Geographic split in Pensions

[lesigny]

Following the flowchart, I’ve noticed my workplace pension charges about 0.6% for an actively managed lifestrategy fund, which is too much!

Now keen to follow Tim Hale and this sub’s advice, looking to move to passive Equity funds (30+ years to retirement) with TERs of 0.1% on the workplace platform.

Now on the workplace platform, I can choose passive Equity funds which are U.K., World Ex. UK, Europe ex U.K., North America, Japan, Asia ex Japan, (+an EM active fund)

Is there any good guidance on how to split between geographies?

E.g how do the best vanguard funds split between geographies? Is it better to higher weight U.K. to remove currency risk?

 

[soul_searching_gal]

@lesigny Vanguard lifestrategy has a moderate UK bias. Vanguard global all cap has a more accurate UK weighting. You should be able to mirror both with different combinations of the UK and world ex. UK funds.

 

[lesigny]

@soul_searching_gal !thanks . Is there any specific risks of switching funds now? I don’t think so - they’re probably very similar investments and the money won’t be out of the market for any period of time - but would be good to understand if there’s a better time to switch to lower cost passive funds

 

[soul_searching_gal]

@lesigny You've already outlined the only real risk, that you'll be out of the market, for better or for worse depending on the way the market moves; but it shouldn't make any real difference.

 

[tert]

@soul_searching_gal I don't I agree. Any amount of time out of the market at the moment could easily be too much. In 2019 there were 19 days where the FTSE 100 moved up by over 1% in a day (an 8% or so chance of it happening on a given day) . The biggest of these was 2.25% on 16 Dec 2019.

So far in 2020 we've had 22 of these days with a 1%+ rise (a chance of 24%) including a 9%, 4.45%, 3% and six others over 2.25%, some of these consecutive. How many years would it take you to recoup (through slightly lower fees) on missing out on the 6% rise which happened between April 27 & 29? Do you know precisely how long you'll be out of the market for?

From my point of view the market is too volatile and it's too risky, that's why I haven't bed & ISA'ed yet this year.

 

[soul_searching_gal]

@tert Assuming you save 0.4% on the fees, that 1% increase (and assuming 7% subsequent) would be beaten by a 0.4% fee decrease (assuming 7.4% subsequent) in less than three years. This is of course, far shorter if the increase is less than 1%, or indeed flat to negative. This fee saving is much more reliable than the ~8% chance of a rise of that magnitude.

You can't wring your hands about the state of the market, otherwise you would constantly be umming and ahing about when's the right time to rebalance your portfolio, or you'd be worried about cashing out or adding money. The stock market can essentially be treated as a random walk in the short term; you can't ever say there will be a categorically 'good time' to make portfolio adjustments.

 

[marck]

@lesigny You might want to consider which countries dominate the global market more, and which are more stable too.

For example, you don't want to fall foul of familiarity bias and invest a huge proportion in the UK just because you're from the UK.

I'm NOT an expert on markets, very much still learning! But for example the UK makes up about 10% of the global market, whereas the USA represents about 35-40%.

I've been looking at moving my pension funds into a SIPP for same reasons as you, and I was thinking I may pick something like UK (20%), U.S.A (40%) and remaining 40% spread globally - maybe inc. emerging markets because I'm also young so can take on the higher risk for potentially higher returns

But as I say, I'm not expert and those are just my thoughts based on my research so far

 

[drew873]

@lesigny My workplace pension is with Aviva and is quite similar where I've had to build my own to represent a global fund. I've went with 3 passive funds:

• 85% Developed World Ex. UK
• 10% Emerging Markets (I presume this may be similar to your Asia Ex Japan)
• 5% UK

I would have a look at the 'Portfolio Data' section in the Vanguard All Cap and you'll be able to see the percentages on countries/regions, which may be helpful.