Bad performance from pension fund
Discussion
gra001 said:
Ginge, your "20 year investment strategy" needs to be investigated. The pension is only a part of the portfolio and it doesn't appear to be sufficient to take investment action and then leave well alone. If constant monitoring is necessary I certainly do not have the knowledge to interpret the market and make decisions and some of the comment here suggests that IFA's don't either or can't be expected to.
15-20 years ago, there weren't that many funds or tax wrappers, and compliancy and regulation was applied with a relatively light touch. There were no fund supermarkets, platforms and strategies, and attitude to risk was usually "low, medium or high". Sophisticated fund management was non existent because the means to engage with one's wealth on a real time basis simply didn't exist.The width of an adviser's remit and responsibilities has exploded and there simply isn't the time to be an expert in depth as well. Most advisers will take a percentage on an ongoing fee basis, and it is up to the individual client to decide whether or not the fee is justifiable. Most of my work and costs goes into un-snagging a client's existing circumstances, identifying and presenting a strategy or strategies which are then filleted into manageable and disparate segments and tactics.
Mostly, you have to pull in somewhat a client's attitude to risk and capacity for loss, but sometimes, it is appropriate to advise that a little more investment flair could or should be applied, and *should* be applied if a particular goal be reached. One size doesn't fit all. That's why clients go to advisers (hopefully!) and which is why blanket statements about the usefulness and parentage of IFAs aren''t always helpful.
You seem to be insightful and pragmatic enough to simply attach 'blame' for a dip and you are not looking for a scapegoat.. rather, clarity. My one bit of advice would be to simply do nothing for a while until you have clarity and have made a decent appreciation. I remember, on a course designed to make me a leader of men (other genders do exist, but not in the glorious poor bloody infantry), I remember my boss sagely advising me; "If you're navigating and find yourself lost, do nothing for at least 5 minutes - dump your brain, have a brew".
Chapeau, and good luck with your meeting.
J__D said:
There is a multitude of good advice here so I won't repeat.
For a pension fund though, especially within this age group is naturally going to be more risk adverse (from an advisors point of view). However even with fixed income funds like ours are producing 8.25% (fixed) p.a. at a 'very low risk' level and 12% variable with a 'low-medium' risk (I would point pensions in the former direction). So I would suggest there are many options that you have to help counter your current losses - I'd be tempted to comment the boat has sailed slightly with equities at the moment though.
Are those total return figures and over what period ? What are the duration/ratings of those funds ?For a pension fund though, especially within this age group is naturally going to be more risk adverse (from an advisors point of view). However even with fixed income funds like ours are producing 8.25% (fixed) p.a. at a 'very low risk' level and 12% variable with a 'low-medium' risk (I would point pensions in the former direction). So I would suggest there are many options that you have to help counter your current losses - I'd be tempted to comment the boat has sailed slightly with equities at the moment though.
J__D said:
There is a multitude of good advice here so I won't repeat.
For a pension fund though, especially within this age group is naturally going to be more risk adverse (from an advisors point of view). However even with fixed income funds like ours are producing 8.25% (fixed) p.a. at a 'very low risk' level and 12% variable with a 'low-medium' risk (I would point pensions in the former direction). So I would suggest there are many options that you have to help counter your current losses - I'd be tempted to comment the boat has sailed slightly with equities at the moment though.
Could you let me know which "very low risk" funds are "producing" 8.25% p.a. and which "low-medium risk" funds give 12%?For a pension fund though, especially within this age group is naturally going to be more risk adverse (from an advisors point of view). However even with fixed income funds like ours are producing 8.25% (fixed) p.a. at a 'very low risk' level and 12% variable with a 'low-medium' risk (I would point pensions in the former direction). So I would suggest there are many options that you have to help counter your current losses - I'd be tempted to comment the boat has sailed slightly with equities at the moment though.
Ta.
fandango_c said:
Could you let me know which "very low risk" funds are "producing" 8.25% p.a. and which "low-medium risk" funds give 12%?
Ta.
My thoughts exactly - 10 year Gilt index currently yielding 3.0%...Ta.
Presumably someone who has a very different perception of 'risk' than the norm!!
I wonder if the risk referred to isn't investment risk (half tongue in cheek)?! My stat risk warnings now refer to about 20 different types of risk which clients should take into account.
It doesn't matter that the client doesn't understand them; if the client asked for an Nth degree explanation their heads would implode and in the event of a complaint they would (justifiably!) argue that they didn't have a clue was being rammed into their brains and that the IFA did not have a procedure in place to check and confirm understanding of what was being presented to them by suitable questioning or examination before being asked to sign a disclaimer.
Which of course, would then require the IFA to attend some training and examination course for them to be able to learn how to facilitate confirmation of understanding to a centrally determined standard which (of course) would require a fee/levy to be paid in the event of something going wrong..
It doesn't matter that the client doesn't understand them; if the client asked for an Nth degree explanation their heads would implode and in the event of a complaint they would (justifiably!) argue that they didn't have a clue was being rammed into their brains and that the IFA did not have a procedure in place to check and confirm understanding of what was being presented to them by suitable questioning or examination before being asked to sign a disclaimer.
Which of course, would then require the IFA to attend some training and examination course for them to be able to learn how to facilitate confirmation of understanding to a centrally determined standard which (of course) would require a fee/levy to be paid in the event of something going wrong..
I have 3 pension funds from previous employments and a SIPP. The SIPP has outperformed all three over the 4 years I've had it approx. 10% vs 200% increase. In Jan I will transfere all 3 into my SIPP, as quite frankly if I as a rank amateur can do so much better than the professionals, then they must be bad.
You're referring to the adviser? An adviser will have hundreds of clients and may not, in all honesty, be able to cater for their individual needs to the same level. In that instance, it might be that an enthusiastic 'amateur' could serve his/her specific needs better because they are free of the legislative and compliancy demands that a pro has to contend with.
If I want to do a fund switch, you wouldn't have an idea just how much work and paperwork is involved, which is why it's so important to get the big picture right in the first place - bear in mind too, that no client and their needs are identical. If a client is paying an annual adviser fee of 1% on a portfolio of £50,000, in all honesty, the issue isn't whether or not the adviser/business can justify the cost of say, 8-10 hours per annum per client - rather, whether the adviser can find the time.
If I want to do a fund switch, you wouldn't have an idea just how much work and paperwork is involved, which is why it's so important to get the big picture right in the first place - bear in mind too, that no client and their needs are identical. If a client is paying an annual adviser fee of 1% on a portfolio of £50,000, in all honesty, the issue isn't whether or not the adviser/business can justify the cost of say, 8-10 hours per annum per client - rather, whether the adviser can find the time.
Ginge R said:
You're referring to the adviser? An adviser will have hundreds of clients and may not, in all honesty, be able to cater for their individual needs to the same level. In that instance, it might be that an enthusiastic 'amateur' could serve his/her specific needs better because they are free of the legislative and compliancy demands that a pro has to contend with.
If I want to do a fund switch, you wouldn't have an idea just how much work and paperwork is involved, which is why it's so important to get the big picture right in the first place - bear in mind too, that no client and their needs are identical. If a client is paying an annual adviser fee of 1% on a portfolio of £50,000, in all honesty, the issue isn't whether or not the adviser/business can justify the cost of say, 8-10 hours per annum per client - rather, whether the adviser can find the time.
Ginge, whereabouts are you based?If I want to do a fund switch, you wouldn't have an idea just how much work and paperwork is involved, which is why it's so important to get the big picture right in the first place - bear in mind too, that no client and their needs are identical. If a client is paying an annual adviser fee of 1% on a portfolio of £50,000, in all honesty, the issue isn't whether or not the adviser/business can justify the cost of say, 8-10 hours per annum per client - rather, whether the adviser can find the time.
New POD said:
I have 3 pension funds from previous employments and a SIPP. The SIPP has outperformed all three over the 4 years I've had it approx. 10% vs 200% increase. In Jan I will transfere all 3 into my SIPP, as quite frankly if I as a rank amateur can do so much better than the professionals, then they must be bad.
So you had the same investment strategy in all 3 funds?sidicks said:
fandango_c said:
Could you let me know which "very low risk" funds are "producing" 8.25% p.a. and which "low-medium risk" funds give 12%?
Ta.
My thoughts exactly - 10 year Gilt index currently yielding 3.0%...Ta.
Presumably someone who has a very different perception of 'risk' than the norm!!
There is another more recent fund which I'm currently doing due diligence on which is similar but focusing on the agriculture sector, they offer 9% but do not offer insurance for each transaction and are open to the fluctuations in weather (farming crops etc). I like this space overall very much though, I have fallen out of favour of equities generally for many reasons but mainly from my experience as a broker, I have found very few active 'advisors' can consistently outperform market trackers.
From my experience, an investment with no chance of initial capital decreasing / fluctuating and proven fixed income compounded returns equals very low risk from any perception!
Any more information wanted please feel free to pm!
edited to add: there is not an investment 'period' as such, all that's needed is 90-days notice (for obvious reasons) to withdraw investment and if the investment is in for less than 1 year then you forgo that 90-day interest payment of 2%.
Edited by J__D on Saturday 4th January 12:51
Playing devil's advocate for a moment, does this strategy work well, or better, only in the short term? Over the long term, you may return 8% or so, but that, I assume, is taxed (unless this type of arrangement is tax wrapper friendly) at one's marginal rate. And of course, because the strategy is income only, ie your investment s working on the redline all the time for you, there is no capital accrual.
Inflation will erode the capital value over time which means that as your initial investment stays the same your lending power is smaller and the returns are subsequently smaller. In other words, 8% on 50k 15 years ago was good, but if you still only have 50k invested now, your 8% gets you much less.. and less than some higher volatility trackers within an ISA for instance? Whereas if you had capital growth as well, you may not have the screamer returns always, but you have a slow burner.. strength in depth.
I accept that market returns, inflation and lending rates can fluctuate, I just wanted to look at the principle. For the right client though, in the right amounts and in the correct circumstances, commercial lending can be useful. I have considered similar investments with an intermediary offering credit for companies within the M25 circle. I have done nothing though, and don't imagine I will, tbh. A reflection of my clients and not the principle or product, I should add. It might be a nice tactic to have for the right person within a suitably diversified portfolio.. but as a strategy by itself? I accept that you are not suggesting that.
Inflation will erode the capital value over time which means that as your initial investment stays the same your lending power is smaller and the returns are subsequently smaller. In other words, 8% on 50k 15 years ago was good, but if you still only have 50k invested now, your 8% gets you much less.. and less than some higher volatility trackers within an ISA for instance? Whereas if you had capital growth as well, you may not have the screamer returns always, but you have a slow burner.. strength in depth.
I accept that market returns, inflation and lending rates can fluctuate, I just wanted to look at the principle. For the right client though, in the right amounts and in the correct circumstances, commercial lending can be useful. I have considered similar investments with an intermediary offering credit for companies within the M25 circle. I have done nothing though, and don't imagine I will, tbh. A reflection of my clients and not the principle or product, I should add. It might be a nice tactic to have for the right person within a suitably diversified portfolio.. but as a strategy by itself? I accept that you are not suggesting that.
Not at all, this strategy actually from my experience works better in the long term. I may not have explained it as clearly as I should have.
This is probably because most of my clients have actually wanted the income returned to them (which is fine) per quarter.
If one doesn't need the income, then the 2% per quarter interest gets compounded on capital. So first year 50k x 8.25% = £4,125 interest, but it's added to 50k, so beginning of second year you start with £54,125, then 2% return per quarter is on that value.
Therefore if my 'back of napkin' calcs are correct end of Q1 in second year, investment value would be £55,207, Q2 = £56,311, Q3 = £57,437, Q4 = £58,585 etc etc. When I meant fluctuating, I meant there is no chance of its value decreasing in any way.
This is probably because most of my clients have actually wanted the income returned to them (which is fine) per quarter.
If one doesn't need the income, then the 2% per quarter interest gets compounded on capital. So first year 50k x 8.25% = £4,125 interest, but it's added to 50k, so beginning of second year you start with £54,125, then 2% return per quarter is on that value.
Therefore if my 'back of napkin' calcs are correct end of Q1 in second year, investment value would be £55,207, Q2 = £56,311, Q3 = £57,437, Q4 = £58,585 etc etc. When I meant fluctuating, I meant there is no chance of its value decreasing in any way.
J__D said:
Not at all, this strategy actually from my experience works better in the long term. I may not have explained it as clearly as I should have.
This is probably because most of my clients have actually wanted the income returned to them (which is fine) per quarter.
If one doesn't need the income, then the 2% per quarter interest gets compounded on capital. So first year 50k x 8.25% = £4,125 interest, but it's added to 50k, so beginning of second year you start with £54,125, then 2% return per quarter is on that value.
Therefore if my 'back of napkin' calcs are correct end of Q1 in second year, investment value would be £55,207, Q2 = £56,311, Q3 = £57,437, Q4 = £58,585 etc etc. When I meant fluctuating, I meant there is no chance of its value decreasing in any way.
Sounds good, I`m interested in investing some of my pension fund please PM me the details. Thanks H67. This is probably because most of my clients have actually wanted the income returned to them (which is fine) per quarter.
If one doesn't need the income, then the 2% per quarter interest gets compounded on capital. So first year 50k x 8.25% = £4,125 interest, but it's added to 50k, so beginning of second year you start with £54,125, then 2% return per quarter is on that value.
Therefore if my 'back of napkin' calcs are correct end of Q1 in second year, investment value would be £55,207, Q2 = £56,311, Q3 = £57,437, Q4 = £58,585 etc etc. When I meant fluctuating, I meant there is no chance of its value decreasing in any way.
So thats really 8% less as an example 40% marginal tax leaves 4.8% and erode that by another say 2.2% for inflation leaves a real return of 2.6% PA if my maths is right!?
Though thats still a reasonable amount it would not have held a candle to the FTSE100 last year inside an ISA or SIPP.
But as an unprotected income investment for lower rate tax payers its very good.
Though thats still a reasonable amount it would not have held a candle to the FTSE100 last year inside an ISA or SIPP.
But as an unprotected income investment for lower rate tax payers its very good.
ringram said:
So thats really 8% less as an example 40% marginal tax leaves 4.8% and erode that by another say 2.2% for inflation leaves a real return of 2.6% PA if my maths is right!?
Though thats still a reasonable amount it would not have held a candle to the FTSE100 last year inside an ISA or SIPP.
But as an unprotected income investment for lower rate tax payers its very good.
They, nor I deal with tax in any way so its a straight return back into the fund its up to the individual to look up tax implications through their advisor. Though thats still a reasonable amount it would not have held a candle to the FTSE100 last year inside an ISA or SIPP.
But as an unprotected income investment for lower rate tax payers its very good.
I cannot comment as to whether the interest received is officially classed as a taxable income unless the investor withdraws it from the fund? Unfortunately I am in no way a specialist and cannot comment, maybe others could. Inflation also applies to essentially every investment so its not a wonderfully useful addition to compare. Also take into account the compounding affect.
Essentially a cumulative return of 26.82% over 3 years (averaged at 8.94% p.a.) or for a 5-year investment period it would provide a cumulative return of 48.59% (averaged at 9.72% p.a.).
Comparing this to the FTSE 100 over the past year is also not a great measure taking into account risk comparison and volatility. It also happens that FTSE has had a good run relatively, over the past 12 months, from memory about 14% which in my eyes is more comparable to the 12% 'higher risk' fund, but with a much higher risk ratio so I can't agree with not "held a candle". Take into account how much FTSE100 lost a few years ago, this would have been countered quite significantly presuming you weren't a particularly 'active' investor and got out at the right times, then reinvested at the right times.
I'm not saying obviously that one is significantly better than the other, but they are both different investments better suited for different investors. The FTSE100 doesn't hold a candle to AIM market in 2013 either, with from memory a 45% return. Apples and oranges.
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