Retirement investment choices

[pp2023]

I have just stopped working (going 63) and have an old-fashioned personal pension pots in Aviva and in Royal London + savings. I am not desperate to start drawdown yet other than being tax efficient and would rather consider carefully my options.
I am unhappy with both Aviva and Royal London as
1. I can only draw down lump sums from the pots and cannot do a flexi-drawdown. This may be painfully slow (I am told) and cumbersome.
2. Performance in both is not something to boast about. In particular the mixed fund in Royal London has given a despicable 1.2% annual return for the past 9 years (with involvement of company financial advisor). It is one of those lifestyle GRIP choices that buy more fixed funds as one approaches retirement age to "secure" the pot. Really stupid old-fashioned algorithm. The Aviva funds are limited and I managed the pot with a few usual mistakes along the way.
3. Customer services is an abomination in both.
I am wondering whether to move to a SIPP with simple choice of diversified index trackers or to use IFA.
I have approached several IFA but I am not impressed with their offers. The "cheapest" one asked for fixed £1500 initial charge and 0.65% ongoing charge. They outsource and use discretionary investment manager with AMC of 0.15%-0.25% and OCF 0.5-0.6%. Add the platform charge of 0.15% and I am told altogether I am looking at fees of ~1.5%. Is it worth it? It seems to me that I will depart with a significant chunk of money without any guarantee for protection/growth. The only sure thing is they will get paid well.
If I go the SIPP way I need to make quite a few choices.
1. Platform: after lots of reading my short list is Interactive investor or AJBell. Both seem to have good customer services and good selection of funds. The first one has cheaper platform fee for me as it is not percentage based. Which one would you choose for the purpose of investing and drawdown? Why?
2. Funds: I am not an active investor so passive funds would suite me more but the choice is vast. Everybody says use Vanguard index funds but it looks like these are long-term buy and hold funds. Can there be "overpriced" index funds? Until last year I thought having bonds was a safe bet. Such a wrong assumption! Yes, I would invest most of my pot long term but I would like to withdraw 3% every year. What funds are sensible in this situation so that the pot can grow and does not diminish quickly? Also I am wondering, 10 years down the line I may loose my faculties and not be able to do even passive investing.
Ideally I would like to pass some money to my children so annuities are not for me.

[GrahamPlatt]

Take a look at baskets of ITs - viewtopic.php?t=38886

and pethaps have some Vanguard as well.

[Urbandreamer]

If I go the SIPP way I need to make quite a few choices.
1. Platform: after lots of reading my short list is Interactive investor or AJBell. Both seem to have good customer services and good selection of funds. The first one has cheaper platform fee for me as it is not percentage based. Which one would you choose for the purpose of investing and drawdown? Why?
2. Funds: I am not an active investor so passive funds would suite me more but the choice is vast. Everybody says use Vanguard index funds but it looks like these are long-term buy and hold funds. Can there be "overpriced" index funds? Until last year I thought having bonds was a safe bet. Such a wrong assumption! Yes, I would invest most of my pot long term but I would like to withdraw 3% every year. What funds are sensible in this situation so that the pot can grow and does not diminish quickly? Also I am wondering, 10 years down the line I may loose my faculties and not be able to do even passive investing.
Ideally I would like to pass some money to my children so annuities are not for me.

I've just retired too (60) and like you I'm in no great rush.
While I have a small defined benefit scheme due to pay when I'm 65, I also have two DC scheme.
Again like you, one is with Aviva (though I took control and it wasn't life styled).
The other is a SIPP with A J Bell.
I also have an ISA with II, your other choice.

In my opinion either II or Bell would be a good choice. I chose Bell. If you avoid "funds" it's cheaper than II because costs on everything else is capped at £10pcm, ignoring dealing costs, but how often will you do that? II would be cheaper if you insist upon "funds", or trade a lot.
I'll leave you to investigate drawdown charges.

I'm intending moving my Aviva pension to Bell, but am not in any great hurry. I'll probably do it before the end of the year.

Unlike you I am an active investor, but to answer your question about "overpriced" index trackers, they certainly DID exist. I use to get very incensed with people who argued that the costs were the reason to go passive, because they were always cheaper.
https://www.moneymarketing.co.uk/news/m ... -cheapest/

The cheapest UK All Companies tracker fund comes with a price tag of 0.05% per annum, while the most expensive one charges 1.06% per annum.

It use to be worse. I remember at one point Virgin were charging 1.5% for a index tracker!
Many active funds manage to charge less than that 1.06%.

However if you like passive investment for reasons other than "they can not be overpriced", Vanguard have a good rep. Just understand what you are buying. Technically their LifeStrategy range are actually active funds and while global, have a UK slant. Neither fact is a reason to avoid them if they fit what you desire.

Re drawdown:
I have not started yet, and don't intend to for a few years. I'm running down my ISA's first.

As I understand it you can put part of your pot in "drawdown" with Bell. It's simply done as a mathematical thing so you can continue to manage the scheme as one lump, unlike some other others who split the scheme, meaning twice the management if you continue to trade.

[DrFfybes]

I have just stopped working (going 63) and have an old-fashioned personal pension pots in Aviva and in Royal London + savings. I am not desperate to start drawdown yet other than being tax efficient and would rather consider carefully my options.
[...]
2. Performance in both is not something to boast about. In particular the mixed fund in Royal London has given a despicable 1.2% annual return for the past 9 years (with involvement of company financial advisor)

Is the poor performer an old fashioned "lifestyle" funds that moves into fixed interest investments as you approach retirement? Thes are designed to protect the value of your pot as you approach retirement and buy an annuity. If you told the advisor who recommended them to you that you didn't want an annuity and he sold you one of those then you might have grounds to complain.

I am wondering whether to move to a SIPP with simple choice of diversified index trackers or to use IFA.

Given the charges you've been quoted and how good the last Advisor was, do you really want to go down that route again

1. Platform: after lots of reading my short list is Interactive investor or AJBell. Both seem to have good customer services and good selection of funds.
[...]

Either platform is good, also Hargreaves Lansdown have reduced some of their charges recently but I haven't compared.

2. Funds: I am not an active investor so passive funds would suite me more but the choice is vast. Everybody says use Vanguard index funds but it looks like these are long-term buy and hold funds. [...]
Ideally I would like to pass some money to my children so annuities are not for me.

All equities investments are "long term", generally considered 5 years minimum. However you are going to be retired for a lt longer than that, you just need to make sure you can withstand the market ups and downs. Vanguard as a platform used to (and probably still do) allow you to buy a range of their products and "auto sell" a fixed amount each month to provide a regular income, although their fees are rather high. Other options are widely duscussed on this board. Bear in mind that Vanguard to ETF versions of most of their Trackers as well as funds, so you can still get the same exposure and shuffle for fees.

Paul

[JohnW]

Can there be "overpriced" index funds?

Do you mean 'do some funds have way too high management fees?', or do you mean 'can a fund's value be a lot less than its price?'

[JohnW]

so passive funds would suite me more but the choice is vast

Good choice; Nobel prize winners commend that, and it makes your life easier. Take a systematic approach to fund selection and I don’t think it’s too hard. Borrow Hale’s book Smarter Investing from your local library and you’ll be enlightened. Here’s an approach; if you don’t understand the significance of any step raise your hand:
1 Get a clear picture of your investment timeframe to hold and sell your investments.
2 The better the returns you need, the more risk you need to take. Don’t take more than could plausibly cost you dearly. Review some long term history of stock and bond returns to get a feel. What are expected stock, bond returns? How volatile are the returns? How big are the collapses? What’s the impact of inflation over 25 years? Portfoliovisualizer can show you.
3 Stick to stocks and bonds. Other asset classes aren’t worth the bother.
4 Decide how much of each you want.
5 Choose a sensible stock index: widely diversified, cap weighted, reputable, established, used by the big boys.
6 Choose a fund that tracks that index: closely, at low cost, with full(-ish) replication, not much use of derivatives, is big enough not to be closed down on you. Give some thought to having/not having ‘home bias’ and currency hedging.
7 Choose a UK or global government bond index (you might need more than one). Stocks are for longer term investing, but bonds can be too if you choose long term bonds; get the bond choice wrong and you’ll suffer what surprised you last year. Government bonds are very safe but you have to understand how bonds behave.
8 Consider that inflation linked bonds are a good complement to nominal bonds, and likely hold both.
9 Get the bond fund(s) that are: low cost, have correct duration, and have linkers.
10 If by this stage the choice is still large, it probably doesn't matter much which you choose.
11 Consider future proofing it against your ageing self by having it all in one mixed fund.

[pp2023]

Can there be "overpriced" index funds?

Do you mean 'do some funds have way too high management fees?', or do you mean 'can a fund's value be a lot less than its price?'

I mean: can a fund's value be a lot less than its price? Some of Vanguard's popular funds certainly look overpriced to me (no offence to anyone who holds those)

[Alaric]

I mean: can a fund's value be a lot less than its price?

#
The pricing mechanisms of OEICs and ETFs are such that they don't drift much from what is quoted continuously as the values of the underlying securities held.

Investment Trusts on the other hand can have share prixes for buying and selling standing at a discount or premium to underlying asset values.

[JohnW]

Yes, as soon as an ETF becomes over-priced compared to the value of it constituents, someone buys all the constituents and bundles them together into an ETF unit and then sells unit. By doing so, they make some money for themselves - the difference between the value of the constituents and the price of the fund, and by selling the units it pushes the price of the units down towards their proper value. 'Someone' are called authorised participants or market makers. That's part of the genius of ETF's.

[Adamski]

.. I am wondering, 10 years down the line I may loose my faculties and not be able to do even passive investing...I would like to pass some money to my children so annuities are not for me.

I've had same thoughts even though in my 50s. I recommend a simple investments portfolio like a world index tracker or Vanguard LifeStategy fund. Once your sipp's in drawdown, there's nothing to do, you just get a monthly amount in your bank, assuming you leave some cash in there. So fill out the forms to set it up, set your children as beneficiaries, transfer from your old prividers, and put into drawdown, then nothing else to do, except might have to sell investments to top up cash balance.

[pp2023]

so passive funds would suite me more but the choice is vast

Good choice; Nobel prize winners commend that, and it makes your life easier. Take a systematic approach to fund selection and I don’t think it’s too hard. Borrow Hale’s book Smarter Investing from your local library and you’ll be enlightened. Here’s an approach; if you don’t understand the significance of any step raise your hand:
1 Get a clear picture of your investment timeframe to hold and sell your investments.
2 The better the returns you need, the more risk you need to take. Don’t take more than could plausibly cost you dearly. Review some long term history of stock and bond returns to get a feel. What are expected stock, bond returns? How volatile are the returns? How big are the collapses? What’s the impact of inflation over 25 years? Portfoliovisualizer can show you.
3 Stick to stocks and bonds. Other asset classes aren’t worth the bother.
4 Decide how much of each you want.
5 Choose a sensible stock index: widely diversified, cap weighted, reputable, established, used by the big boys.
6 Choose a fund that tracks that index: closely, at low cost, with full(-ish) replication, not much use of derivatives, is big enough not to be closed down on you. Give some thought to having/not having ‘home bias’ and currency hedging.
7 Choose a UK or global government bond index (you might need more than one). Stocks are for longer term investing, but bonds can be too if you choose long term bonds; get the bond choice wrong and you’ll suffer what surprised you last year. Government bonds are very safe but you have to understand how bonds behave.
8 Consider that inflation linked bonds are a good complement to nominal bonds, and likely hold both.
9 Get the bond fund(s) that are: low cost, have correct duration, and have linkers.
10 If by this stage the choice is still large, it probably doesn't matter much which you choose.
11 Consider future proofing it against your ageing self by having it all in one mixed fund.

Thank you for the suggestions. I've got the book of Tim Hale "Smarter Investing" and have read it carefully 12 years ago when I knew nothing about investing. At the time a FA in my bank was trying to sell me a fund in the bank with 3% initial fee and 2% ongoing fee. I did not follow his "advice". I am a mathematician by education and it was easy for me to see that the fund needs to make at least 5% profit in the first year just to break even. It was at a time when markets were not good. The book reading was my need to understand basics of investing at least in principal. My take on it at the time was: don't trust actively managed funds, seek to lower costs, have a sensible proportion of equities and bonds. I dug out the book and started re-reading it. It speaks to me differently now. Your suggestions are valuable and I don't understand all of them but I will do my homework as much as I can before asking any further.

[JohnW]

A lot of my thinking came from that book, so perhaps the soil wasn’t right when the seeds fell for you a decade back. The second edition is a bit slimmer, and there’s less of ‘you should have REITS (etc)’, from memory. But I don’t think you need to buy it.

[AshleyW]

You don’t say how much pension pot you have. AJBell works out well if you stick to ETFs. Vanguard is great if you just want to set it up and forget about it (not the cheapest at 0.15% but no transaction costs) Just specify a monthly withdrawal and they do the rest. Annuity rates are attractive so partial annuitisation could be an option.

[Jon277]

There's excellent advice and guidance on Index funds including what they cost here
[url]
https://monevator.com/how-to-choose-the ... -trackers/[/url]

and if you want to compare index funds to ETF this article

https://monevator.com/etfs-vs-index-funds-differences/

I'm a big fan of the site as whole as it has lots of good articles and the comments section is also often a place of good debate and insight

https://monevator.com/

John

[Urbandreamer]

The book reading was my need to understand basics of investing at least in principal. My take on it at the time was: don't trust actively managed funds, seek to lower costs, have a sensible proportion of equities and bonds. I dug out the book and started re-reading it. It speaks to me differently now. Your suggestions are valuable and I don't understand all of them but I will do my homework as much as I can before asking any further.

I'd strongly recommend not relying upon just one book or set of arguments. Active investment and active funds/investment trusts can do well. The arguments are somewhat esoteric and at the extreme simply wrongly chosen.

I.E
Active investment is a bad idea as the averages prove that people can't do well at it. Lets ignore the likes of Buffet et-al who prove this untrue as they are obviously not the average.
Active funds ARE more expensive than passive. Untrue as I have shown, though they should be more expensive as they have more costs.

Read a lot and make up your own mind.

With that in mind, my first "investment" book was:

The Zurich Axioms.
Great fun, but not for the retired. Bet your shirt on high risk speculations, but do so with research and worry!

Of more use given the thread possibly, though not about investment:

Beyond The 4% Rule: The science of retirement portfolios that last a lifetime.
https://www.amazon.co.uk/Beyond-4-Rule- ... 8&qid=&sr=

[JohnW]

Perhaps you could share just one or two stock or bond investment ideas from The Zurich Axioms.

[JohnW]

Don’t bother, I found the summary and got the picture:
'A hunch can be trusted if it can be explained
'
'If it doesn’t pay off the first time, forget it.'
'Shun long-term investments'
'Never hesitate to abandon a venture if something more attractive comes into view.'

[Urbandreamer]

Perhaps you could share just one or two stock or bond investment ideas from The Zurich Axioms.

No bond ideas. The book is about speculation and written quite a while ago.
My copy dates back to 85.

I think the most remarkable was "put all your eggs in one basket, then watch the basket".

Here is a Youtube synopsis.
https://www.youtube.com/watch?v=31zByreklcA
a link to Amazon.
https://www.amazon.co.uk/Zurich-Axioms- ... 103&sr=8-1

As I said, not really a method to start looking into when retiring. IMHO, you need to have read it 10 years ago and lost some money following it's advice, if you are to allow it to influence you at that point.

On page 1 it starts with a tale of two young women who met Gerald Loeb, what he advised and their experiences in the year following.
https://en.wikipedia.org/wiki/Gerald_M._Loeb
One put money in savings, the other invested and lost 25%.
On being commiserated the second women's reaction was "sure I've lost a lot, but look at what I've gained, I'm having a great adventure".

Other books that might be of interest are of course "The intelligent investor" or "The Zulu principle".

[JohnW]

Thanks.

I think the most remarkable was "put all your eggs in one basket, then watch the basket”.

That’s certainly contrary to today’s orthodoxy. I wonder what you watch the basket for and what thresholds are danger signs.

From the blurb: ‘From "The Zulu Principle" you can learn exactly when to buy shares and, even more important, when to see - in essence, how to make "extraordinary profits from ordinary shares”.’
A large majority of active fund managers fail to make the easily obtainable returns of a relevant index, over periods of about ten years. Those fellows need to read The Zulu Principle.

[AndrewInDevon]

I joined Interactive Investor in January as an investor novice. I’ve found it excellent, simple to use and you actually get real people messaging you if you need help! Both ii and AJ Bell have selected their own favourite funds (super60 in ii). Both of these fund lists are on their public websites so this makes it easier to narrow down the vast choices in the market.

II also have some model portfolios which are also on their public website.

In the end I mix and matched from the super60 list and the AJ Bell Favourite Funds list. While I find these lists invaluable in making investment choice manageable, I also approach them with some scepticism, for example….

II’s Japanese equity tracker is the HSBC Japan Index Fund (tracks FTSE Japan Index) with a cost of 0.14%
AJ Bells Japanese equity tracker is iShares Japan Equity Index Fund (tracks FTSE Japan Index) with a cost of 0.08%

Hence I don’t slavishly use the Super60 list.
I really like this format of the Super60…..

https://media-prod.ii.co.uk/s3fs-public ... U1Rc.gxqQb

Even so, my one regret is not finding these platforms earlier in life! (I am 60).