Pensions and ISA ideas

BBBlues

RandallFlagg said:

Does anyone bother with the MSE (Money Saving Expert) forum?

I posted a simple question about the merits of cashing in a preserved final salary pension for the offered sum, as I was suggesting I could get a better return that it will pay out in a SIPP and after some debate I got told I was being naive and had my ability to do maths questioned when I suggested that there are mutual funds out there can can return 14-16% annually after fees. That place is weird. 

Well there is, and I'm invested in them, here are the last 10 years annualised geometric averages:

• ASI UK Smaller Companies Fund: 16.56%
• Polar Capital Global Technology I GBP: 18.45%
• Baillie Gifford American B Acc: 16.71%

Hi @RandallFlagg, on the merits of cashing in on a DB transfer value... I'd definitely look at the scheme rules in more detail if you have them? Key things to consider are how your DB pension revalues in deferment until the scheme' normal retirement date, and how it'll increase in payment - do you know these? These are likely linked to an inflation index in deferment, but could increase with a fixed rate once in payment. The scheme may just use best estimate assumptions here, and will be a lot lower than the rates you've quoted above as the scheme will likely follow a prudent matching strategy with mainly bonds, rather than hold equities.

Other things to consider might be:
- longevity risk of DB pensions, like all annuities, sit with the provider. It might be nice to have a baseline level of income regardless of market conditions. Knowledge of personal health vs average life expectancy could come into play
- you'll need to take into consideration tax advantages / drawbacks of each strategy e.g. cash free lump sums at retirement
- the transfer value offered to you will change quite a bit depending on the financial conditions date used. Low interest rate environment would mean less discounting effect in the TV calc, hence a larger transfer value
- if its a large sum, I would seek specialist financial advisor before taking any transfer values

RandallFlagg

BBBlues said:

RandallFlagg said:

Does anyone bother with the MSE (Money Saving Expert) forum?

I posted a simple question about the merits of cashing in a preserved final salary pension for the offered sum, as I was suggesting I could get a better return that it will pay out in a SIPP and after some debate I got told I was being naive and had my ability to do maths questioned when I suggested that there are mutual funds out there can can return 14-16% annually after fees. That place is weird. 

Well there is, and I'm invested in them, here are the last 10 years annualised geometric averages:

• ASI UK Smaller Companies Fund: 16.56%
• Polar Capital Global Technology I GBP: 18.45%
• Baillie Gifford American B Acc: 16.71%

Hi @RandallFlagg, on the merits of cashing in on a DB transfer value... I'd definitely look at the scheme rules in more detail if you have them? Key things to consider are how your DB pension revalues in deferment until the scheme' normal retirement date, and how it'll increase in payment - do you know these? These are likely linked to an inflation index in deferment, but could increase with a fixed rate once in payment. The scheme may just use best estimate assumptions here, and will be a lot lower than the rates you've quoted above as the scheme will likely follow a prudent matching strategy with mainly bonds, rather than hold equities.

Other things to consider might be:
- longevity risk of DB pensions, like all annuities, sit with the provider. It might be nice to have a baseline level of income regardless of market conditions. Knowledge of personal health vs average life expectancy could come into play
- you'll need to take into consideration tax advantages / drawbacks of each strategy e.g. cash free lump sums at retirement
- the transfer value offered to you will change quite a bit depending on the financial conditions date used. Low interest rate environment would mean less discounting effect in the TV calc, hence a larger transfer value
- if its a large sum, I would seek specialist financial advisor before taking any transfer values

Cheers @BBBlues ;;, yes I have all the details and it does come down to the surety of a small but never ending annual payment that escalates with CPI or exchange it for the CETV and take the risk on myself.

I have had a brief chat with a local IFA who offers transfer services but I suspect the fees to do a full review will be quite high and I'm getting a sense the at the CETV £172K that I have been offered is not that high in view of the guaranteed income it can provide.

I am probably going to leave it and draw it at 55 with a pension commencement lump sum. I can take £35K tax free in March 2022 and £5,258 per year with 47% of that rising annually in line with CPI to a maximum of 5%

I have calculated that I can take £89K in benefits from it between age 55 and 65. If I left it and took it with no lump sum at 65 then it will pay out £8,868 per year. The crossover point is in 22 years (age 87) before it's more beneficial to have taken it at 65...so I'm taking it at 55 with the lump sum, even though I will pay 40% tax for the first few years until retirement around age 57-58.

My DC pension will be the main income in retirement but the DB pension plus mine & my wife's full state pensions will be a good base of money when they all pay out together so the DB pension drawdown can be scaled back as they kick in.

My plan for drawdown starts at around 6-7% for the early years but ramps down later (as the state pension kicks in) and on average is around 3-4% overall.

ToneControl

people I know are getting 31 times final salary pension amount as a DB transfer value

RandallFlagg

ToneControl said:

people I know are getting 31 times final salary pension amount as a DB transfer value

I guess some of that depends how long you've been in the scheme and what the expectation of the final salary figure will be. Mine is based on a final salary in 2002 when I was made redundant with only 14 years in the scheme.

30x would be very tempting but you need an IFA to endorse the transfer and sign the paperwork. I was sent the pack of documents, it was about 50 pages of various forms so IFA fees would be significant I think.

BBBlues

RandallFlagg said:

ToneControl said:

people I know are getting 31 times final salary pension amount as a DB transfer value

I guess some of that depends how long you've been in the scheme and what the expectation of the final salary figure will be. Mine is based on a final salary in 2002 when I was made redundant with only 14 years in the scheme.

30x would be very tempting but you need an IFA to endorse the transfer and sign the paperwork. I was sent the pack of documents, it was about 50 pages of various forms so IFA fees would be significant I think.

Yep, 2-3% fees could easily equate to £20k for 30+ yrs service.

quarky

Every stock I bought this year is in the green. 

BRK.B 3.47%
CHDN 44.32%!!!!
GS 27.01%
MSFT 12.04%
SAP 7.06%

Means nothing in the current climate really (all shares were taking a beating, so it would be hard to not make a profit), but still nice. I had been putting cash aside for a couple of years, so arguably I probably recovered some of the money I would have made if I had bought in the first place.. 

I am fairly risk adverse, but considering putting small amounts of my monthly allowance on "risky" shares, but it is pretty difficult (for me) to really assess those. London listed Bidstack are one that I have heard about several times, but didn't pull the trigger, also Metro Bank, Cadence Minerals, and even NASDAQ: ITRN. I also considered Crowdstrike at one point, as I think there is a market there, but then some of what I read put me off..

Any advice on the best way to assess these? I am going to go back to @ToneControl post on the 1st page, too, but I guess I am looking for some risk at this point.

The biggest portion of my pension is a final salary scheme, so I am really just saving in a S&S ISA hoping for £150k by the time I retire. That isn't a lot but is kind of a "third leg" of my pension plan (final salary plan (and current occupational pension), state pension, ISA). If I don't really need it, hookers and coke, or maybe pass it to the kids.. 

DiscoStu

I have read this whole thread 3 times now and I still don't fully understand it haha!
I really want to get in to the stocks game. I'm 47 and have £3k sitting in a Cash ISA to invest (I have more I could put in but I'm happy with £3k to start), and then could probably put in between £100-£200 monthly.
Any suggestions on the best place to start?
Not really knowing this area I think I need a managed fund. Given my age should I go Income based or Growth?
Cheers

RandallFlagg

DiscoStu said:

I have read this whole thread 3 times now and I still don't fully understand it haha!
I really want to get in to the stocks game. I'm 47 and have £3k sitting in a Cash ISA to invest (I have more I could put in but I'm happy with £3k to start), and then could probably put in between £100-£200 monthly.
Any suggestions on the best place to start?
Not really knowing this area I think I need a managed fund. Given my age should I go Income based or Growth?
Cheers

I wouldn't recommend dabbling with individual stocks until you have a bit more of a grasp on how to evaluate companies and understand the stock market a bit more.

Transfer to a stocks and shares ISA and pick one or 2 mutual funds. Have a look at some ISA providers they will will have a funds table where you can review the fees and past performance to help build a shortlist, then look them up on MorningStar for further research. Use the MorningStar ratings to help further refine your selections.

Inc vs Acc, not a huge difference but the Inc will pay out dividends from the stock portfolio as cash rather than reinvest it by buying more shares for more growth. Inside the Stocks and Shares ISA you have 2 elements, the cash wrapper and the invested funds, I believe the Inc fund will transfer the dividends into the cash part of the account where the Acc fund will just keep it in the invested side until you decide to sell some shares and convert to cash. You can then decide to withdraw the cash or leave it within the ISA for reinvestment if you want in the same fund or a different one as you choose.

I think that's how Inc funds work within and ISA, I don't have any so not 100% sure on the mechanics of it.

DiscoStu

Cheers @RandallFlagg. I was looking at Cavendish last night and their Fidelity linked portfolios. This seems to be a good balance of choice vs fees but yeah I'd be choosing which funds to invest in. If I go with a mutual fund, do they still tell you which companies your money is invested with? Cos then as you say I could keep tabs on performance and get a feel for it.

RandallFlagg

DiscoStu said:

Cheers @RandallFlagg. I was looking at Cavendish last night and their Fidelity linked portfolios. This seems to be a good balance of choice vs fees but yeah I'd be choosing which funds to invest in. If I go with a mutual fund, do they still tell you which companies your money is invested with? Cos then as you say I could keep tabs on performance and get a feel for it.

It can be tricky to find out 100% of a mutual funds portfolio, remember the fund manager may buy and sell stocks to align with their strategy but all funds should come with a quarterly factsheet that will highlight the top 10 holdings and they can be viewed via your ISA platform or a 3rd party site such as Trustnet, see example here:

https://www.trustnet.com/factsheets/p/sl30/stan-life-sli-uk-smaller-companies-pn

ThePrettyDamned

I'm going to go for 50 quid per month from this month into an aviva account. Thinking, for now, low fees passive - just while I dip my toe and learn more - which seems commonly advised. Looking at Blackrock ishares UK class H or Blackrock concensus 100 class D, which is global and, possibly, higher risk.

It's a lot to learn, though, even for passive funds and I may just pick a ready made one... Will decide over the next hour or so. 

ThePrettyDamned

Did it! Will be interesting to see how it goes. As it is, it makes up a small part of my monthly savings so I went for a higher risk passive fund (passive to keep costs down 

RandallFlagg

Slower markets recovery through June so far but US futures are flying up today after $1 Trillion US infrastructure package announced:

https://www.forbes.com/sites/naeemaslam/2020/06/16/dow-jones-futures-sp500-stocks-soar/#65efe3b77516

No sign of that 2nd dip or bear trap yet, NASDAQ is fully recovered and S&P500 & Dow continue recovery with some volatility despite fears of US stocks being overpriced.

FTSE slower to recover as is typical. My UK fund recovery has slowed after April and May rebound and remains about 10% below 2019 year end but it's nibbling it's way back. My US funds are flying at around 40% & 22% gains.

DefaultM

I had a look at my investments today for the first time in a few months, and I can see my account has been credited with £94 for a rights issue. Does anyone know what that means please?
The site doesn't have a live chat and had no reply to my email yet. The company I'd invested in was Whitbread.

Edit: Looks like the last 4 shares I bought they've refunded, but I've still got the shares?

Strat_a_tat_tat

DefaultM said:

I had a look at my investments today for the first time in a few months, and I can see my account has been credited with £94 for a rights issue. Does anyone know what that means please?
The site doesn't have a live chat and had no reply to my email yet. The company I'd invested in was Whitbread.

I'm guessing you chose not to buy extra Whitbread shares that were offered to you as part of the rights issue.  In such cases, if the issue is oversubscribed, your unused rights will have a value... and can be sold on your behalf... so that may be where the £94 came from.

ThePrettyDamned

My first payment went through yesterday - I've officially started investing in my s+s isa will be interesting to see how it goes, but as I say, it's currently only a small part of my savings (the rest is cash for rainy day fund for now). 

DefaultM

Strat_a_tat_tat said:

DefaultM said:

I had a look at my investments today for the first time in a few months, and I can see my account has been credited with £94 for a rights issue. Does anyone know what that means please?
The site doesn't have a live chat and had no reply to my email yet. The company I'd invested in was Whitbread.

I'm guessing you chose not to buy extra Whitbread shares that were offered to you as part of the rights issue.  In such cases, if the issue is oversubscribed, your unused rights will have a value... and can be sold on your behalf... so that may be where the £94 came from.

Thanks. I bought them and then told it to buy more on a monthly basis to encourage me not to keep checking the price every day. Sounds like I've missed out there then.

RandallFlagg

Into July now and markets still clinging to the V shaped recovery with some volatility and wobbles protracting overall index recovery. US markets doing better than UK, which still have a way to go to get back to 2019 year end levels. US markets gaining even against the COVID backdrop. Some sectors are doing better than others. The NASDAQ which includes a lot of the US technology giants is soaring at the moment.

2 of the funds I'm in are now 55% and 31% up year to date:



I still there is still a slight risk of a 2nd dip but possibly more of a stagnation and slow down of gains rather than another sudden drop. 

RandallFlagg

Tesla stock

Interesting things happening to Tesla stock. The short sellers have become trapped will $billions short bet against the Tesla stock but the price fall hasn't come, the price keeps going up creating a "short squeeze". This coupled with the fact that Tesla may be about to enter the S&P500 and so many Index tracker funds will be obliged to buy into Tesla stock will push the price up even further, losing the short sellers a lot of money.

The Baillie Gifford American B fund I invest in has 8% of it's portfolio in Tesla as it's 2nd highest holding after Apple. The gains have been phenomenal, I'm 98% up since I put money in at the bottom of the dip on 17th March.

If this really is a short squeeze cycle then there are more gains to be had but the bubble will eventually burst....or will it? I wonder how the mutual fund managers are looking at this and whether they will sell out of their positions?

Elon Musk has launched a range of 'shorts" to mock the short sellers trapped in the squeeze: https://news.sky.com/story/elon-musk-digs-at-tesla-short-sellers-by-selling-short-shorts-for-69-420-12022203

https://www.forbes.com/sites/danrunkevicius/2020/07/20/tesla-stock-may-be-rallying-for-this-absurd-reasonand-this-wont-end-well/#1921037d67a6

https://news.sky.com/story/tesla-on-track-for-s-p-500-after-fourth-consecutive-quarterly-profit-12034192

ToneControl

There are massive tech bubbles in the USA currently, everyone should be very careful

Basically, the share prices are driven by speculation rather than any kind of rational investment based on value or earnings

For Tesla:

Tesla is now the most valuable car company in the world. The stock is worth more than triple the combined value of US automakers General Motors (GM GM +0.6%) and Ford (F). It’s insane given that these two automakers generated 10 times more sales than Tesla last year.

https://www.theguardian.com/technology/2020/jul/18/tesla-valuation-elon-musk-profit

Tesla has never made an annual profit but the company has a market value equivalent to a third of the combined US, EU and Japanese auto indices – despite an expected share of only 0.8% of the global auto market this year. That disconnect has prompted re-evaluation from some investors and euphoria for others as they try to work out if the carmaker can ever justify the heady valuation.

Small investors have been quick to jump onboard, with the share dealing service Robinhood saying the number of its accounts holding Tesla shares has doubled since June.

Analysts are often afraid to call a bubble, given the potential for egg on their face, but the share price surge to more than $1,500 (after briefly breaking above $1,700 on Monday) has made even Tesla optimists wary. The company’s valuation is more than 60 times analysts’ average expectations for core earnings in 2020. That multiple implies that Tesla will not only become profitable but that it will become the world’s dominant carmaker. Many do not think it will last.

so  Tesla has only 0.8% of car sales, but somehow around 33% of the share value of all the car companies in the world

I'd call that a very large bubble

btw You get a short squeeze when no one wants to sell as the price goes up. Sometimes people do want to sell,
We don't know yet if and when people will cash out, or how much margin the shorters have in reserve.