Investor Clinic: Donna is new to investing and has a lot of old pensions


#1

Originally published at: http://whichinvestmenttrust.com/investor-clinic-donna-is-new-to-investing-and-has-a-lot-of-old-pensions/
Welcome to our investor clinic. The aim of the clinic is to allow ordinary investors to get feedback, tips, and direction from peers on their investments. Name: Donna Your Portfolio: I have five personal pensions: Scottish Life – £3,789 Scottish Widows – £18,765 Friends Provident – £1,132 Standard Life – £6,001 Phoenix/Scottish Mutual £612…


#2

Hello Donna, Your small pensions you can transfer away to a SIPP for free. All you have to do to begin the process is call them all up and ask form transfer discharge forms.

Also ask them to give you projections for the plans to retirement age, and to include any guarantees if any. It’s unlikely there will be any because you are young, but old pension used to sometimes come with valuable guarantees so it’s worthwhile asking.

I don’t know what’s the cheapest provider for you with a £30K pot. Maybe someone else can help you there but I would get going with requesting the discharge forms because that will take a while.


#3

For monthly savings a number of investment trust managers operate share saving schemes that are cheap or in some cases free of dealing costs. They come with some disadvantages though such as that you cant easily switch to another manager. But there are some really good trust you can invest in this way including those from Baillie Gifford, Aberdeen, Witan and more.

There’s a broker called http://www.x-o.co.uk/ who are really cheap, something like £6 per trade and their SIPP are cheap too (though I’m not sure how cheap).

I would transfer all the little pension to a low cost SIPP as @Paulo has suggested, possible with XO.

For the regular contributions you could save £100pm with Witan IT, £100 with Scottish Mortgage, £100 with Murray International and £100 with Aberdeen New Dawn (both Aberdeen trusts).

The SIPP if you set it up could invest in to 6 trusts with £5k each - PIP private equity, City of London, Lowland, Scottish Oriental, Finsbury Growth & Income, Henderson Smaller Companies.

All of them are investments for holding for the long term.


#4

A few different points to make-

If you are new to inverting and looking to save £400 a month, I would advice spending ~£40 on an annual subscription to a suitable personal finance magazine (I would try Money Observer as it has a good quarterly IT supplement as well monthly coverage).

Platform Choice
A quick search on ‘UK investment platform comparison’ should through up some links to suitable sites that compare costs, most newspapers and magazines like money observer cover this.

Generally once your investments exceed £100K its worth going with a transaction based platform rather than a % fee.
However as you are a beginner I would look at Hargreaves Lansdown (who charge a % fee but this is capped) as their site is very easy to use and they will bombard you with offers to transfer pensions to them - where they will do all the admin. Generally they have well rated customer service. They offer both SIPPs (for the pension transfer) & ISAs.
Note if you had been investing online for a few years I would advise looking at the cheaper platforms.

Pension Fund Choice
As you are a beginner I would stick with some mainstream choices (similar to @citygirl)
Global Growth
Scottish Mortgage (SMT)
F & Cl Global Smaller (FCS)
UK
Finsbury Growth Trust (FGT)
Standard Life Equity Income (SLET)
UK Smaller Companies
Henderson Smaller Companies (HSL)

For the ISA monthly investment - you need a platform that offers monthly dealing at a low price (generally this will be £1.5 per trade). Sadly Hargreaves Lansdown restrict your choice to trusts in the FTSE350, however that will still give access to trusts like -
Scottish Mortgage
Finsbury Growth & Income
F & C Global Smaller
Jupiter European
Worldwide Healthcare (higher risk)
You can change your choice frequently, so I would pick at most 2 for monthly saving for a few months, and then change your selection.

Risk & Cash
Generally I wouldn’t start investing in ITs until you have a healthy cash savings (maybe equivalent to ~3 months salary?), and your risk rating of 5-6 probably means that areas like emerging markets, commodities, private equity, sector specific might not be suitable. Even with the mainstream trusts you would need to accept potentially losing 20-40% over a short time period, but over 5+ years you should get an ok return.


#5

I can’t fault what @citygirl and @scjim have said nor the funds chosen. However, although you are a low/medium risk investor I would still include higher risk stocks, but just don’t put as much in them! Certainly include the Far East and Scottish Oriental Smaller has recently proven to be a fairly defensive (if that is possible) play. Maybe PE less so but Pharma could be included.
Make sure you have enough income coming into the SIPP to cover any fees and hopefully have some left over to reinvest.
If you want to hold for a long time then avoid cyclicals, like commodities, which I think should include property trusts and REITS. I would also avoid any recent debt and “new age” IPOs that invest in what banks have thrown off regardless of the dividend yields. Good luck!


#6

Hello and thank you everyone for your advice and suggestions.

I feel I need to explain why it’s taken me so long to reply. I couldn’t log on, not because of a problem with my details but because it technophobic and my boyfriend is away with work!

Thanks to @Moderator_Rob for talking my through what I needed to do by phone and being ever so patient :slight_smile:

I am off to my office Xmas party but I will come back with a fuller reply and some questions tomorrow (if my head is still functional).

Thanks a million to all the helpers and to the Which Trust people too :sunny:


#7

These are definitely personal pensions and not company ones? I’m just interested in how someone who is new to investing has managed to end up with five of them.

If there is the possibility that contributions will be suspended for a number of years then one consideration is how any ongoing platform charges will be paid. As @james_pigott has said, one method is to hold assets that themselves generate sufficient income to cover the costs. The other is to continue to make smaller occasional contributions which are enough to cover any charges - in the potential absence of income from employment you could still contribute up to £3600 gross per tax year, which ought(!!) to to be enough to cover any costs.

The first approach does require a bit more thought to which assets could be suitable: a rough idea of size of the pot would be required along with the likely platform charges, and from this a target yield could be calculated which would give an indication as to which assets might be required. This approach has greater flexibility than the other because it would allow for funds to be held that generate little or no income - and this category can include the accumulation units of OEICs as well funds that have a greater focus on overall growth where income generation is a lower concern.

I would also ditto the comments regarding holding riskier (i.e. more volatile) stocks because you do have around 20 years to go before your pension fund would be used to generate an income. Volatility (and drawdown) are more of an issue later on when the pot is a substantial size, and less of an issue in the earlier years when there is still plenty of time for any falls to be recovered.

But if such things are a concern which is difficult to overcome then a combination of higher and lower volatility funds could be an answer, with a larger allocation to the latter. As an example, an 80% allocation to the likes of Troy Trojan fund (low volatility, low drawdown) combined with 20% to Scottish Mortgage (higher volatility, higher drawdown) - such a combination could help to prevent too much of a fall when markets do turn down, but still have the ability to catch some of the upside when markets are on a roll - all depending upon where Troy happen to be positioned with their particular economic outlook.

…and as a quick P.S. if you prefer to take a more hands off approach and don’t want to take too much interest in how different types of trusts and assets can perform over different cycles then I suggest sticking to mainstream generalist funds rather than including more specialist ones - as and when the types of companies held by the latter come in and out of fashion the former are likely to include or exclude them, as appropriate - allow the active manager to do that work for you!


#8

Hope you’ve all had a great Crimbo. I’m struggling to squeeze in to my jeans, so my regular January visit to the gym beckons (until I loose my momentum sometime in February!).

I have taken a number of your recommendations, I’ve got pension transfer forms for my various pensions.

I’ve also set up a Hargreaves Lansdown pension and ISA. I’m transferring all my old plans to Hargreaves Lansdown and I’ll start the regular savings when I get paid at the end of January.

I’ve still to invest in any funds but I’ll do that when the pension funds transfer across and report back to you then if that’s ok.

@arkwelder All the jobs I’ve had offered pensions. My Dad told me to always take them, even when I was a bit skint (I mostly had to pay something towards them). I didn’t understand what you meant by ‘drawdown’? I guess it’s a financial term but it’s not one I’ve come across.

Thank you to you all again, you’re amazing :heart_eyes:


#9

Even with regular contributions, having the assets pay for themselves leaves the ability to fully invest the contribution.


#10

Hello everyone, most of my pension money has come across to Hargreaves now, just the Scottish Mutual/Phoenix money, which has decreased in value to less than £600 now, has yet to transfer across.

I’d like to thank you all again. This has been such a fantastic service, that has really helped me out so much. I’m not really rich enough yet to get a financial adviser and my knowledge of pensions and financial matters is woefully inadequate, so I would not have been able to do this without your help.

Through this process I’ve learned just a little bit more about investing. I even watched through the Scottish Mortgage manager video and the City of London and Henderson Far East Income videos. I’m not saying I understood all of what they were saying but I understood a lot.

Special thanks to @paulo @citygirl @scjim @james_pigott @arkwelder - you’re all very special :slight_smile:


#11

Sorry for the delay in replying, @Donna - have we had Christmas yet…? :grinning:

Drawdown, as I am using it above, means the amount by which an asset has fallen in price - peak to trough - in a given timeframe. Although it isn’t predictor of what will happen in the future, it can be used to gauge how the asset could perform if similar circumstances arise. Probably less of an issue where the investor has a long investment timescale, allowing the asset to recover in price again - especially when the objective is to grow capital - but more of an issue where timescales are shorter and the investor might be looking to take their capital and use it for other purposes.

Not to be confused with income drawdown, where the investor is using their pension fund to provide their income.


#12

Thanks for explaining that @arkwelder it’s a new for me. As a bit of a newbie to this investing lark I’m tickled sometimes by some of the terminology. How on earth did it become common place for people to start describing a fall in value as a drawdown!

There’s probably a good reason for it love but I kind of think it would be easier to learn about investing if the investment world made use of the too many world we have already in English, haha!.

Thanks for helping me loads though, I really am grateful. it might seem like I haven’t learned much but I actually really have. I will need to work at it but I am minded to.

:gift: