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Why I need to take control of my pension

Everyone who has ever worked knows it’s not enough to be busy — people have to see or hear that you are. Scaffolders clang as many poles and planks together as they can. In banking we sat on video calls all day to show our industriousness. Even doctors hang stethoscopes around their necks. Such posturing is harmless enough.

Except when it isn’t. For example, when portfolio managers want to look occupied they trade. The trouble is that most of them aren’t good at it. If they are going to underperform their benchmark anyway, better to save on the transaction costs. That is why I prefer to see my managers travelling or out to lunch with brokers — as far away from their desks as possible.

It worked for me. One of the things I hated about running money was the disconnect between effort and performance. Some years I’d stay late and rebuild my models a hundred times only to underperform. Other times I’d relax a bit more, take some holidays, and returns would bounce back. It’s as frustrating as hell. All old-hand fundies know the feeling.

Studies of the relationship between equity returns and turnover are a mixed bag. When comparing thousands of funds with each other, some academics find a positive link, some a negative one, others no correlation at all. For individual funds across time, however, the data are more supportive. Performance does seem to improve when managers are more active and trading levels rise.

Perhaps managers can sense when there are more profit opportunities available. Giddy with expectation, turnover rises accordingly and returns improve. A University of Pennsylvania paper found this to be especially so for the best managers (taking what they charge in fees as a proxy for quality). The more skill they had — as opposed to luck — the more likely they were to gain from trading a lot.

Personally, I’m not fussy about whether I pick winners via talent or luck. But I do intend to trade more next year. Boosting returns is one reason why. The other is that a sleepy portfolio will leave this column struggling to say something each week. I’ve already written about how few investment options my two pension platforms offer me. Thus, I’m currently in the process of transferring both into a personal plan.

My colleagues in FT personal finance are experts on what the UK industry calls self-invested personal pensions. Sipps are not for everyone, and you can read everything you need to know about them here. But for an investment columnist who used to manage portfolios for a living, they must be the answer. If it’s my skin in the game, I want control over the epidermis, dermis . . . the bloody lot.

This way I can run my entire savings pot and trade as often as I wish. Sipps allow a broad range of investments too, from hedge funds and closed-ended trusts to commercial property and even land. Many people like them because they can buy individual shares. For now, this column will eschew single stocks, however.

A fresh start also means I can use the supine hours following Christmas pudding to digest my priorities for next year. In terms of investments, I’m keeping my fill of US, Asian and UK equities. And I committed to buying some government bonds in the last column. If you’re interested in other ideas under consideration, I made some contributions at Money’s outlook round-table.

I also want to pay much less in fees. My stone-age pension plans charge too much — another good reason for leaving. For example they have the cheek to take the cheapest ETFs in the world, insert their own name in front of them, and then charge a 100 basis point annual fee. Daylight robbery, my grandad would have called it.

Given the long-run annual real returns of even the best equity markets is 6.5 per cent, handing one percentage point of that to a glorified fund administrator every year is wrong. They don’t even take me to the cricket. By next December I hope to be able to calculate that my total management fees have halved.

Why not more, I hear you ask? After all, plenty of passive funds now cost single-digit basis points. Some charge nada. The answer is I may want to buy more interesting or complex things. Passive for the basics — always. But access to the fastest guns in the industry costs more. And I’m hardly going to complain about fees if an investment shoots the lights out.

All ideas are welcome here — my email is below. One area I’m pondering is virtual reality. For years I have given speeches and presentations to clients arguing that VR is going to be bigger than Texas. People laugh. But for me Mark Zuckerberg is right on this one. I’ll also wager a few more investors will agree after opening their presents on Sunday.

There are plenty of metaverse funds out there and we shall explore the sector in the months to come. In addition, I like the idea of investing in natural capital, although most options available today are just over-hyped forestry or agriculture plays. And I’m keen to explore how I can make money going short certain residential property markets, where valuations are insane, it seems to me.

But leave thoughts of a housing meltdown to one side. It is the season to spend quality time with your dog while your family sleeps by the fire. Turn off your monitors. Ignore the markets. There’ll be plenty enough of all of that again soon.

Happy holidays!

The author is a former banker. Email: stuart.kirk@ft.com; Twitter: @stuartkirk__


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