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Weekend reading: Vanguard is ready to let you SIPP

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What caught my eye this week.

Hard to make this sound anything like a (not paid for) plug, but I’m sure our many readers who’ve been waiting for it will all want to know that Vanguard is finally ready to take your money into its Personal Pension (SIPP).

I covered the main features of Vanguard’s SIPP back in December, so won’t repeat that again. Instead here’s a couple of other articles that have run to mark the launch.

From ThisIsMoney:

Jeremy Fawcett, head of Platforum, said the Vanguard Personal Pension’s competitiveness compared with Sipps offered by 14 other leading platforms across a range of investment scenarios, makes it ‘one of the lowest-cost options on the market, especially for those at the beginning of their journey’.

The research consultancy found that a typical investor would pay £172 per year to invest a £40,000 annual Sipp contribution, compared to an average of £238 on competitor platforms, with the most expensive charging £396.

And from the Financial Times [Search result]:

The Vanguard SIPP is initially only available to savers who are still building their pensions, or in accumulation, but is expected to open to retirees drawing on their pensions from the start of the 2020/21 tax year. This is a significant market.

There were 984,583 pension drawdown policies in existence at the end of March 2019, according to the results of a Freedom of Information request submitted by Hargreaves Lansdown to the Financial Conduct Authority.

It’s worth noting the Vanguard SIPP option may not be the cheapest in every case. Depending on how you want to construct your pension, it could not even have all the building blocks you need either, as it’s limited to Vanguard’s own funds.

Still, I think it’s probably going to Vanguard-ize the UK personal pensions industry in pretty short order. We can discuss what ‘Vanguard-ize’ means in the comments!

Have a great weekend.

From Monevator

Oops. One of those weeks. For starters The Accumulator was doing sums for his next SWR article. For my part, I had all sorts on. We must try harder!

From the archive-ator: Do great investors live longer? – Monevator

News

Note: Some links are Google search results – in PC/desktop view you can click to read the piece without being a paid subscriber. Try privacy/incognito mode to avoid cookies. Consider subscribing if you read them a lot!1

Growing numbers of British firms say coronavirus outbreak is hitting their supply chains – ThisIsMoney

The huge AirBnB scam that’s taking over London – WIRED

Secretive UK tax unit homes in on rich families [On Family Investment Companies; search result]FT

Housing market looks set for spring surge, as January sees highest level of property sales for two years – ThisIsMoney

UK’s cash economy ‘close to collapse’ – Guardian

The dangerous democratization of alternative assets – Institutional Investor

Products and services

How to ‘do the splits’ on your mortgage [Search result]FT

New polymer £20 featuring painter Turner enters circulation – BBC

Premium Bond prize rate to be cut to 1.3%… – MoneySavingExpert

…while Nationwide launches a lottery-style savings account – ThisIsMoney

You can still claim your free share from Freetrade [and I get one, too]Freetrade

How to invest in rare books – ThisIsMoney

Price of first class stamps to rise 6p to 76p – BBC

RateSetter will give you £20 [and me a cash bonus] within 30 days of you putting in your first £10 – RateSetter

Shared ownership homes for sale [Gallery]Guardian

Comment and opinion

Avoid the zeroes – Of Dollars and Data

Garbage time – Humble Dollar

Picking bad stocks – XKCD

Merryn Somerset-Webb: Pensions tax relief is on a slippery slope [Search result]FT

Event horizon: The safe withdrawal rate, annuities, and the brutal reality of low interest rates – Finimus

The value of advice: Improving portfolio diversification [Research paper, PDF]Vanguard

When does investing become speculation? – Morningstar

One portfolio risk to rule them all – Movement Capital

Bobby Seagull: The puzzle of managing money [Search result]FT

Resigned to my fate – The FIREStarter

The biggest truth in personal finance – Get Rich Slowly

Your cheating’ wallet: On financial infidelity – New York Times

This one change can improve your retirement wealth by 50% [US wrappers, but relevant]MarketWatch

Dow 100,000 – Klement on Investing

Day-trading déjà vu

Small investors on epic buying spree fueled by free trades; drove up price of Apple and Tesla – Bloomberg

More Reddit: bull attack [Search result; Stock pumping retail day traders are back, this time using options]FT

Naughty corner: Active antics

Hunting for sustainable dividend growth [PDF]UK Value Investor

Larry Swedroe: Value investors should follow their heads, not their stomachs – Evidence-based Investor

Avalanche accidents and investment risk – Behavioural Investment

Manchester and London Trust: Long the future – IT Investor

Venture capital: Worth venturing into? – Factor Research

Politics and Brexit

[Click to enlarge]

Why is the UK arguing about a Brexit matter that is already agreed? [Search result]FT

UK to close doors to non-English speakers and unskilled workers – Guardian

The end of free movement: This is a nation dismantling itself over nonsense – Politics.co.uk

Kindle book bargains

Lab Rats: Why Modern Work Makes Us Miserable by Dan Lyons – £2.99 on Kindle

Secrets of Sand Hill Road: Venture Capital—and How to Get It by Scott Kupor – £1.99 on Kindle

Hit Refresh: A Memoir by Microsoft’s CEO by Satya Nadella – £1.99 on Kindle

Secrets of the Millionaire Mind: Mastering the Inner Game of Wealth by T. Harv Eker – £0.99 on Kindle

Off our beat

What’s in your jar of awesome? – RAD Reads

JP Morgan economists warn climate crisis is a threat to human race – Guardian

100 little [big] ideas – Morgan Housel

How NOT to run a business – Charles Sizemore

Can a shorter workweek make people happier? [Graphic]Visual Capitalist

SpaceX has plans to fly tourists twice as high as the International Space Station – New Scientist

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{ 71 comments… add one }
  • 51 Far_wide February 23, 2020, 10:25 am

    @ZXSpectrum48k @finumus

    I can’t deny it’s certainly food for thought. This said, annuity rates would always have been substantially higher in the past anyway though with the effect that rising life expectancies have had, surely? Not to say that the current economic situation also hasn’t had a similar/greater effect to reducing them.

    Hope I’m not coming across as some 4% fixed SWR acolyte btw. I believe 4% is totally inadequate at the present time in all but the very shortest timeframes. In my personal case, whilst the economic times are good, I’m trying to drive down my required WR as far as possible each year.
    As with everyone else, the big problem is that when we’re so off the beaten track on all manner of financial indices, my crystal ball is looking even murkier than it usually does.
    We’ll know all the answers as to what we should have done in 50 years (and it’ll be have been ‘obvious’!).

  • 52 Rob February 23, 2020, 11:11 am

    Sorry I just had to share this.

    Run for the hills!

    https://www.bbc.co.uk/bbcthree/article/2b3f3f67-2338-4253-b7f5-a36192885492

  • 53 ZXSpectrum48k February 23, 2020, 11:40 am

    @cat973. My better half has a Super. I’ve been impressed by their asset allocation approach. The Super targets CPI+4.5% and has a well diversified portfolio (cash 5%, fixed income 27%, direct real estate 8%, infrastructure 16%, equities 33%, private equity 7%, hedge funds 3%, commodities 1%). It’s return is about 10%/annum over the last decade. Platform + fund charges at 80bp are arguably higher than necessary but Australia just doesn’t have the competition the UK or US has.

    The’ve used a pseudo risk-parity approach since 2009, reducing equities in favour of long duration bonds and infrastructure assets. These have outperformed equities (producing around 15%/annum) but almost halved volatility. Yes, one day the whole risk parity approach will fall but it’s been working like a charm for three decades. Moreover, equities will likely get slaughtered when that time happens anyway.

    Infrastructure and direct property aren’t alts. Infrastructure is exactly the sort of long-duration asset a Super should be buying. More illiquid but ideal for duration matching liabilities. Rather like endowments, Supers have exactly the right framework to get the best out of investments in infrastructure, private equity and hedge funds.

  • 54 jim February 23, 2020, 12:07 pm

    My god, that air bnb article – goes on forever! Surely that could’ve been condensed a bit!?

  • 55 cat793 February 23, 2020, 2:19 pm

    @ZXSpectrum48k. Thank you for your comment. An interesting and helpful explanation that makes sense. I was (vaguely) aware of the role matching long term liabilities might play in reducing the risk of assets such as infrastructure but was not really sure. One of the problems over here is that there seems to be very little accessible information or discussion about super investment, FIRE etc. Nothing like the US or UK.

  • 56 cat793 February 23, 2020, 2:32 pm

    @ Rob. Yeah that is scary! I remember a similar story back in the late 80s I think it was about a teenage schoolboy who somehow managed to borrow a lot of money fraudulently and then bunked off school so he could spend all his time in a local phone box on the line to his stockbroker. He ended up getting in trouble but was held up in the media as the epitome of Thatcherite go-getting entrepreneurial spirit and even promised a job by a bank when he finished school.

  • 57 Lee February 23, 2020, 4:54 pm

    @Can’t see the wood for the trees

    I saw a very interesting video called “Have the Boomers Pinched Their Children’s Future?” from the RI that explains the politcal and economic power boomers have wrought due to their generation being a large cohort compared to others. This has allowed them to distort things in their favour.

    https://www.youtube.com/watch?v=ZuXzvjBYW8A

  • 58 MrOptimistic February 23, 2020, 11:41 pm

    It’s odd but in all honesty I have never once thought it was someone else’s fault. I never even blamed ‘ history’, and can’t say anyonen stole my birthright.
    I suppose if I had been born in say 1896, so I turned 18 in 1914 I might just have blamed the Victorians, or in 1430 perhaps I would have blamed the rats. But, can’t see me ever condemning a generation because house prices are a bit of a stretch and the course of my life to retirement is uncertain.

  • 59 The Borderer February 24, 2020, 12:35 am

    @Mr O (58)
    Yes, let’s blame anyone, and we can calibrate the ‘anyone’ by being those whom we perceive as in some way achieving what we want by some means that we are ourselves can’t achieve.

  • 60 The Borderer February 24, 2020, 12:54 am

    @(59)
    I’m so off topic – philosophy unit 1 on my OU degree might be distorting my reality

  • 61 MrOptimistic February 24, 2020, 1:06 am

    The point is we all live in a world created by others, and the future is uncertain. That has always been true, but you are special and demand certainty?

  • 62 The Investor February 24, 2020, 10:01 am

    @Guys, we are drifting into personal polemic territory here. I accept there’s a wider point about who blames what for what, but if we can try to stick to the facts in these discussions where possible rather than alluding to history from 500 years ago then we have the best chance of keep the conversation on-point.

    (Happy Monday all! Sorry I’ve been a bit quiet this weekend. Normal service should resume soon.)

  • 63 MrOptimistic February 24, 2020, 2:57 pm

    @ZX. There are repeated discussions on another forum about asset allocation and the potential benefits of ‘alts’. There they deem property and infrastructure as ALTs. TA has mused about the characteristics of reits, wondering if their supposed diversification benefits are borne out in practice. Can I ask how you define alts. ?
    @TI. Sorry (again) :). reductio ad absurdum and all that ( UK spelling).

  • 64 C-strong February 24, 2020, 6:41 pm

    @ZXSpectrum48k @cat793 @MrOptimistic
    There’s an interesting article in today’s FT about infrastructure as the antidote to the “new normal” of low interest rates, low yields, flat yield curves etc. Not aimed at the individual investor but worth a look if you subscribe:
    https://on.ft.com/2vWTunm

  • 65 ZXSpectrum48k February 24, 2020, 10:23 pm

    @MrOptimistic. I’m not be the best person to ask since I have a dim view of the name ‘alternative investments’ despite the fact I work in that industry as a portfolio manager.

    ‘Alts’ can be defined as anything that isn’t a traditional investment (cash, bonds, equities). People argue property, private equity, venture capital, distressed debt, hedge funds, commodities etc are all ‘alts’. They also argue these are ‘alts’ because they have properties, like having a low correlation with traditional asset returns, being illiquid or hard to value.

    I think this is often (but not always) nonsense. I see land and property as a traditional asset class. I don’t really differentiate between owning residential property, commercial offices or building renewable energy projects (‘infrastructure’). Yes, infrastructure investment may well has aspects of fixed income (development lending), property (owning actual land/buildings) and equity (the company) but that means it’s a hybrid of other asset classes, not an ‘alt’. Moreover, the idea that ‘alt’ investments are often not influenced by the same drivers as bond/equities is hard for me to fathom. Even the BoE have finally recognized that it isn’t supply-demand that drive property prices but long-dated real yields (1% move in real yield = 18% move in house prices). The relationship between long bond yields and infrastructure funds is very similar.

    The concept of alts was invented by fund marketers. If you market your equity fund to an institutional investor then that they will put your in their bucket called “Equities” and you get a small slice of their money. If you market it instead as an alt, the investor puts your fund in the new shiny bucket called alts, helpfully with rather less competition, and hopefully with higher fees and longer lockup periods. Result.

    This was hugely successful but created an artificial asset class which is often made up of less liquid, opaque or hybrids of other asset classes. It’s success made hedge funds mainstream while also killing their performance. Many bespoke investment strategies, that once did offer alpha, low correlation etc, are now flooded by AUM they simply cannot deploy.

    I have probably 40% of my portfolio in what could be termed ‘alts’, mostly hedge funds but also private equity, venture cap, some infrastructure etc. I view them as what they are: specific investments or strategies, typically focussed on exploiting aspects of an asset class or a cross-asset relationship . The idea of bucketing these together under a category called ‘alts’ is an easy thing to do but also rather meaningless. Sorry if this isn’t helpful.

  • 66 MrOptimistic February 25, 2020, 7:40 am

    @ZX. Thank you once again. Yes, that made sense. Will have to find a more sheltered port.

  • 67 Indecisive February 25, 2020, 7:56 am

    @ZX thank you, that’s fascinating.

    > I have probably 40% of my portfolio in what could be termed ‘alts’, mostly hedge funds but also private equity, venture cap, some infrastructure etc.

    Given we’re on a passive investing site, what’s the benefit you see in keeping 40% in hedge funds etc?

  • 68 ZXSpectrum48k February 26, 2020, 10:34 am

    @Indecisive. As you say this is a “passive site” (despite TI’s “active antics”) so I’m not going to justify my blasphemy. It just triggers comments from people who don’t really understand what people like me do each day. My holdings suit my risk profile which is risk averse both professionally and personally. I want my downside limited to a few percent, but with convexity to the topside. These funds give me that profile; equities and bonds do not.

  • 69 Indecisive February 26, 2020, 10:58 pm

    @ZXSpectrum48k I respect your view, though I would have liked to learn your perspective as your we seem to have similar outlooks on risk. FWIW over 60% of my holdings are in actively managed funds, so I’m not a follower of the one true way™

  • 70 Indecisive February 26, 2020, 11:12 pm

    I should add that due to risk aversion, 80% of my total assets are in cash (and have been for the last 15 years) because it might shrink due to inflation, but I can’t lose it. The other 20% are in equities and a smattering of bonds.

    With hindsight it looks stupid, but for reducing stress about “might happen” risks, I feel it was worthwhile. I am now at a stage where I am secure enough that I am open to changing that, and take a bit more risk for somewhat better returns. Your penultimate sentence intrigues me.

  • 71 Learner February 29, 2020, 2:10 am

    80% cash is not that unusual; consider anyone harboring a mortgage downpayment these days. It’s a pity cash doesn’t even keep it’s value in the post-2008 world.

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