Is this a normal return for a workplace pension? +£73.09 (0.89%) in almost five years - honestly what can I do to improve this?

[chosen808]

@heremiah Thanks for the advice.

 

[resjudicata]

@chosen808 I can't provide advice on which funds to pick, but don't change funds because they have dropped. If you are a long way from retirement then you will want fairly risky funds, and risky funds drop more in bad times and increase more in good.

If the funds are cheap, you are currently buying them for cheap, don't forget that.

 

[chosen808]

@resjudicata I won't change but I'd like to increase future investments into higher risk reward funds. I am still 30+ years from retirement (if it comes) so I am happy to take on more educated risk. I will try and search the internet for advice on higher risk funds. Thanks again.

 

[resjudicata]

@chosen808 Some pension providers allow for you to get financial advice paid out of your pension pot, it’s something called “Facilitated Adviser Charging”. As you’ve said you’re in L&G funds I’d assume you have one of their pensions and they offer this. It might be worth looking at that as it means you can get a professional opinion and while you’re paying, it’s out of a pot where hopefully you’ll way more than recoup it.

Unbiased.co.Uk offer financial advisers who you can find who are in your area and regulated by the FCA. This means they are mandated to act in your best interest solely, they’ll do a “fact find” about you and recommend an investment strategy from there.

Hope this helps.

 

[chosen808]

@resjudicata Thank you! Advice noted

 

[julia736]

@chosen808 You've contributed £8000 to your pension - presently it's worth about £8000, but what would you do if it was worth £6000 right now?

According to studies,[sup]PDF[/sup] a lot of people would panic and opt out from the pension scheme. This would be dumb and bad, but you have the right to do it.

Consequently, pension companies' default schemes must be safe and low risk, in order to protect people from their own negative reactions. The default scheme must be so safe and low risk that it can hardly generate any returns.

The L&G PMC Multi-Asset G25 has an allocation of 35% to corporate bonds and bonds issued by developed world governments. Of course those generate low returns, they have hardly any risk!

So you can probably significantly increase your returns simply by choosing a different fund, as long as you don't check it every year and get in a tizzy when its returns are not as good as you hoped they might be. All pensions invest in basically the same things, and most of them allow you to choose your allocation to equities, but returns over 1 year or 5 years are irrelevant because an asset class can out- or under-perform for a decade at a time. You're investing for the next 30 years.

You shouldn't trust pension company estimating calculators because they're very conservative and stockmarket returns are inherently volatile. The red and the blue in this chart both have the same average, but the blue has a much larger variance - that's what stockmarket returns are like. You could have £500,000 the year before retirement and then a stockmarket crash could wipe that down to £300,000. This is OK though, because you have a buffer of cash (or bonds) and your stocks will remain invested well into your retirement.

Watch Lars Kroijer's short video series and read his book or Tim Hale's Smarter Investing.

 

[chosen808]

@julia736 Star. Thank you for the detail you put into this. Great information I was looking for. Are there any funds you can recommend I switch an allocation to for greater risk/reward? I am happy with more risk for equivalent potential reward in the longer run. If I have been in the wrong fund for five years id like to fix it now so I don't look back in another five years with the same regret. Thanks again.

 

[julia736]

@chosen808 Read Smarter Investing, decide what allocation of equities vs bonds (vs anything else) is suitable for you, then see how to achieve that using the funds that are available on your platform.

As the other reply has said, the last year has been a bad year, but I wouldn't be surprised if you were to double or triple the pension available to you on retirement simply by choosing a more appropriate allocation. You shouldn't go investing in things you don't understand though, simply because they're recommended by some random here on Reddit.

 

[chosen808]

@julia736 Ok noted. I will take your advice and look into specific funds myself. I just wanted to know if there was a 'go-to' fund that provided suitable risk reward for pensions with 30 plus years remaining till retirement.

 

[julia736]

@chosen808 This subreddit jerks a lot about Vanguard's FTSE Global All Cap fund, but it probably won't be available in your workplace pension and its returns will be pretty much just the same as any other tracker of a world equities index.

Maybe I've misread you, as I have a fault of skimming posts a bit too quickly, but you're coming across as a bit freaked out about your pension's poor performance. "What shall I do about it!?"

I believe L&G index funds are quite good, but you shouldn't just throw your money into 100% equities without reading about it and being prepared for the inevitable losses. It's easy for people here to egg you on, but it;'s not their money and they don't know how you emotionally respond to stockmarket losses - when my portfolio is down £50,000 I get a knot in my stomach every time I think about it. I used to think that a knot in the stomach was just a cliché that everyone uses - no, it's a physical feeling that feels just like that.

Just take a week or two, read thoroughly, ensure you're well informed. Most people on here don't actually know that much about investing, and yet they tell others what to do with complete casualness and confidence.

 

[chosen808]

@julia736 Not necessarily freaked out but definitely concerned that I might be doing something wrong. I won't sell or switch any allocations that I already have invested regardless of the present returns. That money is locked whatever the unrealised loses say. I just want to look more at future allocations. Questioned myself is there anything I could be doing better so I don't have regrets years down the line. I guess I am just so used to reading 'assuming 4% returns in the stock market a year... Bla bla' in this sub and others which I am no where near. Not even close. So this post was more of a sense check as to whether I am doing something completely wrong as opposed to freaking out. Plus I'm of the mindset I may never get the chance to properly retire so the pension is mentally just a bonus.

Speaking with more knowledgeable people with more experience like yourself just helps answer the questions about what am I doing wrong and what can I be doing better.

And yes, as you assumed the vanguard fund is not available with L&G.

 

[julia736]

@chosen808

I won't sell or switch any allocations that I already have invested regardless of the present returns. That money is locked whatever the unrealised loses say. I just want to look more at future allocations.

This is a wrong way of thinking about portfolio allocation.

Print out this chart and pin it up somewhere:

https://imgur.com/FtsZbvH

Then just read the book, so you understand the matter better than most people who are citing random figures about stockmarket returns. I admit that I sometimes paste that "the subreddit wiki cites JP Morgan in stating that since 1901, investing in equities for a long term has produced an annual return of 5.1% above inflation"[sup]1[/sup] but I also tell people to read a book so they understand the context - risk and volatility.

I've got a friend who has a cancer diagnosis, and I've got stuff I productively do on the boat - no-one here has got the time to explain to you with the depth and clarity that Hale provides. I think you'll find him quite reassuring, and you'll be able to get a better perspective on things.

 

[chosen808]

@julia736 I have saved the chart and will order the book. Thank you again for advice and the context you have provided me. I am more educated today than I was yesterday so I appreciate your time!

 

[kinggeorge]

@chosen808 Comparing that return with the performance of the two funds (here and here) what you're saying doesn't add up. The mixed fund has seen a ~19% return over the past five years, and the equity fund has seen ~56%, so an average of 37.5% over five years or 7.5% annually.

• Having 80% of your investments in the worst performing fund of the two makes no sense, especially for someone of your age.
• Did you make regular contributions or were they lump sums?
• You've only invested in the equity fund since 2021 which partly explains your lack of returns there.
• £8,200 over 5 years is only £140 a month. If you started investing at 25, the "half your age" rule would dictate a 12.5% contribution (including your employer's contribution), which is about £300 a month on £35k.

To drive home the point, if you'd invested 12.5% of your £35k salary every month for those same five years in the equity fund exclusively, you would have enjoyed an average 11% annual return giving you a total of £23,855 of which £5,855 would be interest.

 

[chosen808]

@kinggeorge Hi,
All contributions were regular, not lumped sum.
The two funds are active from different dates - the first from late 2017, the second from late 2021.
I was not always on 35k, I started on much lower paid hourly so contribution would have been less than what my current contributions have been. I have been on a £35k salary for the past 18 months.
I have not raised my contribution % as I have been saving up for a house deposit. My company does not match higher contributions and is fixed I think at 3 or 4% regardless of what I add.
Thanks for the detailed points!