Indecision about platform choice is causing me to miss opportunities - help!
10 June 2021
Question by Stephen
I am 55 and I am a director of my own Ltd company. I have £18,000 sitting as cash in a SIPP with Vanguard and I have £8,000 in cash in a stocks and shares ISA.
My plan is to invest over the next 10 / 15 years putting money earned directly from the business into the SIPP to take advantage of the corporation tax relief and at the same time put an equal amount into my ISA. I'm quite happy for the SIPP to be invested in Index funds /ETFs and may be unit Trusts. With the ISA I would like to be more aggressive and include individual shares. It seems that the game has changed it's rules and just blindly buying and holding may be a thing of the past. I feel that asset allocation now needs to be looked at more regularly than before.
The problem I have with Vanguard is the lack of choice which effects strategy and the charges incurred by Hargreaves. I have looked at AJ Bell but it seems that the platform isn't quite a robust as Hargreaves. Should the cost be overlooked for reliability and liquidity when needed. Some of the negative reviews over the last few days for AJ were about investors not being able to buy the dip when other people were running for the door. If Hargreaves had slightly cheaper charges I would hold my SIPP and My ISA with them but I suppose you get what you pay for. Time in the market is better than timing the market. However indecision about platform choice is causing me to miss opportunities.
Your thoughts on my dilemma would be much appreciated.
Answered by Clinton Askew
It is clear that your objective is to build funds towards your future retirement, which you have said is likely to happen in the next 10 to 15 years, when you will be 65 to 70 years old. You plan to use the profit from your business to make tax efficient pension contributions, and to also fund ISA contributions each year. At this time, you hold £18,000 in the SIPP and £8,000 in your ISA. I have assumed that you do not have other investments or savings in place to support your retirement plans.
I do think that you are in danger of becoming a bit distracted by the question of platform choice and investment approach at this stage. Instead, I would recommend that you spend some time working out exactly what your retirement plans are. After all, platforms, products and funds are simply the tools that enable us to grow and manage our savings towards a future financial objective. It is important to be clear from the outset what that objective is and to quantify the cost of it. We call this your ‘Financial Success Number’.
You can work out your own financial success number by first calculating the amount of income that you would like to have in retirement. Any state pension benefits may be deducted from this figure. The next step is to estimate a capital sum sufficient to produce that amount of income every year for life, without eroding the value of your investment. A financial planner can help you to work this out. The next step is to compare the value of the assets that you have available today against this future sum. Then, determine the shortfall and quantify the level of additional contributions and investment rate of return required to achieve the amount of capital you need.
It is important to remember that you are trying to capture the capital market returns in the most effective way and at the lowest cost. With this is in mind you then have a filter to consider your investment choices. Incidentally, investing in funds is generally cheaper than dealing directly in stocks and shares due to economies of scale.
You mentioned about using asset allocation and how this needs to be looked at regularly. In fact, the purpose of asset allocation is to manage volatility. In other words, to manage the extent of the rise and fall in the values of your investments over time so that you feel comfortable. Again, a good financial planner can help identify a suitable asset allocation that meets your preferences.
Finally, having identified your objectives and preferred investment approach, you can then choose the most appropriate platform to hold your investments. As you rightly say, there is a cost consideration here, and cheapest is not always the best. However, I do feel that if you spend time working through the steps outlined above, then the decision over which platform to use will be much clearer.
CEO and Financial Planner
I’ve always wanted to do things differently. When I set up Citywide Financial Partners way back in 2004, it was to bring my own brand of financial planning to the market. One that was fresh, innovative and much more interested in people than money. And that still holds true today.