How is your SIPP

My personal SIPP with AJ Bell had been doing very nicely up to Christmas then tanked because of Omicron. I thought (correctly) that it would probably peak by end January and with a nice Spring funds should recover nicely. Then came Ukraine so they have tanked even further. Although there are a few green shoots of recovery I’m still about -8% down.

How are you faring?

I assume SIPP refers to some kind of investment? I transferred most of our bank savings into investment funds here in New Zealand about a year ago when bank returns dropped to almost zero. They were doing well, but then omicron came along, followed by Ukraine, and are back to where I started, with some below the amount I started with…

This coincided with a move to part time work pre-retirement that relies on some investment income. And that was prior to inflation going from 1% to 7%.

So it looks like I’ll be increasing the part time hours to compensate. Though of course, many others will be hit harder by all the stuff that is going on.

One immediate thing I’ve done is to divert some savings into solar power for the house, which will give us about a 10% return off the bat.

Planning to ring fence the investments and work enough to cover living costs for the time being.

SIPP = Self Invested Personal Pension Plan. Basically you just invest in either shares or funds. I prefer actively managed funds, the theory being fund Managers are moving into different companies as they see fit. I don’t use a Financial Adviser (sorry Jamie!), but have had imo a decent spread of funds i.e US, Asia, Europe and Uk equities. As I said it had (past tense) shown very healthy growth but has now tanked. No doubt it will recover but probably not for a while and that’s just to get back to parity yet alone growth. Should have put it in a shoe box under the bed😂

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This could be a perfect storm for anyone hoping to retire soon, with high inflation and negative fund growth. Defined benefit pensions might be less affected.
Obviously pension pots are intended to be invested for long term growth, over a term of at least 5 years, and if you look at performance over your working life things may not look so bad. Some funds bounced back very strongly after the Covid crash, and it’s largely this spike which is being wiped out by recent losses.

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That would be SIPPP!!

Our pensions are in the LGPS thank goodness, but we do have very modest stocks and shares ISAs. Our son, who works for an investment management company, advised me to put the money in a global tracker as the much lower fees more than outweigh the potentially higher returns from actively managed funds. Whether that’s a good thing I don’t know but it’s certainly easy. If a SIPP is your only savings I can see that chasing the return can increase propensity for risk.

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I think a fall of 8/9% (which is what the S&P 500 is showing - but care re indices like this given concentration aspects) could be just the start.

In the low inflation/high money-growth environment we’ve seen over the last 10+ years post the GFC, equity values in general have almost been founded on bond-like valuations, where relative factors (yields) have played far more than intrinsic valuation factors. It seems to me to be akin to the .com profile of the 1990s, where surplus money had to find a home and the stock markets lapped it up until…

(as non-political comment) The various central banks and governments certainly have major issues on their hands with inflation which is now being seen as non-transitory, beds which they have made for themselves. And the standard tools of rate increases and ‘tightening’ don’t seem to offer viable solutions, as inflation is being driven from supply-side factors. To ‘tighten’ in such circumstances means attempting to stifle/materially reduce demand to fit but that could crush an economy, with all the political and other ramifications.

I can easily see equity market realignments of a further 20%, as I’m struggling to see what, in fundamental terms, is going to support them. At best, I suspect there’s extreme nervousness in the market and tech names cannot support the whole market.

I’m off ~8% too but the option of converting to cash isn’t attractive for obvious reasons.

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And this is the challenge. Cash term investments in NZ are 3% for 1 year or more, 2% after tax. With inflation at 7%, that’s a 5% cumulative loss per year. That leaves the question as to what to do with one’s savings? Historically here people have invested in property, which is causing serious affordability issues for our children’s generation.

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The rise in property values for one generation is the next generation being forced out of the market.

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Yes, using mean figures.

But one inter-generational effect of high property price inflation is to financially benefit families that have more valuable property.

I am only down about 2.5% since Christmas and I have been taking some income so not too bad. I think there are more than just Omicron and Ukraine at play here. Global supply chains and energy costs are in play as well. I think it is time to keep your head and ride out the storm, could take a while.

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I went defensive and low risk just before brexit, have stayed that way through out covid and now ukraine. Am still in a positive position after management costs and income but not keeping up with inflation. Was thinking of maybe taking on more risk later this year to cover but that will depend on events.

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Yes spot on @kend perfect storm of cost of living, energy costs + Russia and Covid. Markets hate uncertainty.

I had/have a growth based group of funds but have diversified into safer funds like Vanguard but have lost a lot on paper. Yes will probably come back but doubt it will be this Year.

I think it will affect many defined benefit schemes primarily due to high inflation likely in coming years which is quite unlikely to be matched by pay rises, so for final salary type schemes the pension could de-value significantly if for example we see inflation of double or triple any annual pay rises. Not sure but CARE components may be less affected if the annual sums are uprated each year by CPI or whatever.

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Defined benefit schemes are by their very nature defined. The amount by which they increase is set in the scheme. So for those already retired there is no impact. For active members the scheme can be changed, for example for RPI to CPI.

Although CPI/ RPi can be capped which could result in growth lower than inflation

Run our share ISA portfolio and wife’s SIPP(in drawdown but not drawing on it)
Have just run the numbers and found the SIPP is up 5.5% since Jan 1st. This probably due to the share mix. Have a lot of utilities, REITs, and infrastructure, together with some oil and mining, and insurance. As ever diversity is your friend in poor markets. Hold a fair amount of cash as well. Have steered clear of bonds as some shares can almost be bond equivalents.

I suspect that in rising markets then tracker’s can make a lot of sense. In falling or volatile markets then actively managed can outperform but as ever it depends upon which manager.

For most people who do not actively run their investment’s trying to time the market can be worse than time in the market.

Like many keen investors I’m trying to determine what to be invested in currently given the geopolitical uncertainty and inflation.

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Hi Deeg

I thought that global equity markets went up a lot since Brexit?

Jim

I am down about 4-5% due to market uncertainties overall since the start of the conflict. My monthly gains during COVID were of the order of 1-2%.

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Global equity markets have performed well but was unsure on short term (2-3 years) effects in the uk and europe with the disruption caused… since i’m in about 40 or so mixed funds globally i made some gains but also some losses… thought it was better to sit out any turmoil and then covid came along to add to the uncertainty. Could i have had better returns, undoubtedly but with the recent series of events i could also have made a loss.

I have a small DC pot within my work pension invested in the most risky available equity funds.

(I don’t mind this being risky as it’s a very small fraction of the work pension itself).

These went up a lot in the past 3 years, and have varied wildly in recent months, but are still higher than they were 3 years ago.

It would be more hair-raising if that happened to my whole pension.

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