I’m having my annual meeting soon with my SIPP investment advisers who are recommending some fairly significant changes to my portfolio despite the fact it’s been performing well.
So your mention of Fidelity Select 50, Trustnet etc has been extremely useful in helping me compile a schedule of what my advisers are suggesting compared to these other people’s recommendations. I’m also using Tilney’s star system and making sure I avoid any of the funds they class as dogs.
Maybe I should just start to manage my portfolio myself and save the adviser’s annual charge, but I think that would be quite a big step. And a little knowledge could be very dangerous!
The interesting thing is that none of these recommendations is for an investment trust, even though it appears that these have performed better in many cases over the years. My advisers don’t invest in investment trusts either, they said because of possible problems with the discounts/premia. It would therefore be very useful if you could provide some sources for comparing investment trusts in a similar way to what you’ve provided for funds.
I wouldn’t necessarily worry about fairly significant changes – markets shift and yesterday’s winners may not keep making you money. These are unusual times, and low interest rates have created a tricky investment environment. In particular, the income available on bonds has slumped, so if you had a high bond weighting, it may just be that your advisers is trying to rebalance your portfolio to areas where they believe you’ll make a stronger return.
Alternatively, they might be recommending a shift simply because you are getting closer to retirement (without knowing your age!) and are not a position to take as much risk with your investments – if you are likely to need to cash in some stuff soon, you want to get slowly into less spicy stuff. Again, if this is what is happening, this is simply what any responsible adviser should be doing.
That said, if there’s lots of churning in order to charge higher fees, that’s not so good. This isn’t really supposed to happen any more, but there are few unscrupulous souls out there. It is worth checking the costs involved in switching and whether there are commissions involved (this should be in any paperwork).
As to whether you could manage it yourself, that’s a thorny question. There is loads of guidance available on the right funds to pick – like the Fidelity Select 50, or the Hargreaves Lansdown Wealth 150 or Bestinvest’s top rated funds. There is also plenty of advice on the type of investments you should be looking at for your ‘age and stage’. However as a DIY investor, it’s not just picking the funds, it’s also keeping an eye on them over time. Alternatively, you could take the “boring” option and open an account with Vanguard – this is a low-cost all-in-one solution. Your only job is to pick which one of their 5 options you want – from 20% equity (calmest, most cash-like, wont blow up but wont return lots either) or the more hardcore 100% equity option. It's great value through and simple.
The problem with doing it yourself tends to come at the adjustment points – when your personal circumstances change: you change jobs or retire, for example. Alternatively, the market may change. This can best be illustrated by the recent shifts in the government bond markets. Just three years ago, it was possible to achieve an income of around 3% by buying a 10 year government bond. The same bond now pays an income of just 1.5% and has been as low as 0.5%. When looking for income, this is a crucial shift. As a private investor, it can be difficult to keep up with these changes. Advisers can help in this respect.
Advisers also have an important role in ensuring you are saving properly. People who have advisers tend to save more and be better prepared for retirement. This is because their advisers nag them to do the right thing. Paying someone to give you a bad time may sound masochistic, but it could work out better for you over the longer-term.
In conclusion, there are lots of tools available on the platforms to help you do it yourself, but don’t neglect the ‘hidden’ role of an adviser in keeping you on the straight and narrow. Do check their fees, however. In a world where investment returns and interest rates are super-low, fees take up a far greater proportion of your investment return. Make sure you’re not paying too much. Our guide here shows you how much you should be paying and where to find an alternative adviser if you’re paying too much.
On your final point, I quite like investment trusts. You’re right that they may perform better and they can be a really good option for those who want an income from their investments. Investment trusts are a bit weird because they are a) bought and sold like shares not mainstream funds b) managers can gear or borrow in them which dials up the potential returns but also the risks and c) as you say they can trade at a premium i.e. cost more to buy than they are worth on paper but they are flavour of the month OR a discount i.e. be worth more than they cost to buy but people are down on them right now.
Certainly, the discount/premium can add a bit of complexity, but it shouldn’t be beyond the wit of a financial adviser to work it out or you yourself can make a call as to how material this is. Your advisers may not be suggesting them because they don’t feel comfortable with the gearing. They may think the premiums/discounts are tricky. Or what is equally likely is that they don’t like them because they are different from an operations point of view to buy and they don’t fit into some systems. Finally they don’t always have lots of liquidity (i.e. it can be difficult to buy and sell at times).
If you’re going to stick with your adviser, you may have to make investment trusts a side-line. This is easily done – you can buy them through most of the major platforms and they just trade like a normal share. Hargreaves Lansdown has some useful research. Morningstar’s site is quite technical, but can also give you some insight. The trade body, the AIC, has some useful technical insights – if you want to get more into the nitty-gritty of how they work. And investment platforms Charles Stanley and Bestinvest have research teams which include investment trusts and more traditional funds in the same research bucket, enabling comparison.