Deciding if a Pension is good value?
Discussion
Moving to a cheaper platform is an easy win, but my approach to any investment (assuming you know your risk level):
- my first priority would be assessing and understanding the fund / underlying assets suitability to your objectives i,e. are you looking for growth or income, and what sector you wish to invest in such as Emerging markets / Tech / Value/ Financials etc..In general, Equity / Shares products are mostly used for growth (high risk), and fixed income/bonds products (lower risk) are used for income (for active retiree) and also to dampen volatility in rough market periods (the type/quality of bond holdings is quite important too).
There's many other factors to consider such as experience of investment team members, fund type availability and investment approach e.g. passive (cheapish hands off approach) or active (more expensive, and would need regular monitoring on the fund manager activities).
- Understand the risk / downside to your investment!! Every investment product is affected by various market and business factors, and it's wise to understand the risk (this is the value of a quality advisor) and the effect it can have to your investment in a distress or bear market e.g. accessing your fund in a Property fund may be restricted as it takes months to offload the underlying property.
Fund fee is an important factor, but (imo) for an investment decision, the suitability of the fund objective and understanding the underlying risk takes a higher priority i.e. defeats the object of investing just to buy the cheap fund just 'cos it's the cheapest when it actually doesn't meet my requirements.
- my first priority would be assessing and understanding the fund / underlying assets suitability to your objectives i,e. are you looking for growth or income, and what sector you wish to invest in such as Emerging markets / Tech / Value/ Financials etc..In general, Equity / Shares products are mostly used for growth (high risk), and fixed income/bonds products (lower risk) are used for income (for active retiree) and also to dampen volatility in rough market periods (the type/quality of bond holdings is quite important too).
There's many other factors to consider such as experience of investment team members, fund type availability and investment approach e.g. passive (cheapish hands off approach) or active (more expensive, and would need regular monitoring on the fund manager activities).
- Understand the risk / downside to your investment!! Every investment product is affected by various market and business factors, and it's wise to understand the risk (this is the value of a quality advisor) and the effect it can have to your investment in a distress or bear market e.g. accessing your fund in a Property fund may be restricted as it takes months to offload the underlying property.
Fund fee is an important factor, but (imo) for an investment decision, the suitability of the fund objective and understanding the underlying risk takes a higher priority i.e. defeats the object of investing just to buy the cheap fund just 'cos it's the cheapest when it actually doesn't meet my requirements.
I'd say look at performance & fees compared to similar risk alternatives. If your current provider is getting the same performance as comparable alternatives but charging 1% more then you are potentially loosing out by a very significant sum over time (do check for any valuable benefits associated with the existing provider though). Personally I'd say that in general any fund charging over 1% needs to be showing exemplary performance.
When looking at performance, none of us have a crystal ball (well, we don't admit to it...), so looking at past performance is a reasonable thing to do (usual caveats, past performance no indication for future, etc).
I look at the fact sheets, & in particular, compare cumulative 1/3//5/10 year numbers if I want to compare 'similar' funds.
Did that about 16 years back with a bunch of fund options we had....& I feel it has paid off.
Here we have our work default fund on the left, a "similar sounding" alternative available on the right. Blue bars show growth: or how to turn 100K into 200K.....or 300K in 10 years:
Or maybe more if you are a bit adventurous: sure, twice the fee costs, but look at the difference:
It won't make you an Investing God, but can help shape where you invest a little.
& as others have said, the lower the fees the better!
I look at the fact sheets, & in particular, compare cumulative 1/3//5/10 year numbers if I want to compare 'similar' funds.
Did that about 16 years back with a bunch of fund options we had....& I feel it has paid off.
Here we have our work default fund on the left, a "similar sounding" alternative available on the right. Blue bars show growth: or how to turn 100K into 200K.....or 300K in 10 years:
Or maybe more if you are a bit adventurous: sure, twice the fee costs, but look at the difference:
It won't make you an Investing God, but can help shape where you invest a little.
& as others have said, the lower the fees the better!
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