SIPP Strategy for 30 year old

[Shaker]

This is my first post, so hello fellow lemons!

Just wondering if anyone could give some pointers for a SIPP strategy for a 30 year old? I'm an experienced investor so well aware of different options e.g. oeics, trackers, individual shares etc. but just wondering what people's thoughts are on a long term strategy for money which is unlikely to be touched for 30 years or more. Not scared of volatility.

Small caps funds?
Individual shares?
S&P 500 tracker?

Interested to read what you would do in my shoes. SIPP value is a low, 5 figure sum, but potentially adding £5k to it each year.

[fca2019]

If I had my time again, I'd do regular investment, as good way to keep the pot growing and smooth returns, with pound cost averaging. Welcome to the forum!

[SoBo65]

I have been investing for around 40 years and learnt a lot on the way. If I was 30 again, then I would probably invest monthly into ETF's with one or two high growth investment trusts such as Scottish Mortgage, keep switching investments to a minimum to keep costs down and benefit from compounding. I was probably too cautious at 30 but as my SIPP has grown taken more risk which is probably the wrong way round, but I have sat with a high cash balance uninvested for a number of years because I thought the market would fall, and it did not. I am now virtually fully invested across 20 ETF's/IT's and would be prepared to ride out any period of volatility.

[JohnB]

I don't think you can control returns, just costs and taxes, so trickle the money into a world index tracker at the lowest cost using a capped fee broker, and research salary sacrifice and the like. When you get a promotion, don't change your lifestyle, boost your savings, and you'll be surprised how quickly they pull away.

Use company pensions, but suck the money out into your SIPP when changing jobs, and once a year or so if they allow partial transfers.

[Dod101]

For a young guy , a SIPP is free money so he must take risks with it, not for goodness sake a world index tracker. He has more than enough time to recover if he needs it but at that stage his world is his oyster. Go for it!

Dod

[xxd09]

73 years old,17 years retired so walked the walk
2funds only-A Global Equities Index Tracker Fund and a Global Bond Index Tracker Fund hedged to the Pound -Vanguard?
Cheap,easy to follow and beats 80%+ of all equivalent active funds
Rough guide re Asset Allocation -your age in Bonds
Set it up and let it run-do not tinker-just keep adding cash
Concentrate on your day job and making money to invest
That’s it
xxd09
PS live frugally

[Dod101]

73 years old,17 years retired so walked the walk
2funds only-A Global Equities Index Tracker Fund and a Global Bond Index Tracker Fund hedged to the Pound -Vanguard?
Cheap,easy to follow and beats 80%+ of all equivalent active funds
Rough guide re Asset Allocation -your age in Bonds
Set it up and let it run-do not tinker-just keep adding cash
Concentrate on your day job and making money to invest
That’s it
xxd09
PS live frugally

That is much more conservative than most would advocate even at 73. I would certainly not advocate that for a 30 year old. The old adage about holding your age in bonds has I think long been discredited but of course it depends on your goals. A 30 year old is likely to want capital accumulation.

Dod

[moorfield]

This is my first post, so hello fellow lemons!

Just wondering if anyone could give some pointers for a SIPP strategy for a 30 year old? I'm an experienced investor so well aware of different options e.g. oeics, trackers, individual shares etc. but just wondering what people's thoughts are on a long term strategy for money which is unlikely to be touched for 30 years or more. Not scared of volatility.

Small caps funds?
Individual shares?
S&P 500 tracker?

Interested to read what you would do in my shoes. SIPP value is a low, 5 figure sum, but potentially adding £5k to it each year.

Hi Shaker, and welcome.

None of the above offer any measurable long term strategy, just some loose ideas on implementation. My suggestion would be to focus on the overall dividend income your investments produce, and the rate at which it grows through the compounding effect of reinvestment.

With some simple assumptions, you can extrapolate an income schedule into the future against which you can regularly check progress.

The table below assumes:
an initial contribution of £10k buying a yield of 5.5%
an annual contribution of £5k buying a yield of 5.5% each year
an income growth rate of 7.2% pa through the combined effect of increasing and reinvested dividends

This model points you towards a ballpark income of £46k pa in 2055 (aged 65) or about £23k pa in today's money using an inflation guesstimate of 2% pa. This may not seem a comfortable income for all your saving efforts over the next 35 years but do note that is a natural yield, ie. you will have accumulated a large capital sum perhaps £850k yielding that income (again assuming 5.5%), on which you will also be able to draw and pass onto beneficiaries etc.

This is how I manage my SIPP strategy, and HYP (popular here) or a variant of is a vehicle I'd suggest looking at for implementing. My own efforts on how I'm progressing are over here.

Good luck, and do let us know how you are getting on in 2055!




Year Income £
2020 550
2021 865
2022 1202
2023 1563
2024 1951
2025 2366
2026 2812
2027 3289
2028 3801
2029 4350
2030 4938
2031 5568
2032 6244
2033 6969
2034 7746
2035 8578
2036 9471
2037 10428
2038 11454
2039 12554
2040 13732
2041 14996
2042 16351
2043 17803
2044 19360
2045 21029
2046 22818
2047 24736
2048 26792
2049 28996
2050 31358
2051 33891
2052 36606
2053 39517
2054 42637
2055 45982

[ADrunkenMarcus]

I doubt it counts as a strategy, but I would advocate investment trusts over unit trusts and tilt towards global and medium/smaller companies. I'm a similar age and my SIPP is:

Smithson 41.02%
Standard Life UK Smaller Companies 19.75%
Spirax Sarco Engineering 11.70%
DP Poland PLC 7.97%
Aberdeen Standard Asia Focus 6.68%
Rotork 5.85%
Kainos Group 3.68%
Temple Bar 3.4%

Individual companies and some of my particular individual companies will not be to everyone's taste! Over decades, I expect them to be moved into collectives.

Basically, over two-thirds of my SIPP is in investment trusts focusing on global medium/smaller companies, UK smaller companies and Asia smaller companies.

Best wishes

Mark.

[kempiejon]

This is my first post, so hello fellow lemons!

Just wondering if anyone could give some pointers for a SIPP strategy for a 30 year old? I'm an experienced investor so well aware of different options e.g. oeics, trackers, individual shares etc. but just wondering what people's thoughts are on a long term strategy for money which is unlikely to be touched for 30 years or more. Not scared of volatility.

Small caps funds?
Individual shares?
S&P 500 tracker?

Interested to read what you would do in my shoes. SIPP value is a low, 5 figure sum, but potentially adding £5k to it each year.

Hello Shaker in your experience what strategies are you currently running or have experience in, which are your prefered, couldn't you continue with them making good use of ISA and SIPP tax advantages offered.
Are you partnered or intending to be, kids, mortgage, debts, do you have a safet first cash buffer etc? Even so, start now, put something in every month I'd chose the stock market, I'd go for a low cost global thing, ETF, tracker or perhaps an investment trust. Take any company pension offered and do your own SIPP too.

[dealtn]

My suggestion would be to focus on the overall dividend income your investments produce, and the rate at which it grows through the compounding effect of reinvestment.

Well I wouldn't focus on dividend income at all as a 30 year old investing in a SIPP. It's at best irrelevant, and at worst would limit the universe of shares, or funds, you can potentially invest in. I would absolutely endorse the power of compounding though, and that's where a large amount of your return is going to come from. At the point you need an income then you can either enjoy dividends, or "create" them yourself. Over the 30 plus years of having a SIPP at that point you will know more about what is right for you, and how you can achieve it.

Total Return is what I would be focussing on. You can have 2 identical companies, one which pays zero dividends, reinvesting all "earnings" back into the business, the other paying a (high) dividend to its owners, who then re-invest themselves. The two would produce similar pots. (The latter might be slightly worse due to higher frictional costs, and outside of a tax wrapper tax implications - but let's be generous and ignore these).

But, firstly congratulations though, by embarking on a long term investing journey, regardless of your method, you are at an advantage to the majority who won't be taking control of their financial future. I'm sure you will be in front of them whatever you decide.

[Dod101]

dealtn is much nearer where I would recommend as well but he has introduced a red herring in mentioning tax implications because there aren't any if you are investing in a SIPP.

Dod

[dealtn]

(that's why it was in brackets)

[Scudsurfer]

What about chucking your money in a momentum tracker like IShares All World Momentum, has averaged 13.5% back tested to 1994 (IWFM), gets rebalance twice a year and is a accumulator ETF, so all the hard work is done for you.

[Shaker]

Thank you all for your responses. Some of the comments above I have already started implementing e.g. trying to keep costs down and doing partial transfers from my workplace pension into a SIPP . I like the comment about living frugally and when I get a promotion, to not upgrade my lifestyle - just pocket the difference.

I tend to go for broad, global index tracker equity funds (OEICs, not ETFs generally). Good to get some reinforcement because I think there is some benefit in tilting towards medium/small companies for a multi-decade approach and I will investigate the options posted on this thread .

[scrumpyjack]

71, no bonds at all, haven’t taken anything from my SIPPS yet and plan to leave them untouched for my offspring.

If I was starting again I would go for an all world tracker. As it is I did pretty well overall but it isn’t worth taking the risk of thinking your judgement is better than the market.

Politically I think any form of pension fund is likely to be safer than any other investment wrapper so put as much in as you can.

Interesting though to see if anything changes in this budget!

[BrummieDave]

I like the comment about living frugally and when I get a promotion, to not upgrade my lifestyle - just pocket the difference.

Hey Shaker, loosen up! You work hard for those promotions, you deserve them, what's the point if life doesn't improve with each one? Live life and enjoy it. Sure, don't blow the money, but equally make sure you enjoy yourself along the way and if that means spending some of that new money, do so.

As Timothy Ferriss refers to as "lifestyle design" in his writings, take control and make sure you avoid the traditional "deferred" life plan in which
people work grueling hours and take few holidays for decades and save all their money in order to relax only after retirement.

Lemon Fool is primarily an investment and personal finance discussion board, so most comments will be about investment and personal finance. But don't forget there's a life to be lived alongside your investment journey. You're 30, enjoy the next three decades as well as saving for the three that hopefully will follow. Get that balance.

I have a theory that for many of us the richest day of our lives will be the day we die, no matter whether that's today, tomorrow, or at age 99. We simply don't spend what we've earned. We save, we invest, we accumulate. Some are proud to leave SIPPs untouched and to bequeath their pensions and other forms of investment to their heirs. This can be a noble act, but it's your money, don't die the richest man in the graveyard with a life unlived.

[Wuffle]

Take obscenely beneficial money from employers but be a bit more cautious about the stepped nature of income tax if the money is hard won.

W.

[dealtn]

My suggestion would be to focus on the overall dividend income your investments produce, and the rate at which it grows through the compounding effect of reinvestment.

Well I wouldn't focus on dividend income at all as a 30 year old investing in a SIPP. It's at best irrelevant, and at worst would limit the universe of shares, or funds, you can potentially invest in. I would absolutely endorse the power of compounding though, and that's where a large amount of your return is going to come from. At the point you need an income then you can either enjoy dividends, or "create" them yourself. Over the 30 plus years of having a SIPP at that point you will know more about what is right for you, and how you can achieve it.

Total Return is what I would be focussing on. You can have 2 identical companies, one which pays zero dividends, reinvesting all "earnings" back into the business, the other paying a (high) dividend to its owners, who then re-invest themselves. The two would produce similar pots. (The latter might be slightly worse due to higher frictional costs, and outside of a tax wrapper tax implications - but let's be generous and ignore these).

But, firstly congratulations though, by embarking on a long term investing journey, regardless of your method, you are at an advantage to the majority who won't be taking control of their financial future. I'm sure you will be in front of them whatever you decide.

Well the annual Berkshire Hathaway letter should be essential reading anyway, but Warren (and Charlie) can put it much better than me, and are no doubt viewed, respected, and certainly read more than I will ever be. In his latest he specifically refers to "The Power of Retained Earnings". Find good companies, let them retain and reinvest the earnings for you, don't seek the dividends.

The section on Berkshire Hathaway Energy is also interesting on the subject of Dividends and Retained Earnings too.

Note also how many times he will speak of Return On Capital (not Return Of Capital!). It doesn't come as any surprise that Berkshire Hathaway doesn't pay dividends to its investors.



viewtopic.php?f=8&p=286207#p286207

https://berkshirehathaway.com/letters/2019ltr.pdf

[EthicsGradient]

Note also how many times he will speak of Return On Capital (not Return Of Capital!). It doesn't come as any surprise that Berkshire Hathaway doesn't pay dividends to its investors.

viewtopic.php?f=8&p=286207#p286207

https://berkshirehathaway.com/letters/2019ltr.pdf

But if all companies did that, there'd be no point in owning shares, because you don't pay a higher price for a company just for the pleasure of owning it - you do it to have the right to take profits from it. That's the idea of capitalism. Buffett is just waiting for someone else to pay to take the profits. American companies are influenced (like others) by their tax system in deciding how much to pay as a dividend. For many years, a lot of them have found it more tax-efficient to use profits to buy back shares and hike the share price, rather than assigning them as dividends.