Ok and you are doing that thing again where you value it over an arbitrary time period. If I'm playing your game I'm a multimillionaire already as I have 120k in my pension with 23 years to go.
Pension fund performance - do you monitor yours, how is it doing, do you actively change it?
- Thread starter danlightbulb
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That's not guaranteed though is it.
I'm talking about guaranteed elements of a portfolio and how you would value them. It's not an arbitrary time period, because it's the time period set by the investment (eg in the case of bonds this is fixed).
If you want to sell now, then sure base them on the value now. If however you intend to see them to maturity, which you should have been willing to do when you bought it, then there's nothing wrong with valuing on the guaranteed value is there?
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You can value it today at the future value of you want to but I wouldn't. I had a LISA that was like your savings example - If I withdrew today it was worth 25% less. For my house buying maths though I included the value.
Fair enough. I think we're simply saying that the way you value a portfolio depends on your intention for it and the purpose of doing the valuation at the time.
I think most people would look at their lock up savings account and say they have £1000. They wouldn't deduct the penalty unless specifically asked what the value was if they had to withdraw now.
The same logic should apply to bonds, unless your intention was never to just hold them but to trade them, then you have a very different use case that necessitates a different valuation method.
I think we can both agree that it would be wrong to include future non guaranteed returns in the valuation of a portfolio.
But whether we include future guaranteed returns depends on whether or not we're looking to liquidate, either because we needed the cash in an emergency or perhaps because another better opportunity has come up.
I would still say the only time there is a loss (paper or actual), unless you're specifically a trader, is the emergency situation though. If you were taking a loss on one investment to fund a better opportunity elsewhere this would be an overall gain if you're thinking about the complete end to end transaction. Otherwise you wouldn't do it.
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I recently joined a new company and they use the same pension provider as my previous place, Legal and General.
For the last several years, in my old pension pot I had switched away from the default company fund of L&G PMC Multi-Asset 3 and into several different ones which had been doing pretty well.
The new company also has the default fund of L&G PMC Multi-Asset 3 which I hadn't changed yet as only been there for a few months.
However, it seems that when the transfer happened they sold off all of my units in the other funds I had and have now bought L&G PMC Multi-Asset 3 units with all of the money that was available in the transfer.
I had no idea this is what would happen and I have now lost several years of building up significant pots of units in other funds.
Did I mess something up when I filled in the transfer or is this what happens and I should have just left the two pots separate, in my mind reducing the need to pay management fees etc would be the correct thing to do.
For the last several years, in my old pension pot I had switched away from the default company fund of L&G PMC Multi-Asset 3 and into several different ones which had been doing pretty well.
The new company also has the default fund of L&G PMC Multi-Asset 3 which I hadn't changed yet as only been there for a few months.
However, it seems that when the transfer happened they sold off all of my units in the other funds I had and have now bought L&G PMC Multi-Asset 3 units with all of the money that was available in the transfer.
I had no idea this is what would happen and I have now lost several years of building up significant pots of units in other funds.
Did I mess something up when I filled in the transfer or is this what happens and I should have just left the two pots separate, in my mind reducing the need to pay management fees etc would be the correct thing to do.
Odd it behaved like that with the same provider. But that's how my HL transfer to Fidelity happened too. It was all sold off and transferred as cash.
I will give them a call Monday, that is pretty frustrating to say the least!
You've not lost value though I don't think. The previous fund would have been sold at its market price and the new one bought at market price - no net difference in cash terms.
Can you just reconfigure back to your original fund choices?
No net difference I dont believe, although ive lost 1% since it was transferred
I think I can but that will just kick in from my next contribution.
I dont think I can sell all of the current Multi-Asset 3 units to get the cash and then split it into the units I want.
Yep other than transaction fees that was the story with me and my move
No net difference I dont believe, although ive lost 1% since it was transferred
I think I can but that will just kick in from my next contribution.
I dont think I can sell all of the current Multi-Asset 3 units to get the cash and then split it into the units I want.
In my scheme I can change both where my current contribution goes and also the existing pot where it's invested and they don't have to be the same. I'd be surprised if you couldn't do this?
Some providers will only accept "cash" transfer in despite it being the "same" provider.
others will allow "in specie " transfers which means they will transfer the existing fund/units over without moving to cash.
I know it's the same provider but sometimes the only option is the "cash" transfer.
others will allow "in specie " transfers which means they will transfer the existing fund/units over without moving to cash.
I know it's the same provider but sometimes the only option is the "cash" transfer.
Soldato
Jumping in a bit late. Bonds like every other asset have a value as of now. It doesn't matter what the face value is, what you paid, or what it could be worth in the future.
A bond with a face value of £100 thats selling on the open market for £95 is worth £95. There is no but later its worth this, thats simply nonsense.
If you had any bonds in your pension then they would be valued at todays market rate, not their face value.
Shares for example always have a notional face value as well. Its the price they were sold for when listed (although thats not technically true they can be discounted or sold at a premium, but fundamentally thats the point).
You wouldn't value your shares at their notional value as opposed to the market value would you?
Pension funds (I mean DB schemes) would typically hold some bonds, they give a short term cash liquidity. The funds need some liquidity as they cannot predict every action that may be taken, the incoming and outgoings.
In personal drawdown its also worth keeping a smallish amount into bonds or cash as its your backup against a volatile market. Shares dropped 20% with COVID, you really wouldn't have been wanting to buy an annuity or sell any shares at that point.
So you hold a small balance in cash(/bonds) to see you through or at least have time to consider a large down fluctuation in share values.
Ok they have a current value IF you liquidate now.
But would you see this as a paper loss in your personal account, if your entire intention the whole time is to hold till maturity and that's why you bought them in the first place (for a fixed guaranteed return)? I wouldn't. And I certainly wouldn't let the nominal price now make me panic sell them when I bought them fully intending to hold till maturity.
How would you personally answer the above question if asked what your portfolio was worth by someone, without any stipulations?
I think most people would say they have £1000. They aren't going to deduct the potential penalty fee unless specifically asked to. Savvy people might give 2 figures, a sell now price of £900 and another value assuming the term is met of £1000. I don't think anyone would say they are currently sitting on a loss?
I know you're an accountant so I'm guessing there is probably a way of doing this within proper accountancy books when you're in a lockup situation? I don't think firms that bought bonds till maturity would be reporting their underlying asset value continually varying would they? They'd have some means of recognising the guaranteed value on redemption?
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Soldato
I'm giving you the accepted accountancy position. They are based on something we call an on going basis. IE that nothing fundamental is changing. So things like suddenly force liquidating for a reason may mean you stopped using that and went to a fire sale type valuation. (You would tend to do this on insolvency of a business for example)
The simple position is something is worth what it can be sold on the market for. Its future value at X random date is insignificant.
Hopefully my above would help you with your other question but unless its already twigged.
Most of the time its £1000 as you would value on an ongoing basis, which right now means the 10% is irrelevant. If however you were forced to liquidate and suffer the 10% penalty the point of time when that became reality would be the point when you moved from ongoing to firesale and its value would drop, in your portfolio, from £1000 to £900.
I will just say, your getting dangerously close to another "you only get half the interest rate on a regular saver account" moment again.
That savings account argument is nonsense anyway, its made up to suit his argument. At worst you will lose any accrued interest.
Of course they show the current price. It's not misleading at all, the current price is the price.
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This is the exact argument I've been making the whole time.
So either my wording is poor or you've interpreted what I've been saying wrongly, because you just confirmed what I've been saying is correct.
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You've changed argument. He's saying they'd take the 1k value as current value. You were saying you'd take the future value including the interest guaranteed.
No dlockers gave an example of this in the real world - his LISA.