Whichever way you look, there are glaring signs that Brits may be struggling to save towards their retirement.
Recent research suggests that this applies to women as well as men, with females, apparently less confident when it comes to investing their cash and more likely to put their money into a savings account.
Most of these savings vehicles do not deliver a viable return when compared to inflation, however, especially when compared with more complex but potentially rewarding products such as SIPP (self-invested personal pensions). In this post, we’ll look at some of the most popular assets available through a SIPP and ask how best to build a portfolio. Remember, SIPPs offer more control and access to a wider range of investments than other pensions, but they are not suitable for everybody – so you should get advice if you are unsure.
A Look at the Most Common SIPP Investments
Perhaps the most common SIPP investments are stocks and shares, with equities offering the highest potential return in exchange for a greater level of risk. These must be listed on the London Stock Exchange or the Alternative Investment Market (AIM).
Another option is to buy bonds. These are a form of a loan, usually to governments or companies. Bonds pay out a regular, fixed income (known as a coupon) which tends to make them a less risky investment than equities. However, with rising inflation and low interest rates, they are less popular currently than they have been in the past.
SIPPs from most providers can hold a number of other asset classes. These include commercial property – either through shares in property companies or in real estate investment trusts (REITs) which are pooled funds that own a number of physical properties. Targeted absolute return funds are another option – they aim to achieve a positive return regardless of how the wider market is performing. While this sounds less risky, they will sometimes use complex and high-risk investments such as derivatives to achieve these returns.
Commodities are another option for SIPP investment portfolios. Physical gold is a popular choice and one that can provide a secure store of wealth in a difficult economic climate. This has been borne out recently, with the value of gold increasing by $3.00 per ounce against the backdrop of Brexit, rising bond yields and tense relations between China and the U.S.
Your SIPP and the Importance of Diversity
As with any investment portfolio, your key consideration when building a SIPP is the underlying risk-reward ratio.
Clearly, building a portfolio with higher risk has the potential to translate into superior returns, so the key is to be selective when choosing assets and manage risk proactively where possible.
Diversification is crucial here, as this helps to spread your risk across a number of assets that should hopefully generate viable returns regardless of the wider, economic landscape.
Another way in which you can manage risk is to work with reputable SIPP providers such as Bestinvest, who provide access to ready-made and diverse portfolios that are managed by experts.
You can also receive professional advice on your investments, helping to retain greater control of your portfolio while also making informed decisions.