End of Year Review and possible rethink?

[zharrt]

I have been managing my SIPP since 2012, and at the end of each year I try to work out if I am still doing the right thing.

I am 40 year old, self employed with a SIPP in the low six figures, according to my figures (which might not be the same way everyone else does them but it's how I have done them each year so I can compare like for like) my total pot grew 12.55%, and this includes 6.07% dividends and the rest in growth. I have also been adding capital equal to about 10% off the fund value at the start of the year (however this has been an unusual year where I have been able to put in more than normal this year so is not sustainable long term).

At the start of the year I was 100% focus on individual shares, about 30 in total but I have started to move most of the new capital into three funds (HICL, HFEL, MYI) and my aim is each of these will get to 11% of my holding (33% in total) all dividends are reinvested unless the holding exceeds my target which are then added to the new capital and used to increase the holdings of the three funds.



My calculations are taken as following:

Yield = average dividend value of the last three years divided by total purchase price of the holdings
Value = current price / average purchase prices
Income = (current price * shares) / (purchase price - total dividends)

So, other than my ramblings I suppose I should be asking a question, and the big question (am I doing the right thing) probably can't be answered.

My main rule of thumb has always been, don't sell anything, loses are only realised when I do (which is why I am still holding onto Centrica and De La Rue) but I know that equal logic could also be if I moved those small holdings into something else I could recoup the losses quicker. I also know that PLUS500 is an outlier, I am enjoying that while it lasts, total dividends are just about to overtake the original purchase price so when that bubble bursts I will not be too unhappy.

I want to keep upping my holdings in the three funds as that gives me at least a little but of diversification away from the UK. And I have twenty years before I start needing an income from the SIPP so anything I do will be focused on the long term.

I originally posted in "High Yield Shares & Strategies - General" (and thanks to those who commented there), as I have always erroneously assumed when I first started investing I needed to focus on income rather than growth so have considered myself a HYP where in hindsight I probably don't have a single strategy which might be my undoing. it seems I should be focusing on growth now and income later

Any advice, comments or observations as to what I could be doing in 2022 will be welcomed, I would like to increase my exposure to the US tech sector (QQQ?) which i think would give me the growth I am looking for, but have I missed the boat?

[moorfield]

Whether you focus on income or growth you still should try to figure out roughly now how much income you want at the end.

Anyway you have my 2p on your other thread, no need to repeat myself here.

[zharrt]

Whether you focus on income or growth you still should try to figure out roughly now how much income you want at the end.

Anyway you have my 2p on your other thread, no need to repeat myself here.

Yes thanks again, not sure I 100% followed all your number but I get your point.

Again, naively I have always went on the rule of thumb every £100,000 in value, I'd get about £6k a year return although this used to be the rule for annuities I don't think it still works.

If I aim for 50% of my net current salary (assuming mortgage and debt free when I retire) I would be looking at an income of £40k a year (before taking into account inflation which you used a standard 2% a year) so I would need an income of ~£60k a year when I look to retire in 2041

So if I was to use the same rule of thumb (£6kpa for every £100,000) I would need a pot of about £1m so to turn £104k into £1m I am looking at 11% per year (which of course is very difficult, if not impossible without taking massive risks)

[Dod101]

In your circumstances, given your age and the relatively modest sum in your SIPP. I would be going for growth, and as I know (I hold both) it looks as if growth is not what you will get as a priority anyway from Murray International nor, even less HFEL. In fact I am just selling HFEL as growth has been negative for the last three years, and certainly for the last year, the substantial income simply absorbed the capital loss.

I do not hold HICL always having been put off it by the relatively high premium to NAV, although there is probably not much wrong with the underlying investments. In recent years, a HYP like portfolio has not done very well at least not a UK based one as I can also testify

My best shares in the growth portfolio were Caledonia (40%) Diageo (40%) RIT Capital Partners (33%) and Segro (47%) I had plenty of share nowhere near these returns but they were mostly in the UK income sector since I live off my dividends.

In summary, I would be looking to grow my SIPP and concentrate on capital growth. I cannot answer or even give an opinion on the US tech sector but many will probably say that it is getting into inflated territory.

Good luck

Dod

[JuanDB]

Hi Zharrt,

I’m a little bit older than you, 45, and have been through a similar thought process. Starting with know nothing, and having a personal bias for income I focussed on dividend paying ITs initially. My thinking was that if I can replace my earned income with investment income from natural yield then I’ll be golden.
Where that thinking evolved after a few years is that I can’t access my pensions for some time, I’ll focus those on growth and focus ISAs and GIA on income. Where I’ve ended up is the natural yield on ISAs and GIAs meet my base level income and I’ve added a third focus which is Growth and Income.

So
GIA = income focus, HFEL, MYI, CTY, MRCH and others
ISA = income and growth and income focus, the above plus JGGI and others
SIPP = growth, VWRL

I measure each of those three strategies on their respective intent E.g. the income focused portion is targeted to grow income by 10% per year with dividends reinvested. If it meets that target then I’m happy.

Other than responding to your rambling with my own rambling, my points are:

There is no “right thing” (only with hindsight), there is only what you are comfortable with.
You don't have to have a single strategy, you can focus (and measure) different parts of your strategy on different timelines with different measures of success / progress. (Hence the ramble above)
Do you know your objective and have a means to measure progress towards it? Being able to demonstrate the progress you are making is the real measure of success.
The conventional growth first, income later approach is true for most who are accumulating over a lifetime. Personally my circumstances were different, a very high income for a 5 year period then plan for early retirement. I was happy to buy income at the expense of growth.

Just my 2p..

Cheers,

Juan.

[DrFfybes]

I'll chuck my 2p in as well.

At this stage you shouldn't be focussed on growth or income, you want to build a large pot so want total return. One of the best long term reducers of return is fees, so consider adding a Vanguard (or similar) global tracker in there, and perhaps some Berkshire Hathaway.. If nothing else it will make an intersting benchmark for your choices . I don't see ATST in your list. I like their long term record.

If you are with ii (and I assume other platforms to it too), you can get an X-ray of your portfolio, shows any bias towards or away from certain sectors, markets, and shows overlap in the underlying holdings of your ETFs. I found it very illumintating.

You don't mention ISAs, presumably due to the tax relief you get on your pension contributions as you suggest you make about £80kpa. Pensions are tax free on the way in, ISAs on the way out. If you think you might get towards paying higher rate tax in retirement, you should think about an ISA as well. You can always cash it in and pay lump sums into the pension at the end of your working life.

Paul

[BullDog]

Whether you focus on income or growth you still should try to figure out roughly now how much income you want at the end.

Anyway you have my 2p on your other thread, no need to repeat myself here.

Yes thanks again, not sure I 100% followed all your number but I get your point.

Again, naively I have always went on the rule of thumb every £100,000 in value, I'd get about £6k a year return although this used to be the rule for annuities I don't think it still works.

If I aim for 50% of my net current salary (assuming mortgage and debt free when I retire) I would be looking at an income of £40k a year (before taking into account inflation which you used a standard 2% a year) so I would need an income of ~£60k a year when I look to retire in 2041

So if I was to use the same rule of thumb (£6kpa for every £100,000) I would need a pot of about £1m so to turn £104k into £1m I am looking at 11% per year (which of course is very difficult, if not impossible without taking massive risks)

6% income is about 2x what you should be assuming to be conservative in your workings. Look primarily for growth opportunities but monitor total return including any dividends you accrue along the way. Focus internationally while you are growing your pot. The UK is a tiny and relatively shrinking part of the global market. No doubt the US mega caps will pause for breath at some point but I would back Asia and North America as remaining the main growth engines of the world economy. In the UK, the better growth opportunities tend to be in smaller companies. Invest every month as a routine to ride out the peaks and troughs in the market. Benefit from pound cost averaging over the long term. Have a plan and stick to it, but part of the plan needs to be to have some flexibility to respond to changes around you. Take advantage of 40% tax relief in pensions whilst it lasts. Build a pot in ISAs too if you can, since if things go well, you can use ISAs as a bridge in early retirement until your pensions become due. I suggest a fairly narrow portfolio of no more than ten individual investments, that way you can keep track easily that you are meeting your plan.

Good luck and don't lose heart when you lose a few pounds temporarily in a market dip.

Stay focused on the plan.

[Urbandreamer]

I would like to increase my exposure to the US tech sector (QQQ?) which i think would give me the growth I am looking for, but have I missed the boat?

With growth there is the danger of bubbles developing. Watch out for them. However the thing about growth is that you have never missed the boat. There is always growth somewhere. I have moved away from individual shares to Investment Trusts. A manager picks the investments and I review what they are investing in and move my money depending upon my viewpoint of their choices.

As I said, I'm trying to move to a more risk averse stratergy, but "risk on" generalist holdings that I have are SMT (Scottish Mortgage), PHI (Pacific Horizon) and to a lesser extent FCIT (Foreign & Colonial) and TEM (Templton emerging markets).

I invite you to check out their top 10 holdings to consider if they appeal to you. I do so on an infrequent basis as they do change. For example SMT was heavily into Tesla, but is now significantly less invested in them and has exposure to Moderna. PHI has moved it's slant to India. You can also see that while I am interested in the US tech sector I'm looking for growth elsewhere in the world.

As part of my de-risking I sold my holding in BMO global smaller companies and invested the proceeds in Ruffer, but that was part of my new stratergy.

When it was a simple "growth & income" stratergy I could use HYPTUSS to divide the portfolio into income investments and ones that either were growth or needed to be got rid of. I now have a spreadsheet and select a risk/return timscale catagory for each holding and wind up with the percentage of my portfolio that is short term/low risk, medium term and andventurous.

Re the old ISA/Pension argument, it's not simple. I have both and hope to pay no tax for 5 years on my pension income. However my ISA exceeds a single persons IHT limit. I would argue that the flexibility of a simple ISA makes them very valuable to younger investors, while the tax advantages of a pension are well worth considering for older investors.

[zharrt]

If you are with ii (and I assume other platforms to it too), you can get an X-ray of your portfolio, shows any bias towards or away from certain sectors, markets, and shows overlap in the underlying holdings of your ETFs. I found it very illumintating.

This is one of the things that got me into the mess I think I am in

I am with HL and they also offer a similar service which showed I was way too invested in the UK and also the financial sector, which is where I started to expand with the move to finds rather than individual shares.

[BullDog]

If you are with ii (and I assume other platforms to it too), you can get an X-ray of your portfolio, shows any bias towards or away from certain sectors, markets, and shows overlap in the underlying holdings of your ETFs. I found it very illumintating.

This is one of the things that got me into the mess I think I am in

I am with HL and they also offer a similar service which showed I was way too invested in the UK and also the financial sector, which is where I started to expand with the move to finds rather than individual shares.

If you are invested in open ended funds you need as a priority to migrate away from HL. They price gouge holders of open ended funds for platform charge. They're OK for other asset types.

[zharrt]

If you are with ii (and I assume other platforms to it too), you can get an X-ray of your portfolio, shows any bias towards or away from certain sectors, markets, and shows overlap in the underlying holdings of your ETFs. I found it very illumintating.

This is one of the things that got me into the mess I think I am in

I am with HL and they also offer a similar service which showed I was way too invested in the UK and also the financial sector, which is where I started to expand with the move to finds rather than individual shares.

If you are invested in open ended funds you need as a priority to migrate away from HL. They price gouge holders of open ended funds for platform charge. They're OK for other asset types.

You have introduced to me a new term, open vs closed ended funds. A quick googlefu tells me the difference, but how do I distinguish between the types (I am almost tied to HL as I am a freelancer who has to use am umbrella company and only a few allow pension contributions into a SIPP, and even fewer have a wide range of choice of providers)

[richfool]

This is one of the things that got me into the mess I think I am in

I am with HL and they also offer a similar service which showed I was way too invested in the UK and also the financial sector, which is where I started to expand with the move to finds rather than individual shares.

If you are invested in open ended funds you need as a priority to migrate away from HL. They price gouge holders of open ended funds for platform charge. They're OK for other asset types.

You have introduced to me a new term, open vs closed ended funds. A quick googlefu tells me the difference, but how do I distinguish between the types (I am almost tied to HL as I am a freelancer who has to use am umbrella company and only a few allow pension contributions into a SIPP, and even fewer have a wide range of choice of providers)

Investment Trusts are Closed end funds. Open ended funds are OEIC's/Unit trusts.

[zharrt]

If you are invested in open ended funds you need as a priority to migrate away from HL. They price gouge holders of open ended funds for platform charge. They're OK for other asset types.

You have introduced to me a new term, open vs closed ended funds. A quick googlefu tells me the difference, but how do I distinguish between the types (I am almost tied to HL as I am a freelancer who has to use am umbrella company and only a few allow pension contributions into a SIPP, and even fewer have a wide range of choice of providers)

Investment Trusts are Closed end funds. Open ended funds are OEIC's/Unit trusts.

Thanks, I think I might be blinded by HL's trying to convince me over one thing rather than another.

Say I look at LEGAL & GENERAL US INDEX, it says its a Unit Trust (tick for open ended as per above) but the fees are lower than those of SCOTTISH MORTGAGE INVESTMENT TRUST which is listed as a Closed Ended Investment Company

is this just an anomaly in the funds I have randomly picked, assuming that zero is not an option what would be a "good" fee cap

[JuanDB]

You have introduced to me a new term, open vs closed ended funds. A quick googlefu tells me the difference, but how do I distinguish between the types (I am almost tied to HL as I am a freelancer who has to use am umbrella company and only a few allow pension contributions into a SIPP, and even fewer have a wide range of choice of providers)

Investment Trusts are Closed end funds. Open ended funds are OEIC's/Unit trusts.

Thanks, I think I might be blinded by HL's trying to convince me over one thing rather than another.

Say I look at LEGAL & GENERAL US INDEX, it says its a Unit Trust (tick for open ended as per above) but the fees are lower than those of SCOTTISH MORTGAGE INVESTMENT TRUST which is listed as a Closed Ended Investment Company

is this just an anomaly in the funds I have randomly picked, assuming that zero is not an option what would be a "good" fee cap

Those are the fees of the underlying product. I believe bulldog is referring to the charges that HL levy which are capped for closed ended investments and uncapped for open ended. You’ll be paying much more than you need in platform charges on HL.

Take a look at the monevator site and their guide to broker selection. This is pretty definitive (and current) for the uk market.

[JuanDB]

https://monevator.com/find-the-best-online-broker/ for convenience..

This page summarises the HL fees https://www.hl.co.uk/pensions/sipp/charges-and-interest-rates. Closed ended investments like investment trusts are considered to be shares.

[Urbandreamer]

You have introduced to me a new term, open vs closed ended funds. A quick googlefu tells me the difference, but how do I distinguish between the types (I am almost tied to HL as I am a freelancer who has to use am umbrella company and only a few allow pension contributions into a SIPP, and even fewer have a wide range of choice of providers)

There is a good board for them on TLF.

Some other links that might interest you.
https://www.theaic.co.uk/
The association of investment companies. The podcast on the page is good if you have the time.

Also The Investment Trusts Handbook.
https://www.amazon.co.uk/Investment-Tru ... 261&sr=8-1
It's free in electronic form. Many use Amazon, hence the link. But you can get it from the publisher who certainly use to do different formats (though they do ask for your email).
https://harriman-house.com/ithb2022?mc_ ... 9041b42fe5

[zharrt]

OK, first thing to say I am not going to do anything straight away. I have only spent a few hours looking and that is no where near enough reseach for such important decision.

However I am more than likely thinking of getting rid of the Income focused funds (HICL, HFEL & MYI) and the likes of CNA, DLAR, MARS accepting the loss and hoping that the small holdings can be better used else where. While BT, IMB & VOD are on my next to do with list but not wanting to make too drastic changes in one go.

I am leaning towards

Allianz Technology Trust - GoodUS tech focused which is an area I want to be in
Oryx International Growth Fund - Still very much UK focused but on the small and mid-size companies
Pacific Horizon Investment Trst - Good coverage in the Asia-Pacific region and the Indian Sub-continent
Scottish Mortgage Investment Trust - US leaning but not tech focused which I have covered with ATT

Others I have considered were

ASI UK Smaller Companies rather than Oryx as I like the look of their holdings, but the fact its a Open Ended Fund dissuaded me for the fees, but would be happy to have a single fund with higher fees if it makes better long term sense

Baillie Gifford US Growth Trust rather than SMT but went which of the two had a lower focus on technology as I already had ATT

Finally Invesco Markets III PLC EQQQ rather than ATT due to perceived better past returns

[BullDog]

OK, first thing to say I am not going to do anything straight away. I have only spent a few hours looking and that is no where near enough reseach for such important decision.

However I am more than likely thinking of getting rid of the Income focused funds (HICL, HFEL & MYI) and the likes of CNA, DLAR, MARS accepting the loss and hoping that the small holdings can be better used else where. While BT, IMB & VOD are on my next to do with list but not wanting to make too drastic changes in one go.

I am leaning towards

Allianz Technology Trust - GoodUS tech focused which is an area I want to be in
Oryx International Growth Fund - Still very much UK focused but on the small and mid-size companies
Pacific Horizon Investment Trst - Good coverage in the Asia-Pacific region and the Indian Sub-continent
Scottish Mortgage Investment Trust - US leaning but not tech focused which I have covered with ATT

Others I have considered were

ASI UK Smaller Companies rather than Oryx as I like the look of their holdings, but the fact its a Open Ended Fund dissuaded me for the fees, but would be happy to have a single fund with higher fees if it makes better long term sense

Baillie Gifford US Growth Trust rather than SMT but went which of the two had a lower focus on technology as I already had ATT

Finally Invesco Markets III PLC EQQQ rather than ATT due to perceived better past returns

You have to give yourself time to get your plan straight. It seems there is a vast amount for you to learn here***. Luckily time is on your side.

I would just point out though that in focusing on income stocks and income ITs you have fallen into the trap of owning stocks that are more or less returning your capital to you as dividends. This is not what you want. You need to primarily grow your wealth and monitor it, say annually, through total return which is growth plus dividends. Adjust your plan as circumstances develop and you under or over perform against your objectives.

Take your time to understand how everything works and put together a plan. Knee jerk response is most definitely not what you need at this time.

*** Like not knowing the difference between open and closed end collective investments and apparently not fully understanding the charges made by a retail investment platform and the investments held there.

Good luck, but do your research and when you get further down the line post again to tap into the knowledge here.

[BullDog]

This is one of the things that got me into the mess I think I am in

I am with HL and they also offer a similar service which showed I was way too invested in the UK and also the financial sector, which is where I started to expand with the move to finds rather than individual shares.

If you are invested in open ended funds you need as a priority to migrate away from HL. They price gouge holders of open ended funds for platform charge. They're OK for other asset types.

You have introduced to me a new term, open vs closed ended funds. A quick googlefu tells me the difference, but how do I distinguish between the types (I am almost tied to HL as I am a freelancer who has to use am umbrella company and only a few allow pension contributions into a SIPP, and even fewer have a wide range of choice of providers)

I hope your umbrella company is contributing to your SIPP by salary sacrifice? Some do, but some don't. Salary sacrifice is the most efficient way of getting money into your pension as an umbrella company employee.

[zharrt]

You have to give yourself time to get your plan straight. It seems there is a vast amount for you to learn here***. Luckily time is on your side.

I would just point out though that in focusing on income stocks and income ITs you have fallen into the trap of owning stocks that are more or less returning your capital to you as dividends. This is not what you want. You need to primarily grow your wealth and monitor it, say annually, through total return which is growth plus dividends. Adjust your plan as circumstances develop and you under or over perform against your objectives.

Take your time to understand how everything works and put together a plan. Knee jerk response is most definitely not what you need at the time.

*** Like not knowing the difference between open and closed end collective investments and apparently not fully understanding the charges made by a retail investment platform and the investments held there.

Good luck, but do your research and when you get further fown the line pist again to rap into the knowledge here.

Thanks, you are right there is still much I don't know, I have been looking at overall return and been tracking annually, pure raw numbers on holdings value has generally higher than the last (2016 +12.27%, 2017 +12.79%, 2018 -7.29%, 2019 +16.98, 2020 -1.93%, 2021 +12.55) but I suspect this is more dumb luck that skill.

I know HL is one of the more expensive platforms (and one that I am stuck with for the time being). I have "tried" to keep under the £200 a year fees cap, which I have managed to do so far, but again I think this is more going on basic assumptions (shares good, funds bad) but not realising there are a myriad of types of funds which have different costs.