Question
Hi, I have recently moved a substantial sum (for me anyway) from a household name personal pension plan to a Low Cost SIPP platform. At present it's all in cash.
Since moving it I am better off because the funds it was in before have dropped 5% in value.
I have purchased advice but have become "frozen" on making the final decision. I understand the types of funds but I see no fundemental reason why equities should rise in value. I recognise that some companies are still strong despite any downturn in overall activity.
The advice I have comes from a very reputable company and offers a well balanced portfolio of equity funds in the UK and abroad with small proportion of bonds. The funds contain some high dividend paying stocks which together with the bonds would help fund some of the drawdown needs.
I need not take the drawdown element as of yet. This pension pot is less than 40% of my net cash available funds outside of my freehold house. I also have other "safe money".
The point is I can afford to take a risk, but I don't subscribe to 10 year growth in funds because I can't see 10 years into the future, by which time my risk profile will have changed. I have little or no income and hope to use cash and pensions to earn money. I'm comfortable with a 2 year view.
Returns can be either income or capital growth, so where would you invest? UK high dividend? Non UK equity? Emerging markets equity? Hedge funds? Special situations? or elsewhere?...It's a big question...Answer
You’re right, it is a big question and if I’m honest I don’t have an answer. If only I could accurately predict markets!
Investing is always a gamble so conventional wisdom is to spread your money across a range of investments types that are likely to beat cash over 5-10 years or more and are unlikely to all fall in value at the same time. This is what the vast majority of financial advisers and investment managers suggest and it’s hard to fault their logic.
Historically this approach has generally worked pretty well, but there are a couple of problems at present: Markets are exceptionally volatile, so investors must be prepared for the possibility of large losses shorter term, and the outlook for both the UK and world markets is as uncertain as I can remember.
In light of this I’d really suggest taking at least a 10 year view when investing in stockmarkets and commodities (such as gold, metals, crops and oil). Over this period I think it’s likely you’ll do better than cash, but appreciate it’s a long time in the context of your pension and retirement.
You could take advantage of the attractive dividends currently paid by many equity income funds, but then a flurry of negative economic news could see your investment fall in value by maybe 10% or more. And the outlook for emerging markets over the next 10+ years is very promising, but again any bad news shorter term could make a big dent in your pension fund.
My own pension fund is mostly invested in commodities and emerging markets but I’m taking a 20 year bet, which is ok as I have time on my side. In your situation you’ll probably want to be more cautious, especially as you may need to draw an income at some point.
If you’re not prepared to take the risk that stockmarkets and commodities will perform well over the next 10 years then I’d be inclined to stick to cash, government/corporate bonds and perhaps commercial property. Corporate bonds come in two flavours, investment grade and high yield. The former tends to be affected by inflation and interest rates while the latter tends to be more affected by stockmarkets. Commercial property is another possibility – the sector could still suffer if we experience a further economic slowdown, but can be a good source of income and tends to be less volatile than stockmarkets (provided you buy a fund that invests in physical commercial property and not property shares).
A potentially safer route to stockmarket investing is to use absolute return funds, which try to deliver positive returns during both rising and falling markets. But while a good idea, many absolute return funds have so far struggled to deliver what’s on the tin and costs can be high, so they’re not a miracle solution. I wouldn’t rule them out, but choose carefully and make sure you understand what you’re buying (this article might help).
Ultimately you’ll have to judge yourself how much risk you’re comfortable taking and how long you’re prepared to wait for the economic/stockmarket outlook to improve. But bear in mind that trying to time markets is a gamble in itself, by the time you feel comfortable investing in a certain market you might already have missed much of the upside (if there is one!).
Hope this at least points you in the right direction and good luck whatever you decide. If anyone has other views/suggestions please post them below.
Hi, I have recently moved a substantial sum (for me anyway) from a household name personal pension plan to a Low Cost SIPP platform. At present it's all in cash.
Since moving it I am better off because the funds it was in before have dropped 5% in value.
I have purchased advice but have become "frozen" on making the final decision. I understand the types of funds but I see no fundemental reason why equities should rise in value. I recognise that some companies are still strong despite any downturn in overall activity.
The advice I have comes from a very reputable company and offers a well balanced portfolio of equity funds in the UK and abroad with small proportion of bonds. The funds contain some high dividend paying stocks which together with the bonds would help fund some of the drawdown needs.
I need not take the drawdown element as of yet. This pension pot is less than 40% of my net cash available funds outside of my freehold house. I also have other "safe money".
The point is I can afford to take a risk, but I don't subscribe to 10 year growth in funds because I can't see 10 years into the future, by which time my risk profile will have changed. I have little or no income and hope to use cash and pensions to earn money. I'm comfortable with a 2 year view.
Returns can be either income or capital growth, so where would you invest? UK high dividend? Non UK equity? Emerging markets equity? Hedge funds? Special situations? or elsewhere?...It's a big question...Answer
You’re right, it is a big question and if I’m honest I don’t have an answer. If only I could accurately predict markets!
Investing is always a gamble so conventional wisdom is to spread your money across a range of investments types that are likely to beat cash over 5-10 years or more and are unlikely to all fall in value at the same time. This is what the vast majority of financial advisers and investment managers suggest and it’s hard to fault their logic.
Historically this approach has generally worked pretty well, but there are a couple of problems at present: Markets are exceptionally volatile, so investors must be prepared for the possibility of large losses shorter term, and the outlook for both the UK and world markets is as uncertain as I can remember.
In light of this I’d really suggest taking at least a 10 year view when investing in stockmarkets and commodities (such as gold, metals, crops and oil). Over this period I think it’s likely you’ll do better than cash, but appreciate it’s a long time in the context of your pension and retirement.
You could take advantage of the attractive dividends currently paid by many equity income funds, but then a flurry of negative economic news could see your investment fall in value by maybe 10% or more. And the outlook for emerging markets over the next 10+ years is very promising, but again any bad news shorter term could make a big dent in your pension fund.
My own pension fund is mostly invested in commodities and emerging markets but I’m taking a 20 year bet, which is ok as I have time on my side. In your situation you’ll probably want to be more cautious, especially as you may need to draw an income at some point.
If you’re not prepared to take the risk that stockmarkets and commodities will perform well over the next 10 years then I’d be inclined to stick to cash, government/corporate bonds and perhaps commercial property. Corporate bonds come in two flavours, investment grade and high yield. The former tends to be affected by inflation and interest rates while the latter tends to be more affected by stockmarkets. Commercial property is another possibility – the sector could still suffer if we experience a further economic slowdown, but can be a good source of income and tends to be less volatile than stockmarkets (provided you buy a fund that invests in physical commercial property and not property shares).
A potentially safer route to stockmarket investing is to use absolute return funds, which try to deliver positive returns during both rising and falling markets. But while a good idea, many absolute return funds have so far struggled to deliver what’s on the tin and costs can be high, so they’re not a miracle solution. I wouldn’t rule them out, but choose carefully and make sure you understand what you’re buying (this article might help).
Ultimately you’ll have to judge yourself how much risk you’re comfortable taking and how long you’re prepared to wait for the economic/stockmarket outlook to improve. But bear in mind that trying to time markets is a gamble in itself, by the time you feel comfortable investing in a certain market you might already have missed much of the upside (if there is one!).
Hope this at least points you in the right direction and good luck whatever you decide. If anyone has other views/suggestions please post them below.
Read this Q and A at http://www.candidmoney.com/questions/question243.aspx
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