44 years old. SIPP strategy to ride out next few years

[jakesmith]

I have about £90k in SIPP that is a combination of all my previous workplace pensions.
It is all in about 5-6 equity based funds
I am concerned about a potential fall in the values of equities over the coming few years based on what I perceive (purely as a lay person) as an overvalued market and a stagnant economy.
What are people thinking at the moment?
I could move it into bonds / gilts in theory. It certainly doesn't feel like I'd be missing out on any major growth opportunities the wayt things are now with so many countries experiencing high inflation, cost of living problems and low government spending.
Whilst I am on a long retirement horizon - there is no need to suffer a massive drop
I tend towards risk-adverse but this colours my view.
I notice Michael Burry is shorting equities!

[bitchstewie]

If I were you I'd go and buy a copy of Smarter Investing by Tim Hale and read it from cover to cover.

[crusty]

I know very little about this, however the one thing I keep hearing is don’t try and call the market, just leave it alone and with enough years it will grow

[fat80b]

jakesmith said:

I notice Michael Burry is shorting equities!

He's always shorting, don't let that worry you. The trick is not to make the mistake of panic selling and then missing the up. I personally wouldn't shift more into bonds / cash / gold etc at this point.

At age 44, you have time on your side. Keep paying in each month and when it goes down, be pleased that next month, you can buy the same number of units for less than you did last month.

The generally accepted view is that averaging in over time is the best way to protect yourself from the ups and downs and that timing the market is almost impossible anyway.

[bitchstewie]

And if you look into Burry except the big things he's got right he's also got a lot wrong.

It's a bit like how "invest like Warren Buffett" isn't appropriate for most people because he's literally a 90 year old billionaire.

[Imasurv]

Think of any drops in equities as the ideal time to buy further funds as you get more for your money! Over a 10-20 year investment horizon you actually want it to drop on occasion!

[Jawls]

jakesmith said:

I have about £90k in SIPP that is a combination of all my previous workplace pensions.
It is all in about 5-6 equity based funds
I am concerned about a potential fall in the values of equities over the coming few years based on what I perceive (purely as a lay person) as an overvalued market and a stagnant economy.
What are people thinking at the moment?
I could move it into bonds / gilts in theory. It certainly doesn't feel like I'd be missing out on any major growth opportunities the wayt things are now with so many countries experiencing high inflation, cost of living problems and low government spending.
Whilst I am on a long retirement horizon - there is no need to suffer a massive drop
I tend towards risk-adverse but this colours my view.
I notice Michael Burry is shorting equities!

Don’t try to time the market.

How does this 90k fit into your broader retirement strategy? Is it all your retirement savings?

[VR99]

Slightly younger than you Op, I also have a SIPP with my old pensions consolidated.....whilst I share similar concerns re. Market I have no idea what it will do and when so am just leaving it to do it's thing.

As it's 100% Equities, the only potential change I foresee is reviewing the fund choices in a few years (or ETF's in my case) to ensure the risk profile still makes sense at the time and whether I need to make any other tweaks.

[SlimJ]

bhstewie said:

If I were you I'd go and buy a copy of Smarter Investing by Tim Hale and read it from cover to cover.

Agreed. Something like the FTSE Global All Cap accumulation fund is all you need (https://www.vanguardinvestor.co.uk/investments/vanguard-ftse-global-all-cap-index-fund-gbp-acc/overview). Fees are low too. I use this in my ISA and SIPP (with Interative Investor) and my funds are added automatically every month without fail.

EDIT: I should say I only started 2 years ago, things were looking bleak for a while during this time but I stuck to the plan and kept adding funds on a monthly basis and I'm currently in the green.

Edited by SlimJ on Tuesday 3rd October 14:00

[AdamIM]

jakesmith said:

I have about £90k in SIPP that is a combination of all my previous workplace pensions.
It is all in about 5-6 equity based funds
I am concerned about a potential fall in the values of equities over the coming few years based on what I perceive (purely as a lay person) as an overvalued market and a stagnant economy.
What are people thinking at the moment?
I could move it into bonds / gilts in theory. It certainly doesn't feel like I'd be missing out on any major growth opportunities the wayt things are now with so many countries experiencing high inflation, cost of living problems and low government spending.
Whilst I am on a long retirement horizon - there is no need to suffer a massive drop
I tend towards risk-adverse but this colours my view.
I notice Michael Burry is shorting equities!

Non exhaustive list of questions that spring to mind.

You are negative on equities. What countries and sectors.
What sectors and countries is your pension invested in.
A massive drop you say. What is massive and how do you know
How do you know Burry's net position because I can assure you only he does. His latest 13F filing is months old and if he were net short then and still holding he would have suffered major losses. Listening to 'the media' is the blind influencing the gullible'. They are universally clueless

Everyone with an investment owes it to themselves to at least look at exactly what their money is invested in and try and determine whether that profile suits their needs/risk profile.

Stocks have proven to be an excellent accumulator of wealth over the long term. What happens next month, year is irrelevant(unless you are approaching retirement) and at 44 it may well offer you opportunities.

[bitchstewie]

Also I have noticed on here that people seem to have a rather binary outlook i.e. all stocks or all cash or bonds.

Look at multi-asset funds that match your appetite for risk.

[jakesmith]

Thanks for all the replies

I don’t actually pay anything into this fund as it’s just my old pensions.

My present workplace pension is managed so I don’t have any say in that. I put 6% gross in and employer matches with 9% so that’s a nice pot accumulating

As I don’t ever add anything to the SIPP, moving it out of a risky area when approaching period of uncertainty seems prudent but as many of you have pointed out I don’t really have any basis for judging / timing that at present.

[WayOutWest]

jakesmith said:

My present workplace pension is managed so I don’t have any say in that.

You say that, but it is almost never the case, unless it is a Defined Benefit scheme.

Most workplace pensions have a default (often multi asset) fund or funds that can be overridden with whatever you choose from their full list of available funds. Whether you should of course is another question.

But one way of derisking over time would be just put new workplace contributions into bond funds as you approach or nudge past 50. Some of the workplace default funds do this anyway, but they have no idea about what other assets you hold, so if you have a 100% equity SIPP as well then you might have a riskier overall asset allocation than suitable for your needs and risk tolerance. Plus they usually assume you won't retire until 65.
Alternatively move some, but not all, of your SIPP pot into bond funds. I'd never go under 40% equities overall though, even into retirement.

I agree with people above that equity market timing is a mugs game, however the outlook for bonds is a lot better now than it was 2 years ago when bonds offered just return-free risk.
The traditional 60/40 equity/bond split has had a rocky couple of years but should start functioning better from here on in.
My personal view is that equities won't massively outperform some types of bonds for the next decade, certainly not by anything like as much they did in the last decade. I'm not selling any of my existing equity fund holdings, but I am putting new money into bond funds or even individual gilts.

[Fawwaard]

Long dated gilts are virtually risk free and cheap at the moment, you could dump some cash in those.

For example TG50 (https://www.hl.co.uk/shares/shares-search-results/t/treasury-0.625-22102050-gilt) is about £35 at the moment so you'll virtually triple you money come maturity (plus collecting interest along the way). Obviously equites can offer far greater agains, but far greater risk.

I'm a similar age to you with a similar SIPP value and I've moved from 100% equity to 80% equity/20% fixed income recently. And plan to adjust that ratio evey 5 years or so.

Edited by Fawwaard on Tuesday 3rd October 19:38

[leef44]

I've lost confidence in the bond market ever since all this GFC QE followed by lockdown QE. Also BOE's over-zealous decade of holding down interest rates to offer cheap credit. I've been asking won't bond prices fall because with close to zero % interest rates, it was only going to go one direction and that is up so bond prices will drop. But all pension models seem to continue to say when you are close to retirement, switch to bonds.

So we've now got pension funds LDI (liability driven investments) to help squeeze more returns from the "safe" returns. Truss' political fiasco actually was a blessing in disguise by stress testing this before it was too far gone to save. Or actually do we understand the extent of the exposure?

For those who know what they are doing and can pick individual bonds, yeh I get it, you can establish a balanced risk return. For the average retail investor, we buy into a passive fund like LS and decide on the equity/bond split.

The issue is that future drops in interest rates have already been priced in so when interest rates continue to rise then you see your bond investment fall. So then you question is this the right time to buy?

When interest rates are confidently forecast to drop (maybe 2nd half of 2024 or maybe 2025), the markets will re-balance funds to equity so bond demand will drop so bond prices fall further.

And for those who say, well that was then but now we are in more stable conditions with interest rates at a more "healthy" level. I just don't have the confidence that governments or central banks won't interfere and destabilise the market again in the long term so then I can't view it as a long term investment.

[Sheepshanks]

leef44 said:

When interest rates are confidently forecast to drop (maybe 2nd half of 2024 or maybe 2025), the markets will re-balance funds to equity so bond demand will drop so bond prices fall further.

Is that likely to happen - surely as bond fund prices have dropped with rinsing interest rates, their prices will increase as interest rates drop?

[isleofthorns]

Sheepshanks said:

leef44 said:

When interest rates are confidently forecast to drop (maybe 2nd half of 2024 or maybe 2025), the markets will re-balance funds to equity so bond demand will drop so bond prices fall further.

Is that likely to happen - surely as bond fund prices have dropped with rinsing interest rates, their prices will increase as interest rates drop?

it's possible IR's won't reduce as much as thought, and the long end may well reprice to reflect a more normal yield curve based on higher overall longer term rates, so still risk out there.

[Uncle boshy]

Sheepshanks said:

Is that likely to happen - surely as bond fund prices have dropped with rinsing interest rates, their prices will increase as interest rates drop?

It works the other way around, bond prices drop with rising interest rates.

The reason being that a bond is issued with a fixed interest rate, say 3% for 5 years.

Now let’s say the interest rate goes up to 5%, well then the original bond is less attractive as an investor could now get 5%.

So the investor is left with two choices, either accept the 3% of the first bond and carry it to maturity or sell up. If you know 3% is good enough, then no problem, stick. Defined benefit schemes can use this strategy as part of their investment mix as they know that the pension to be paid out is fixed, so slow steady returns are ideal.

If the sell up, it’s less attractive as you can already get a better return with a new bond, so instead they get sold at a discount. So the bond gets sold at say 60% of its value. This has the benefit of increasing the yield of the bond by 66% giving an effective interest rate of 5% or the same as a new bond. This is a theoretical example, there are other factors at play such as time to maturity, future interest rate views, stock market conditions, fx rates, quality of the bond issuer that impact pricing

In a rising interest rate market stocks tend to increase anyway which puts further pressure on bonds.

Back to OPs question, let’s say they sell out of equity’s today and stick it all bonds. It’s all about timing.

If they want to retire tomorrow, bonds provide some degree of certainty and de risk them from falling prices

But if it’s long term, as the OP is, you risk miss timing the market and potentially selling in falling bond market.


At 44 I’d be exploring if I could move the SIPP contributions into the current employer pension, typically lower fees and for most of us, the management of the fund is likely to bring better results. With a 20 year plus horizon to retirement it’s likely based on past history that equities will out perform other investments and fund managers in pensions typically try to balance the portfolio out a bit so your not too exposed to one sector or geo region.

Of course if the OP suddenly gets interested in bond markets, guilts and equities and wants to actively manage they could do better, but this requires time and effort

[clubsport]

Sheepshanks said:

leef44 said:

When interest rates are confidently forecast to drop (maybe 2nd half of 2024 or maybe 2025), the markets will re-balance funds to equity so bond demand will drop so bond prices fall further.

Is that likely to happen - surely as bond fund prices have dropped with rinsing interest rates, their prices will increase as interest rates drop?

And this is a great example of why those seeking financial advice on a car forum need to tread carefully!?

[Sheepshanks]

Uncle boshy said:

Sheepshanks said:

Is that likely to happen - surely as bond fund prices have dropped with rinsing interest rates, their prices will increase as interest rates drop?

It works the other way around, bond prices drop with rising interest rates.

OK, autocorrect unfortunately changed rising for rinsing but it’s still obvious that’s what I meant, so we’re saying the same thing. So if they’ve gone down, they should go back up again.

The difficulty I see with bond funds, vs bonds themselves, is you don’t know much about what the fund manager has been doing. They may have had to sell bonds at very low prices so they’ll never get that loss back.