutfun · 12/10/2023 15:10

You buy bonds to de-risk your invested funds. That held true until Liz gave us her mini budget. Whether people invested at that stage wanted to buy an annuity or not didn‘t change the fact that bond funds lost a huge amount of money.

That is separate from annuity rates going up (which are based on long term gilt rates as annuity providers use these to price them). Yes, you can now get a higher annuity rate, unfortunately the percentage applies to the fund value which has dropped (if you were heavily invested in bonds).

BorgQueen · 12/10/2023 20:38

Yes, bond funds dropped massively but annuity rates rose to within 4% of the loss, people buying annuities with bond monies didn’t really lose out very much.
I’ve just had a look in my Sipp and I can buy Gilts.

Woollyguru · 12/10/2023 22:45

Luckily we didn't and don't have any bonds in our portfolio.

@messybutfun I don't think bonds are derisking. They're safe if you hold a single gilt to maturity as you're guaranteed to get the face value back. I think bond funds, except very short duration, are risky and volatile but in an uncorrelated way to equities.

I'd rather derisk by holding cash or mmf in my pension when I'm coming up to retirement. We're probably going to put pension contributions into cash for the 2 years prior to retirement and draw this out as the tax free sum and leave the rest in 100% equities.

We will probably emigrate once we've retired and I want to look into moving all our assets offshore where they're not subject to UK laws. I don't trust the government to not raid our pension pots and ISAs in the future and continually change the goalposts.

messybutfun · 13/10/2023 10:30

@woollyguru I agree, the tinkering around with pensions by all parties is counterproductive.

Historically, bonds were considered safer investments as they gave you lowish but steady returns. Now that you can get guaranteed risk free returns on cash, bonds no longer make sense when you are looking to de-risk. Until a year ago you were not able to get anything from cash so the bond market was useful.

However, I believe this is a short-term scenario and everyone looking to stay invested long term should stick it out with equities as you are likely to lose out and there‘s very limited chance of keeping up with inflation even with rates at their highest now.

Heelenahandbasket · 13/10/2023 10:48

I have life strategy funds as part of my pension and passive equity funds. Thinking of moving to simply trackers.

Woollyguru · 13/10/2023 18:17

@messybutfun yes I agree this is a short term scenario. Interest rates will go down slightly, not much.

We have a lump sum to invest which is currently sitting in mmf in my pension. I'm slowly drip feeding it into global trackers. The US market seems to be remarkably resilient given higher interest rates and lower reported earnings. I think there could be a correction at some point as valuations are quite high by historical standards. But the market is not always rational and the correction might not come! ATM is it better to hold cash and wait for a correction as at least you're getting an ok return on your cash while you're waiting? Or to not try and time the market and keep in investing every month regardless?

Woollyguru · 13/10/2023 18:23

@Heelenahandbasket which lifestrategy fund do you have? I have 100% equity which has actually done quite well. I have a bit of a mixed bag and I want to consolidate and simplify into one global tracker.

I also have UK equity income which has done quite well.

Any new money is going into global tracker but should I sell the others and put it all into the global tracker? I'm kind of tempted to leave them purely out of curiosity to see how they do over time compared to the GT.

Heelenahandbasket · 14/10/2023 15:44

Hi @Woollyguru I have Scottish Widows and vanguard funds from two dc pensions (250k or so all in). The life strategy is the Scottish widows default fund which is a mix. I have some trackers in vanguard (pure equity) but they seem to have done worse than the strategy fund. But none have done well.

I feel it should be doing better to prep me for retirement but maybe it’s just the market at the moment.

WobblyLondoner · 14/10/2023 15:54

snowlaser · 11/10/2023 12:54

I'd second the post above about Lifestyle type funds not being simply "bad" but rather they have a purpose - they gradually switch your investments over time. If you use one you need to make sure that the purpose is right for you

  • it is switching to the right retirement age (don't want it to put loads in cash at 60 if you're not planning to retire until 65 or 67)
  • it is switching to the right thing (bonds are helpful to reduce volatility if you want to buy an annuity, but not necessarily so for drawdown)

I think two different things are being confused at points in this thread. As I understand it, life styling products are ones where the ratio of shares to bonds gradually shift over time, to adjust for how near you are to retirement (as discussed in this post). Then there are the Vanguard life strategy funds mentioned elsewhere which also include a mix of shares and bonds to a mix you can choose (80/20, 60/40 etc). But these do not change their ratio over time.

Pawtucketbrew · 15/10/2023 09:08

Hope noone minds that I ask a question here instead of starting a new thread.

I am about to get a pay rise, I'm not a huge earner, work in a public sector and have a good pension provider that I pay max in via my salary to work.
I have a small private pot of around £10,000 floating around from when I worked for a private company about 20 years out which is currently not doing a whole lot.
I am early fifties with lots of time out from work for various reasons so pension pot not big, I am also a single parent. Will definitely work until the very end.

I now feel with the extra money I could put another £200 somewhere but where? Looked at Hargreaves Lansdowne but have no money knowledge and I don't really want to manage things myself. Also unsure about platform fees. I've also looked at Pension Bee.

Ultimately I plan to move the small private pension over to whatever I open.

Can anyone with more knowledge point me in the right direction? Ultimately I didn't start a pension until my 40s so I want to do as much as I can now.

Thank you.

YankeeDad · 15/10/2023 10:48

@Pawtucketbrew I cannot give advice what to do specifically, as I do not know your full circumstances, but I can suggest to consider a few factors you may wish to consider:

-As a general rule, for most people it is beneficial to have an "emergency fund" of available cash before starting to invest, in case they have an unexpected expense. The size of this should take into account the amount of available money and the likely scenarios in which cash could be needed. For example, a person who drives to work and has an old, knackered car might want to consider putting aside cash for a car instead of investing it for anything other than the short term.
There are ways of getting some interest on the emergency fund, at very low risk, to partially offset inflation. For example, NS&I offers government-guaranteed savings accounts that can be withdrawn at any time with very little notice.

-Fees are very important for all investors because for whatever risk the investor accepts, the more fees are taken, the less return is left for the investor. For the pension as well as for the savings, make sure you know what all of the fees are. It should be possible to get all-in fees below 0.5% (including fund fees and platform fees) if you choose your own investments, even with a small amount such as £10k. In my personal opinion, anything over 1.5% (including fund fees, platform fees and advice fees) is definitely too much, even if you get advice of some sort (could even be so-called "robo-advice"), and below 1% may be a happy medium. Fees should be compared against the expected total return rather than against the size of the asset pool. So for example, if the hoped-for market return on a certain asset mix is 6% and the fee is 1.5%, then the fee is actually eating up 25% of the hoped for return, while the investor still bears 100% of the risk. Fees cannot be avoided completely because skilled people with expertise are needed to manage money and/or give advice, but they need to be watched carefully.

-As a general rule, most people choose not to invest money into stocks and shares that they think they might need within the short or medium term. Even though stocks have tended to go up in the long term, over a shorter period (anything less than 5-7 years in my view) the risk of losing capital value in the stock market is quite high. However, for the longer term, some people would argue that the risk of losing purchasing power to inflation by not owning stocks is an even higher risk, so some exposure to stocks is therefore needed to have a fair chance to protect the purchasing power against inflation. Also, the main way of making money through stocks is capital gains, which are taxed at a meaningfully lower rate than income, which helps for investments held in a general taxable account (ie not in a SIPP or pension)

-For UK residents who pay income tax in the UK and not anywhere else, saving into an ISA can be an attractive option. There is no tax deduction upon putting money into the ISA, but then within the ISA, the money can earn interest or gains tax free.

-Extra, voluntary pension contributions create restrictions on how and when the money can be accessed, but in exchange for that there are some important upfront tax advantages. It is, however, important to remember that at least 3/4 of the income and gains within a pension will ultimately get taxed as income As a general rule, pension contributions may be worthwhile for individuals who are higher-rate taxpayers or above, particularly if they expect to become basic rate taxpayers in retirement. Again, though, whether this is a good idea or not depends on your circumstances.

These may be less specific than what you wanted but I hope it helps somewhat.

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