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SIPPs 
Traditionally, institutional funds have held a mix of equities, bonds and gilts, but many investors have become more adventurous in their fund selection, putting more money into commodities and hedge funds. Small investors cannot always follow suit, even with those companies that do offer a wider range of investment choices. If you have the appropriate risk-reward profile, however, this does not mean that diversification is impossible within a personal pension. You can allocate your pension money into emerging markets funds, special situations funds or ethical funds. The key to a long-term investment strategy is diversification. An investor should not seek the best-performing sector or flavour of the month but, instead, spread investments across a number of sectors. This will help to reduce volatility and provide exposure to more sectors. The problem is that, although you may be able invest in a wide range of funds, the performance of the majority will tend to be correlated. In other words, it matters little that you have invested across a wide range of geographical areas when equities across global markets tend to follow the same bull and bear runs. To buck the equity trends, you need to diversify into alternative asset classes. And to do that, you might wish to move beyond personal pensions. To truly diversify your pension portfolio, you could consider self-invested personal pensions (SIPPs), which can offer to an appropriate investor a greater investment choice. Although residential property and esoteric assets, such as art and antiques, cannot be held within a SIPP (as had originally been proposed by the Government last year), you can hold funds, shares, gilts, bonds, commercial property and unquoted shares. Commercial property is a useful diversification tool since it tends to be ‘non-correlated’ - its value does not rise and fall in line with equities. Nor does commercial property track the performance of residential property. While residential property prices have risen sharply over the past decade, commercial property values tend to be much steadier. You can buy commercial property directly and are permitted to borrow up to 50 per cent of your fund value to finance the purchase. However, you do not have to become a shop owner to gain exposure to commercial property: there are a number of funds that invest in commercial property. It is also possible to invest in residential property, so long as you do so indirectly through residential property funds, and to invest in unquoted shares. If you require any further information about the services that we provide or would like to review your financial planning position, please contact us |