Pension "Fund" Recommendations, within a Sipp Wrapper
Discussion
Hi all
Would appreciate any advice here.
Being a self-employed contractor I recently opened a SIPP with YouInvest / Sippdeal, much like other posters on here looking to manage it myself for lower fees. But I now find myself in the reverse position or needing to go to a managed fund.
Having established a small range of UK FTSE equities in a fairly nicely diversified way, the company I am contracting at has now decided that self-managed accounts fall foul of their "compliance" and have insisted on a range of pre-approval and reporting requirements that basically make it impossible to do any quick, price-advantageous, trades. As such I have decided to let a fund manager do it for me but due to transfer out fees, setup fees, etc etc I thought I should just invest in the funds available via this existing Sipp.
As such I am now thinking about using the SIPP as a "wrapper" and just putting the money into a few underlying funds. I have a DD set up to put monthly contributions in and was hoping to grow this nicely. I am 34 and after a period of shakey employment I am not in a position to put some money into a pension, but need a fairly decent grow potential as I am playing catch up now.
My questions are :
1. Does the YouInvest / Sippdeal approach have any considerations I need to worry about. As far as I can tell there is no difference, instead of investing in single names I am simply investing in a fund provider who will make the decisions for me for a fee.
2. What kind of management fees would you say are reasonable? Via the SIPP they seem to be in the region of 1-1.5% per annum management, and no initial opening fee. Havent yet read the small print on how the Sipp take their slice when using funds but will.
3. Is this the best approach? Last time I looked at a normal managed private pension approach, going out to "the street", there were setup fees in the region of £1000 for them "constructing" my pension, management fees, etc etc, and if I needed extra advice I needed an IA with their own fees on top.
4. And finally, can you recommend any particular funds that I should buy into? I have a small pension from a previous period of employment which invests in a Fidelity fund, something like the Fidelity All World 70:30 Index. I do not have the papers to hand but I think it was 70% EM and 30% established markets. I know EM are tanking at the moment but it seems to have done fairly well and given my timeframe it could have good upside? I have 30 years approx. to achieve some decent upside so I could potentially use recent events as a buying opportunity. But my knowledge isn't fantastic I admit.
All advice gratefully received
thanks fellows pHers
Would appreciate any advice here.
Being a self-employed contractor I recently opened a SIPP with YouInvest / Sippdeal, much like other posters on here looking to manage it myself for lower fees. But I now find myself in the reverse position or needing to go to a managed fund.
Having established a small range of UK FTSE equities in a fairly nicely diversified way, the company I am contracting at has now decided that self-managed accounts fall foul of their "compliance" and have insisted on a range of pre-approval and reporting requirements that basically make it impossible to do any quick, price-advantageous, trades. As such I have decided to let a fund manager do it for me but due to transfer out fees, setup fees, etc etc I thought I should just invest in the funds available via this existing Sipp.
As such I am now thinking about using the SIPP as a "wrapper" and just putting the money into a few underlying funds. I have a DD set up to put monthly contributions in and was hoping to grow this nicely. I am 34 and after a period of shakey employment I am not in a position to put some money into a pension, but need a fairly decent grow potential as I am playing catch up now.
My questions are :
1. Does the YouInvest / Sippdeal approach have any considerations I need to worry about. As far as I can tell there is no difference, instead of investing in single names I am simply investing in a fund provider who will make the decisions for me for a fee.
2. What kind of management fees would you say are reasonable? Via the SIPP they seem to be in the region of 1-1.5% per annum management, and no initial opening fee. Havent yet read the small print on how the Sipp take their slice when using funds but will.
3. Is this the best approach? Last time I looked at a normal managed private pension approach, going out to "the street", there were setup fees in the region of £1000 for them "constructing" my pension, management fees, etc etc, and if I needed extra advice I needed an IA with their own fees on top.
4. And finally, can you recommend any particular funds that I should buy into? I have a small pension from a previous period of employment which invests in a Fidelity fund, something like the Fidelity All World 70:30 Index. I do not have the papers to hand but I think it was 70% EM and 30% established markets. I know EM are tanking at the moment but it seems to have done fairly well and given my timeframe it could have good upside? I have 30 years approx. to achieve some decent upside so I could potentially use recent events as a buying opportunity. But my knowledge isn't fantastic I admit.
All advice gratefully received
thanks fellows pHers
menousername said:
1. Does the YouInvest / Sippdeal approach have any considerations I need to worry about. As far as I can tell there is no difference, instead of investing in single names I am simply investing in a fund provider who will make the decisions for me for a fee.
Buying funds is as easy as buying individual stocks.menousername said:
2. What kind of management fees would you say are reasonable? Via the SIPP they seem to be in the region of 1-1.5% per annum management, and no initial opening fee. Havent yet read the small print on how the Sipp take their slice when using funds but will.
There's more transparency these days with fund charges, so look up the funds you fancy and the charges will be plain to see. Most are less than 1% these days. Your 'platform' (YouInvest/SippDeal/whatever) is likely to add their fee on top (anything from 0.2% to 0.5% from what I've seen recently).menousername said:
4. And finally, can you recommend any particular funds that I should buy into? I have a small pension from a previous period of employment which invests in a Fidelity fund, ...
But my knowledge isn't fantastic I admit.
Take the time to spend a few evenings browsing funds on trustnet.com or one of the other data providers. It's a bit overwhelming at first, but you'll soon get a feel for it. But my knowledge isn't fantastic I admit.
Good stuff from Ted - also, take a look at the difference between active and passive investing, get a feel for what level and nature of involvement you want from your fund manager.
Active managers are like fighter pilots, they all want to be the best, beat each other and outperform their sector. If you're happy to pay for that effort to have manager at the top of the greasy pole, and getting the (hopefully) glittering rewards, then fine.
On the other hand, passive funds simply seek to follow how the markets are doing. Not so pricy although there are some expensive passive dogs out there too. You might want a blend of the above - it'll depend on what you're like as much as anything.
Active managers are like fighter pilots, they all want to be the best, beat each other and outperform their sector. If you're happy to pay for that effort to have manager at the top of the greasy pole, and getting the (hopefully) glittering rewards, then fine.
On the other hand, passive funds simply seek to follow how the markets are doing. Not so pricy although there are some expensive passive dogs out there too. You might want a blend of the above - it'll depend on what you're like as much as anything.
Passive trackers dont generally address the requirement for asset allocation and risk management generally speaking.
Though the Vanguard lifestyle ones kind of do.
They are there once you have answered those questions and want a cheap way of owning the specific risk weighted asset allocation you have selected.
Though the Vanguard lifestyle ones kind of do.
They are there once you have answered those questions and want a cheap way of owning the specific risk weighted asset allocation you have selected.
thanks all
are passive at risk of a bit of a correction, given general consensus that equities may be ready to take a bit of a dive? I guess passive are tracking markets and indices?
Not sure if my Fidelity fund is a passive one will need to check but it seems to have been ok so far.
Problem is, believe it or not, even passive funds are falling within my company's new compliance rules, despite the fact I am a contractor, so it may need to be active
menousername said:
.. are passive at risk of a bit of a correction, given general consensus that equities may be ready to take a bit of a dive?
It's not that straightforward. It all depends on the risk profile of the fund (you may have no equity exposure at all for instance) or you may be in a so called Smart beta fund (see below in the response I made to Ringers which may have some useful info for you). I am about to leave for the train station :-( and have some reading material (aka propaganda) from a wide cross section of active fund managers who all have a vested interest in agreeing with you - or otherwise!Ringram,
Vanguards lifestyle funds are good, I chose them earlier today. But in themselves, they aren't the answer because we haven't yet identified the question. I think you could take your (very true) comments one stage further than that ie; it isn't 'just' about asset allocation - rather, it's about *how* the assets are allocated and selected. Your boggo standard index fund gets rid of a manager sure, and then selects its assets (or bonds, or other securities) according to that index (S&P500 for instance) but until recently, most stock indices weighted holdings according to the market value of the stock, which I didn't rate too highly.
You refer to Vanguard funds - I really like Vanguard funds.. as I said, I have recommended them already this morning so far, fused with some actives. But if you look at what we a suggesting, ie, it's all about the asset allocation, and using the rather punchy Pistoneheader-esque Vanguard 500 index fund as an example, then the largest holding in the fund is Apple followed by Exxon. But that's only because the Apple's current value is $472bns V's $409bns or so for Exxon. The problem has been that as each stock in the fund increases or decreases in value, it gets a bigger weighting in the fund, and the fund becomes far to much "cap-weighted", or ranked by market value.
That's all well and good - if you saw the index rise this week you'd be content. But the problem with cap weighting is that as one particular stock gets more popular (and hence pricier), it takes on a larger % of an index fund's holdings and reduces in value (who looks on Skoda or Kia as the definitive cheapie alternatives any more?). So, going back to our S&P 500 tracker, in 1999 the biggest assets would have been Microsoft, General Electric and Cisco. But those stocks all remain below their '99 levels. How does that leave a client if he/she had an investment timeline of 20 years?
We don't have to stop there - if your tracker is an Equal-weighted fund, it'll simply give you and your assets an equal weighting and works best in a wider, more broad-based market rally, especially small-company stocks outperform. Is that what we're seeing at the moment? Check out Guggenheim S&P 500 Equal weighted which has gained an average 9.31% pa for the past 10 years Vs 7.39% for our Vanguard 500 Index fund (good old Cap weighted).
I like Rules weighting, an index which gives greater weight to stocks according to the ye olde fundamentals (dividends paid out etc). WisdomTree LargeCap Dividend fund has gained 20+% pa for the past five years VS 21% or so for a back tested Vanguard 500 Index fund. A we in a bull market? I think not! We should forget that approach to reap much in the way of benefits for the foreseeable future, unless you're an extreme optimist!!
Ted (he won't mind me suggesting) is an online nerd so he has the inclination to spare on researching value investing too, which is seen by Active managers as a way to get above-average returns. Look at Warren Buffett for an example of the biggest value investor, but if you read his annual report the other week, he screwed up too - in other words, if you make mistakes - you make them big.
But if you are inclined to do the research, if you want to look for cheap value, such as value relative to earnings and if you want to hold them for the long term, the Vanguard Value ETF has made nearly 8% pa for the past decade, even more than the Vanguard 500 Index fund. But the Vanguard Growth Index, which invests in stocks with growing earnings, has beaten both (8% or so).
I accept that to an extent, this methodology is counterintuitive to what passive investing was/should be about, and costs may rise as a result of the increased complexity. For someone simply wanting exposure to the stock market at a very low price, then a broad-based index fund may well be the best option, unless you're an obsessive who wrings max returns out, whatever the cost in time and effort.
I posted here the other week, the jury is still out. At the moment, I like a fusion of actives and passives - but with one eye on being future proof, and any good adviser should be keeping ahead of the game when it comes to staying abreast of the evolution of the passives market.
I really like the new investing 'battlespace' - clever, so called Smart-beta index funds can now seek to beat the more mainstream broad-based, cap-weighted indexes by doing something differently. You just now don't have to be a passives aficionado - you can focus on value, dividends - and if you want to do the research - why not?
I like the innovation that we're seeing, I love it, but the point of this post is that I also like the way that fund managers are rolling out variants of index funds. That, to my mind, is the thing which must be borne in mind when choosing baskets of funds, such as the Lifestyle Vanguard funds. I suppose it's as much about evolving an investment philosophy, as fund picking.
Ginge R said:
Active managers are like fighter pilots, they all want to be the best, beat each other and outperform their sector. If you're happy to pay for that effort to have manager at the top of the greasy pole, and getting the (hopefully) glittering rewards, then fine.
Ginge makes lots of really good points and its good to see people take the time to post useful info up.One point I would have to take issue with though is the quote above. Many active managers actually aren't out to simply be the best. In fact it is often those active managers who offer the greatest added value. Some active managers aim to consistently beat whatever benchmark but with a more palatable level of risk (or volatility). Obviously this is a hard thing to determine as a private investor but it means focusing on risk/return rather than purely return is a better way of comparing active managers.
The key word is consistency. Looking at risk/return over various periods (Morningstar can show you this) and reading commentaries and research can give you a good feel for a manager's approach.
Interestingly and coincidentally, this from a trade rag today;
<<However, a comment from a fund manager had a big impact on him. ‘I went to a Cofunds conference once and a fund manager was asked what could affect his portfolio over the next 12 months and, I kid you not, he said, "if I lose my mojo". I thought: "I don’t want my clients’ wealth to be affected by whether or not a fund manager loses their mojo", in other words their ability to see an opening in a stock. Had he gone out and had two bottles of booze the night before, woken up to a tube strike and the rain pouring down, he could have missed five of the best investments of his career. That could have a massive impact on my clients.’>>
<<However, a comment from a fund manager had a big impact on him. ‘I went to a Cofunds conference once and a fund manager was asked what could affect his portfolio over the next 12 months and, I kid you not, he said, "if I lose my mojo". I thought: "I don’t want my clients’ wealth to be affected by whether or not a fund manager loses their mojo", in other words their ability to see an opening in a stock. Had he gone out and had two bottles of booze the night before, woken up to a tube strike and the rain pouring down, he could have missed five of the best investments of his career. That could have a massive impact on my clients.’>>
Ginge R said:
Lots of good stuff.
I've got to say, based on the posts of yours I've read on here, you really seem to know your stuff. I'm quite sold on the idea of alternative indexing rather than old-school market-weighted indexing, and am going to investigate some of those funds you mention.Thanks - really interesting posts.
Fanks! That's very kind of you - I enjoy my job, I'm lucky.
Anyway, and this must be weirdness to an extreme degree, Vanguard announced last night (I have no connection with 'em, honest) that it's thinking about launching its own Smart-beta funds in addition to the boggo standard indexing I mentioned further up the thread a day or so ago.
http://www.cnbc.com/id/101529167
Anyway, and this must be weirdness to an extreme degree, Vanguard announced last night (I have no connection with 'em, honest) that it's thinking about launching its own Smart-beta funds in addition to the boggo standard indexing I mentioned further up the thread a day or so ago.
http://www.cnbc.com/id/101529167
.. then this report might blow your mind. For Smart-beta wonks only maybe.
http://www.bfinance.co.uk/wp-content/uploads/2014/...
More than 30% of schemes are thinking about increasing Smart-beta allocations - low risk isn't always low volatility but that's what clients want - with high growth of course. The difficulty is, investment growth slows even though equities perform well because low-volatility portfolios may suffer. If anything, any extended equity rally might only make the need to address volatility and diversification risks even more vital.
Smart-beta is a middle way between a passive and active equity allocation.. but what some active managers might be doing is achieving the same net result as a Smart-beta asset, but at an active price.
Before I am able to choose for instance, Dimensional funds, a fund manager at the forefront of this active/passive blend, I have to attend their two day workshop. The prospect of being bombarded with corporate culture is mind numbing, but increasingly, I am coming around to looking upon Smart-beta as a vital way of bolstering some client portfolios as almost, a default setting to be dismissed and not just idly considered.
http://www.bfinance.co.uk/wp-content/uploads/2014/...
More than 30% of schemes are thinking about increasing Smart-beta allocations - low risk isn't always low volatility but that's what clients want - with high growth of course. The difficulty is, investment growth slows even though equities perform well because low-volatility portfolios may suffer. If anything, any extended equity rally might only make the need to address volatility and diversification risks even more vital.
Smart-beta is a middle way between a passive and active equity allocation.. but what some active managers might be doing is achieving the same net result as a Smart-beta asset, but at an active price.
Before I am able to choose for instance, Dimensional funds, a fund manager at the forefront of this active/passive blend, I have to attend their two day workshop. The prospect of being bombarded with corporate culture is mind numbing, but increasingly, I am coming around to looking upon Smart-beta as a vital way of bolstering some client portfolios as almost, a default setting to be dismissed and not just idly considered.
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