Financial planners may be good at telling their clients what to do with their pension funds, but where do they invest their own retirement savings? Four advisers at different stages of their lives have opened up their pension portfolios to scrutiny, and spilled the beans on where they invest, why, and what savvy investing moves they are making next.
Name: Katy Owen. Age: 27. Works for: Thomas and Thomas Finance. Top holdings: Standard Life International Equity fund.
Owen started saving into a pension in 2014 when she joined Thomas and Thomas, and in just a short space of time her life has changed significantly. She’s currently pregnant – but unlike most mothers, she isn’t going to have to worry about whether to keep paying towards her pension when she takes maternity leave, as her employer has agreed to continue its 8 per cent contributions for her initial maternity period. The pension is a Standard Life Stakeholder plan, which Owen adds to on top of her employer’s contribution.
Despite being young, Owen’s attitude to risk at the time of setting up the pension meant she was placed in the Cautious Managed fund offered by the pension, but her attitude has changed over the past couple of years.
‘As I became more experienced and passed my financial planning exams, I realised that I should probably tolerate more daily volatility as I have nearly 40 years before I am likely to use these funds,’ she says. ‘I switched into the Standard Life International Equity fund, which I had seen performing well for some of my own clients; the fund has grown around 17 per cent year to date.’
The choice of fund means her portfolio is currently weighted towards international equities, making up two-thirds of the portfolio, with one third in UK equities. Over the next five years Owen plans to move her savings into a portfolio of ethical investments, but she intends to build up her pension to £40,000 before moving on to an investment platform and investing the money into a Thomas and Thomas Ethical Portfolio.
‘Right now this wouldn’t be cost-effective because of the size of my funds,’ she says. ‘Our ethical portfolios contain funds such as Rathbone Ethical Bond, Standard Life Ethical European and EdenTree International, all of which I have great respect for and which inspire me to invest ethically.’
Owen believes that investment opportunities in future ‘will lie in renewable energy and away from oil’. ‘This makes ethical investment funds all the more attractive and supports my long-term view to enter this arena with my pension funds,’ she explains.
While younger people cannot expect a retirement date of 55 as longevity increases and pension funds have to last longer, Owen is still optimistic about her retirement date. ‘I hope to retire in my mid-to-late sixties,’ she comments. ‘I am realistic and realise that I shall also need to build up an Isa portfolio alongside my pension to make this more of a reality. I am due to take some time out soon to have a baby, but upon my return to work I hope to increase my pension saving.’
Name: Dominic Lacey. Age: 32 Works for: Tilney Bestinvest. Top holdings: CF Lindell Train UK Equity and Vanguard Emerging Markets Stock Index.
It is only recently that Dominic Lacey has been taking his own pension seriously, and he acknowledges that starting saving at 28 was ‘too late’. ‘I admit that when I opened my account I only had half an eye on putting money aside for retirement, despite my profession, as I preferred to prioritise savings for the present,’ he says. However, the fact that his company offers matched contributions, which Lacey describes as ‘free money,’ was a game-changer.
He has two pensions, a group self-invested personal pension (Sipp) from an old employer ‘through which I make my most active investment choices’, and a group personal pension (GPP) from his current employer, which is home to his ‘buy and hold’ investments.
Lacey says there is ‘no rhyme or reason’ to his Sipp investments and he has been picking stocks and funds he likes rather than working to a specific asset allocation. ‘However, with my group pension, I’m about 35 per cent emerging markets, 15 per cent natural resources, 30 per cent European smaller companies and 20 per cent UK smaller companies,’ he says.
‘I’ve picked these based on in-house views. As I can’t get my pension for a minimum of 26 years, I’ve chosen riskier funds with the greatest potential for return. I’m not bothered about fluctuations in value as I know these can be ridden out over the longer term.’ The Sipp has gained 30 per cent over the past year ‘by luck rather than design,’ and the GPP is up 19 per cent, ‘hopefully by design, rather than luck,’ he says.
Lacey is ‘fairly indifferent’ to the funds he picks, and chooses managers and sectors he likes as well as using tracker funds. ‘I like CF Lindsell Train UK Equity and IFSL Tilney Bestinvest Maximum Growth because I believe in the management and the investment style,’ he observes. ‘I’ve also picked Vanguard Emerging Markets Stock Index as a buy and hold, as it’s low-cost.’
Although Lacey has had some luck with a ‘complete punt two years ago’ on shares in Horizon Discovery Group that have made 82 per cent, he prefers to leave the investment decisions to the experts. ‘Everything I’ve done previously has been pretty piecemeal and without any overall strategy, and I realise now that I should leave management to the professionals,’ he says.
In line with this decision, he has moved away from some of the direct equities he ‘dabbled in’ and put his money into funds, and will continue to take profits on shares to reinvest into collectives over the next 12 months. ‘I’m not averse to cutting losses if I feel there’s no hope for recovery [on a stock],’ he says. ‘That said, I will always likely have the odd direct stock which I’ll have a bit of a punt on.’
As Lacey does not expect to retire until he is in his 70s, and says ‘things look fairly bleak for people of my generation’, he will continue to stay invested in riskier sectors and assets. ‘I’m unlikely to change this strategy for my pension until I’m 10 years from retirement,’ he says.
Name: Justin Modray. Age: 47. Firm: Candid Financial Advice. Top holdings: Vanguard FTSE Developed World ex UK Equity Index, Vanguard Emerging Markets Stock Index and Marlborough Special Situations.
Justin Modray is debating a shake-up of the funds he invests his pension in, but as he has no plans to retire any time soon, he will remain in equities. He started saving in his mid-20s after becoming a financial adviser and deciding to ‘practise what I preach’. Modray opened his own pension with Skandia, as his employer didn’t offer a pension; although he has tried to maintain contributions, he admits ‘they have been sporadic at times, when costs like home and children have taken precedence’.
The pension is 31 per cent UK equities, 29 per cent global equities, 15 per cent emerging market equities, 7 per cent commercial property, 6 per cent alternatives, 6 per cent fixed interest and 6 per cent commodities. It has gained 22 per cent in the past 12 months. Modray is happy to take a ‘reasonably aggressive stance’ towards risk, as he does not expect to retire for another 15 to 20 years, or ‘realistically when I feel too old to keep running Candid’.
Although he is comfortable with his asset allocation and top holdings, there are some fund changes he has made recently, and some more he plans to make due to charges he is unhappy with. ‘I switched Jupiter Strategic Bond to Artemis Strategic bond because I was fed up that Jupiter charges significant administration expenses on its fund, which just don’t seem fair,’ he says.
He is also toying with the idea of switching out of Terry Smith’s £11.8 billion Fundsmith Equity. ‘Performance has been good, but Fundsmith’s annual charge is high compared to many peers, with an ongoing charge of nearly 1 per cent. I’d like to see Fundsmith reduce its fee, especially since it is now a very large fund.’
Apart from the occasional switch in funds, Modray doesn’t expect to change the asset allocation of his portfolio in the next few years, and the allocation further down the line will depend on when he decides to use his pension savings. ‘As I approach retirement I might need to start shifting towards income-producing assets, assuming I keep the pension invested and draw an income in retirement,’ he says.
Name: Eddy Woore. Age: 54. Firm: Mattioli Woods. Top holdings: Custodian Reit, Mattioli Woods Portfolio Management Service and Mattioli Woods Structured Product Fund.
Woore started saving into a pension aged 25, but he says retirement will still be ‘many years away’ as he won’t retire until his daughter has left higher education. He uses a Sipp because he likes the wide range of investments and assets that can be held, which helps to diversify a pension.
‘I have great faith in the fact that I can vary the type of assets and investments I use in reaction to changes over time,’ he says. ‘The flexibility a Sipp provides is key to this: it is not restricted to selected funds, or even just [the fund universe]. Direct assets can be acquired from time to time.’
At the moment 30 per cent of his pension is in a discretionary managed portfolio, 10 per cent in shares chosen by Woore, 20 per cent in structured products, 20 per cent in non-standard assets, and 20 per cent real estate investment trusts (Reits).
Woore’s pension has returned 14 per cent overall in the past 12 months. The growth portfolio returned 18 per cent in the year to July, Reits produced 10 per cent, the structured product ‘kickouts’ returned between 8 and 16 per cent, and the private investors club – which is Woore’s nonstandard asset – ‘delivered strong performance’. ‘I like to have a very diverse spread of investments, and it has changed over time quite significantly,’ he says.
He explains that he has ‘tended to look for income-biased assets in Reits and what would be classed as non-standard [assets]; although the latter have higher risk attached to them, they have delivered very strong capital growth from time to time’.
Non-standard assets can be anything from hedge funds and unquoted UK equities to unregulated collective investment schemes (UCIS) and property syndicates. Woore says the structured products he holds ‘are used to get a different risk response in exposure to markets’. ‘Overall, these are designed to be less correlated with the main markets,’ he adds. Although most people reduce the risk in their portfolio as they get older, Woore says he likes investments with ‘strong growth or high income’ as long as ‘they are transparent in objective, risks, potential returns and costs’.
Many investors take a ‘buy and hold’ approach to their pension, as they know they will be invested for a long time, but Woore says he tends to ‘change products to suit asset allocation needs’. He relies on the testing of new products that Mattioli Woods undertakes; but while he employs ‘individual choices at the edges’ of his pension, Woore ‘does conform to [the firm’s] overall strategy and product choice’. ‘I have found discretionary fund management a great benefit in timing... particularly in regard to speed of action,’ he says.
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