I’m starting out in my late thirties so feel very behind! I have an existing workplace pension which I am currently adding the auto enrolled amounts in (though the pot is small). My plan is to start an S&S Isa and a SIPP. Both for the long term but the ISA to hopefully offer the flex to work less or retire earlier than a Pension or SIPP would allow. Especially as I imagine the government will change the retirement age further in future years. I’m expecting to work for another 20 years.
After doing lots of research (but still very much learning), its seems a solid option to start is to buy a global/all world EFT that will be by its nature diversified, and contribute regularly into an accumulating EFT.
I was considering one of the below as a starting point.
Any things I should be watching out for or I’m missing?
Also would it also be best to buy a different one for an ISA and the SIPP, just to diversify further. Even though there would be cross over because they would be similar.
I personally like FWRG due to the low fee but the other 2 are great too. Just be aware any MSCI world ETF is only investing in developed markets, some people prefer that approach but it is good to consciously exclude them if thats is your intention. SSAC also by ishares invests in the MSCI ALl Country World Index which includes EM and would be more comparable to the FTSE All World.
Once the SIPP launches on Invest Engine I plan to transfer my cureent SIPP with AJ Bell and I will be buying the same ETF. There is no particular reason to buy another ETF for your SIPP but equally it it wouldn’t hurt either.
The questions that you’re asking are questions you should be putting to a financial advice professional. That said, I think you’re right to focus on an ISA ahead of a SIPP if early retirement or semi-retirement is your goal.
Late 30s is not as good as early 20s, but is still much better than a lot of people manage. Don’t beat yourself up.
I think you’ve considered the most pertinent points, and are probably leaning towards FWRG on the grounds of lower fees. Two other accumulating world funds to consider:
LGGG - 10% TER
VHVG - 12% TER
These don’t invest in emerging markets, but frankly the three you’ve picked out have very low holdings in emerging markets anyway.
Whatever you go with, some things to bear in mind:
“World” indexes tend to be US-dominated, about 55-70%. They also tend to have high exposure to a few tech giants, Apple, Microsoft, Alphabet, Amazon, and Meta. For most of the past 20-30 years this has been fortuitous, but late last year and early this year these stocks were not doing well and many investors felt that. SWDA, the iShares one, is the “worst” for this, as it tracks the MSCI World Index rather than the FTSE equivalent. If you think the US economy and particularly the tech sector is going to grow faster than the rest of the global economy, the higher fees on SWDA might be worthwhile - but also see LGGG, which has almost as much exposure to tech with half the TER. One of the most popular holdings on the site is EQQQ, which tracks the NASDAQ 100 and is even more exposed to both tech and the US, but also a higher TER, so for some people TER is not everything.
if you think 60% of your money being in the US is too much of a risk, consider buying additional ETFs to give you more exposure to other markets. I personally take quite a high-risk approach in this regard, which might not be right for you. You could consider UK, Japan, Europe (with or without the UK), Asia-Pacific (with or without Japan), and Emerging Markets.
as interest rates are very high, there are advantages to putting a small portion of your money into a money market fund like CSH2, which aims to offer reliable short-term gains that beat the rates you can get from banks. When inflation and interest rates fall, equities are likely to be a better option once again.
While investing in separate funds in your ISA and SIPP would reduce your exposure to operational risk, it’s debatable with the risk of BlackRock, Vanguard, or Invesco going insolvent is worth the extra TER you’d pay in one of them.
Everything I am saying here is a pointer towards something you could do - it is up to you to decide what you should do.
I think its worth mentioning that if you have a workplace pension you would probably be far better off upping your contributions (by default your auto enrolment will be 5%, if your pot is still small you will probably want to increase this to 15%+ if you can afford the sacrifice) as you will avoid paying tax, national insurance or student loan contributions etc.
Most workplace pensions allow you to start taking money out at 55 but the state pension only kicks in during your mid 60s.
Paying into a pension is going to be far more efficient than into an ISA if you intend on using this money to retire.
Hi @lee, I diversify globally too but I also factor tilt across different asset classes.
According to academics, factors such as value and size (small) returned a premium historically. Sometimes it takes years for the premiums to show up but I also have 20 years before I’d like to retire so I’m ok waiting.
Growth stocks have crushed value and size recently, but the globally diversified nature does also capture this factor, just a smaller percentage.
Check out Paul Merriman. He’s done what I think is great work in educating investors on this topic.
This is a really interesting point I honestly hadn’t considered. I’m actually starting a new job soon and the combined contribution will be 15% (7.5% employer/employee), but I could up this (though their max contribution for the employer is 7.5%). More research needed, as my salary is outside the band so unsure how that would work.
Also no idea on how to work out whats the most cost effective % for me to put in for the tax purpose. (yet).
On workplace pension/SIPP vs ISA
Workplace contribution is pre-tax. Or, a SIPP company will get your tax back if contributing from net pay (if paying 20%, you can claim the difference if paying 40%). An effective 25% to 66% boost to your contribution.
You will pay tax on your pension when you take it later, but will have part tax-free and an allowance, so likely to be a lower marginal rate, plus there should be a growth benefit in the meantime.
ISA is from net pay, so income tax is a burden - but you don’t wait to 55 to access it (rising to 57 in ‘28, maybe further later).
For me, having some of each helps diversify an unknown future.
Developed World vs Global - DW generally cheaper (keeping costs low is priority either way), but I would get stressed about EM whenever it out-performed, so I bought SSAC.