Question
I have money in a SIPP that I need to invest in funds rather than as it is now in cash earning zero (or minus 3% with inflation).
My target is 10% return pa.If I can get the monies earning that level I can draw some monies down without burning the capital.
What would you advise?
First in what asset classes and then more specifically in which funds?
My thinking is that whilst Far East and Emerging markets would seem to hold one of the only hopes for growth over the next 12/24 months are they not overcooked?Are not too many people expecting the same and therefore prices too high?
My own thinking on equities is that good companies will earn 5% on dividends but you can't be sure given current volatility that you won't lose the 5% or even more with market price falls.
So where to go?...,please?
Its a genuine question and I have a real need.Answer
You're certainly not alone in looking for better returns than cash, especially within a SIPP where cash returns are generally appalling at the moment.
The problem is, these are difficult, volatile times. The types of investment that could potentially return 10% a year could quite easily lose 10% or more a year too. So it's really a question of how much risk you're prepared to take and for how long.
I agree that the Far East and emerging markets appear to have more scope for growth than Western economies, but that's not to say their stockmarkets will definitely rise over the next couple of years. Some growth is will already be priced in and if global economies generally slow these stockmarkets could still lose money.
I also agree that good dividends are appealing but that the risk of falling markets could still leave you with losses overall.
Unless your timescale is 5-10 years or you're happy to take a lot of risk I'd be very wary of investing in stockmarkets. You might end up making some easy money over the next couple of years, but equally you could lose a lot too - regardless of which market you choose.
One way to try and reduce this risk is to use absolute return funds, which generally try to profit from both rising and falling share prices. Standard Life Global Absolute Return Strategies has had more success (so far) than most, but there's still risk. Success depends on the fund manager correctly guessing where markets are headed and history suggests that no manager gets it right all the time. So while absolute return funds should generally reduce risk versus conventional stockmarket funds, you could still end up losing money. Plus they're usually expensive. Take a look at this article I wrote back in the summer for more info.
Other assets such as commodities and commercial property have been doing well this year, but for how long is anyone's guess. I'm a fan of holding commodities longer term, but think the potential volatility makes them very high risk for a 1-2 year bet. Commercial property should be more steady, but could still suffer if the economy slows down again - and with spending cuts and tax rises there's every chance that could happen.
So I'm afraid there is no magical solution. If your timescale is just a couple of years I'd stick to cash and least sleep peacefully knowing you won't lose money in absolute terms. You could chance absolute return funds, but I'd really take a minimum 5 year bet on these. Otherwise a combination of high dividend stocks/funds along with Far East, emerging markets and commodities (both hard and soft - take a look at our commodities page for more info) exposure should bode well over 10 years, but that's not to say you won't make losses shorter term.
Good luck whatever you decide.
I have money in a SIPP that I need to invest in funds rather than as it is now in cash earning zero (or minus 3% with inflation).
My target is 10% return pa.If I can get the monies earning that level I can draw some monies down without burning the capital.
What would you advise?
First in what asset classes and then more specifically in which funds?
My thinking is that whilst Far East and Emerging markets would seem to hold one of the only hopes for growth over the next 12/24 months are they not overcooked?Are not too many people expecting the same and therefore prices too high?
My own thinking on equities is that good companies will earn 5% on dividends but you can't be sure given current volatility that you won't lose the 5% or even more with market price falls.
So where to go?...,please?
Its a genuine question and I have a real need.Answer
You're certainly not alone in looking for better returns than cash, especially within a SIPP where cash returns are generally appalling at the moment.
The problem is, these are difficult, volatile times. The types of investment that could potentially return 10% a year could quite easily lose 10% or more a year too. So it's really a question of how much risk you're prepared to take and for how long.
I agree that the Far East and emerging markets appear to have more scope for growth than Western economies, but that's not to say their stockmarkets will definitely rise over the next couple of years. Some growth is will already be priced in and if global economies generally slow these stockmarkets could still lose money.
I also agree that good dividends are appealing but that the risk of falling markets could still leave you with losses overall.
Unless your timescale is 5-10 years or you're happy to take a lot of risk I'd be very wary of investing in stockmarkets. You might end up making some easy money over the next couple of years, but equally you could lose a lot too - regardless of which market you choose.
One way to try and reduce this risk is to use absolute return funds, which generally try to profit from both rising and falling share prices. Standard Life Global Absolute Return Strategies has had more success (so far) than most, but there's still risk. Success depends on the fund manager correctly guessing where markets are headed and history suggests that no manager gets it right all the time. So while absolute return funds should generally reduce risk versus conventional stockmarket funds, you could still end up losing money. Plus they're usually expensive. Take a look at this article I wrote back in the summer for more info.
Other assets such as commodities and commercial property have been doing well this year, but for how long is anyone's guess. I'm a fan of holding commodities longer term, but think the potential volatility makes them very high risk for a 1-2 year bet. Commercial property should be more steady, but could still suffer if the economy slows down again - and with spending cuts and tax rises there's every chance that could happen.
So I'm afraid there is no magical solution. If your timescale is just a couple of years I'd stick to cash and least sleep peacefully knowing you won't lose money in absolute terms. You could chance absolute return funds, but I'd really take a minimum 5 year bet on these. Otherwise a combination of high dividend stocks/funds along with Far East, emerging markets and commodities (both hard and soft - take a look at our commodities page for more info) exposure should bode well over 10 years, but that's not to say you won't make losses shorter term.
Good luck whatever you decide.
Read this Q and A at http://www.candidmoney.com/questions/question319.aspx
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