Pension fund performance - do you monitor yours, how is it doing, do you actively change it?

[Zatoichi.uK]

All on fartcoin yo.

 

[Uther]

Personally after the last decade or two of bond performance, I don’t think the old adage of moving from equity to bonds as you approach retirement really makes sense these days. Index funds have been far more stable overall.

Yes I had bonds, because well, that's what you did. Total waste of time for me.

 

[200sols]

Well buying bonds when interest rates were very low was not a very smart move. All the risk with no return...

Things are quite different now.

 

[Uther]

Well buying bonds when interest rates were very low was not a very smart move. All the risk with no return...

Things are quite different now.

Very common in a retirement fund, and I'll bet most / all workplace pensions have them, as part of the (IMO) daft 'glidepath' thing.

 

[200sols]

Very common in a retirement fund, and I'll bet most / all workplace pensions have them, as part of the (IMO) daft 'glidepath' thing.

Of course they are common because of this perceived safety thing. If you ask me it was criminal to be still calling bonds 'safe' and recommending them when rates were at 0%. Many people got burnt badly from it. But as I said, its different now and bonds have a place again.

 

[throwaway4372]

Isn't there a delay before bond funds become useful again - because they still contain bonds based on the old normal?

 

[danlightbulb]

Well buying bonds when interest rates were very low was not a very smart move. All the risk with no return...

Thing is that no one told people this. Bonds common knowledge is that they are a hedge against equity pullbacks. no one said (until after the event) that interest rate rises posed a risk to bond funds.

 

[throwaway4372]

I think if someone bought bonds without googling bonds 101 that's their own fault.

 

[Uther]

I think if someone bought bonds without googling bonds 101 that's their own fault.

Buying seperately, sure but for people with just a 'default' pension thing going on (workplace etc) then as they get older it will move heavily to bonds.

 

[200sols]

Isn't there a delay before bond funds become useful again - because they still contain bonds based on the old normal?

No. Bond prices adjust in real time, yields rise, prices fall.

I prefer individual bonds rather a fund anyway. You know exactly what you're getting that way.

 

[200sols]

Buying seperately, sure but for people with just a 'default' pension thing going on (workplace etc) then as they get older it will move heavily to bonds.

I think if someone bought bonds without googling bonds 101 that's their own fault.

I think @danlightbulb is right, people were not told, most people do not understand this stuff. The advice from the experts was still to go into bonds and most people will follow advice because they think the people giving the advice are experts..

 

[Uther]

I think @danlightbulb is right, people were not told, most people do not understand this stuff. The advice from the experts was still to go into bonds and most people will follow advice because they think the people giving the advice are experts..

I bought a 60/40 fund as I neared retirement because 'that's what you did...'
Soon binned that off luckily and made so much more since.

 

[squerble]

This thread is reminding me that I probably need to look at a SIPP of some variety.

My main pension is a DB pension and I'm basically resting a lot on that, but this is just going to ensure I'll not be able to retire much before age 68 as there's hefty penalties for early withdrawal (if I retire 8 years early at age 60, I'll lose 30.3% of my pension, for example). I'm also assuming that the DB scheme will keep going as it is now and not get watered down to some kind of DC pension when the government/my employer decides the pension contributions are too much. I can do AVCs via my LGPS to build up a DC pension/side pot, but I'm not sure if that pot is subject to the same early withdrawal penalties as the main DB amount.

 

[danlightbulb]

I think if someone bought bonds without googling bonds 101 that's their own fault.

I think @danlightbulb is right, people were not told, most people do not understand this stuff. The advice from the experts was still to go into bonds and most people will follow advice because they think the people giving the advice are experts..

I think it's also correct that individual bonds are fine, it was the tradable bond funds that suffered. Pension funds hold bond funds not individual bonds.

Yes I think it's definitely fair to say that mainstream advice did not flag the interest rate risk on bund funds whatsoever.

 

[200sols]

I think it's also correct that individual bonds are fine, it was the tradable bond funds that suffered. Pension funds hold bond funds not individual bonds.

Yes I think it's definitely fair to say that mainstream advice did not flag the interest rate risk on bund funds whatsoever.

Individual bonds still went down in value so you'd be holding a paper loss, the difference is you can hold to maturity something which you can't do with a fund. Individual bonds were still a bad buy at that stage but now they are very attractive, particularly the low coupon gilts for tax purposes.

 

[steinooo]

In 2020 during Covid when I had nothing to do, I thought I'd take a look at my pension fund.

I had never really given it a second thought before. It is a defined contribution employer scheme where the funds are taken salary sacrifice, and the provider they chose to run it picked the funds it was invested in, on what they term a 'lifestyle' profile, which means that initially its more invested in stocks and shares, then as you approach retirement age it switches over to safer assets.

Anyway, I looked into the growth I'd had over the 16 ish years Ive been in the scheme, and where it was invested. I was not happy with what I found.

There was a very high proportion of UK equities. I found out that many 'default' funds have this, because the logic was its a UK scheme, for UK employees, and that meant that those people favour UK bias. This immediately seemed crazy to me, as the US has experienced much higher growth. Why would you favour UK equities over faster growing US equities with the US being the biggest economy in the world?

So I started looking into what funds were available. Wow its complex to analyse. Most funds are multi asset so have a mix of all sorts of equities or bonds (or other assets like cash, property) across a mix of jurisdictions. So if you wanted to target a certain percentage of say US equities, or emerging markets, or Japan etc, then there was quite a bit of analysis needed to sort it all out. My scheme had 83 funds to choose from. Each fact sheet gave a performance history, information on what mix of equities or other investments the fund contained and from what jurisdictions, information on the management fees, what baseline the fund was measured against/tracking, and finally a risk score ranging from 1 (safest) to 7 (riskiest).

So I did a whacking great spreadsheet to analyse all this. I listed down every fund I could pick from, and ranked its 5-year performance. My funds were ranked 50th and 79th out of 83 over 5-years.

The funds I was in initially (the default funds from the provider) had given me a total of around 29% fund performance until early 2020 (before the markets crashed when Covid happened). This is 29% over probably 16 years, so an average of less than 2% per year, which I thought was pathetic. The mix of these default funds was 75% equities and 25% cash and bonds. Of the whole portfolio, 32% was UK equities, 12% US, 12% EU and 6% cash.

So I did a bunch of analysis. Initially I was trying to micro manage, by selecting different smaller percentages in a high number of funds. But I pulled back from this idea and settled on a simpler approach with just two funds, both multi-asset funds but one of them is an ex-UK fund, which meant it had no UK equities in it. I could adjust the proportions to get the higher proportion of US equities I wanted.

So I made the switch in October 2020. My new portfolio had 78% equities and 22% cash and bonds, but in contrast to the starting position, now I had 35% US, 19% UK, 14% EU, and only 3.5% cash. The funds I picked were ranked 17th and 29th out of my 83 ranked list.

Since 2020, my portfolio performance has been about 24%, in 3.5 years so nearly 7% a year growth. This is excluding the Covid rebound. But, obviously there were lingering effects of this so its difficult to disentangle it completely.


So why am I posting all this?

The analysis I did was very manual and long winded, because I needed to go into all my provider's factsheets and manually extract all the fund performance data. I need to repeat this exercise now to see if a) my choices were the right ones - have my new funds done better than the ones I moved from in the first place; and b) to see if I need to move to any alternative funds or adjust my mix of assets/jurisdictions.

I wonder if any other people here took a strong degree of control over the pension fund investments and if so, how do you manage it? There are limited tools available on my provider's website hence why I had to do a lot of manual work.

I also remain annoyed at the lack of performance in my scheme over the 16 years prior to my interventions. The missed growth from a poor choice of funds is, in my opinion, bordering on corporate incompetence.

Ive never touched my work one and feel I should but don’t really know where to start. I think my vanguard gains in my isas are absolutely embarrassing my work pension and it frustrates me

 

[platinum87]

12% is a ridiculous average return to expect. I have bettered that for 3 years with a select set of US equities. I’m sure many have. But most put money in a fund with there retirement year in it’s name and get 4-7% over a 10 year period.

5% over a life time isn’t unexpected. I certainly wouldn’t be doing any maths with 12%… that would be extremely stupid.

Its the issue as i have said most will have it in a date fund, returns are much lower.

@platinum87 I am not one to give unwanted advice not asked for but as this is a serious topic….. Few of your comments suggest you're making some significant assumptions, badly.

If you have doubts get a financial advisor… I don’t want you to think all will be rosy for you if you’re just starting this financial journey.

If your minted, then this post is for others… lol

I also don't want to give advice because it is going to be to put your portfolio into Nasdaq 100

What will happen is, -50% crash, person who followed me going to panic, sell, move to bonds and match inflation after that.

The general psychology is, buy share, if share goes up = right decision, if goes down = bad decision.

I.e. The market goes down = this was a bad decision = sell.

Each of these choices is very specific to the person, however i would say nobody who is not going to retire in 5 years, should hold ANY bonds, or ANY private equity.

One of the main principals people should follow is, conflict of interest.

Why do the fund mangers and bankers want me to hold bonds? To make my life better, to lower my risk? <-- Answer yes with a serious face for that one.

Its because they sell debt and bonds

So either the demand for bonds is high, so they need to sell debt in which case you get the 2008 situation, or, the demand for debt is high, and they need to sell bonds, in which case you end up with the whole 60/40 portfolio.

And now this whole 60/40 type of thing is just doctrine.

Now keep that in mind, the inflation target is 2% right, since 2009 till covid, interest rates were lower, so who is going to buy bonds in that time??? The central banks of course, pushing inflation further, so real return on all bonds in all portfolios in that period is negative.

Meanwhile 20 year olds have 40% bonds via default fund choices.

As for me my goal has been to max my ISA allowance, which im now achieving, obviously the next goal is to increase that further.

In this regard i am considering for example to sell out of my individual holdings, and buy EQQQ, so i can spend that time to make more money, which i think is a more efficient use of time.


One last thing in this thread is, AGE, if you guys look at my profile and click about, does it show you my age?

Because i think used to be, birthdays shown on the bottom of forum, but now i cant see anyone's age, which normally is not important but for pensions it is lol

 

[throwaway4372]

if you guys look at my profile and click about, does it show you my age?

me> "I wonder if it's '87"
Yeah it does, and there's a privacy setting for it.

 

[200sols]

Its because they sell debt and bonds

They are just brokers, same as for equities. The ones issuing the debt are the countries or companies. A bond is just tradeable debt.

 

[platinum87]

They are just brokers, same as for equities. The ones issuing the debt are the countries or companies. A bond is just tradeable debt.

Yea i know. So the bankers cannot sell enough bonds so the central banks must buy them right.

You are rationalizing it as interest rates are higher now, ultimately i will decline the purchasing of bonds, as i will decline offerings of meth.