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Does your Self-Invested Personal Pension (SIPP) offer real choice?

And does it matter?

The foundation of Modern Portfolio Theory was a 1952 paper, “Portfolio Selection” by Dr Harry Markowitz in which he established a theory explaining the best way for an investor to choose a portfolio. Modern Portfolio Theory is of such fundamental importance in investing that the economists that formulated the theory received the Nobel Prize in Economic Science in 1990. Asset allocation involves dividing an investment portfolio among different asset categories such as equities, commodities, fixed interest, cash, property and the process of establishing which mix of assets to use, is largely determined by investment objectives, time horizon and tolerance to risk.

The most famous and comprehensive study into the significance of Asset Allocation was done by Gary P. Brinson, Brian D. Singer, and Gilbert L. Beebower in 1991 with similar conclusions being drawn from most studies. The bottom line is that considering everything (commissions and other transaction costs, taxes, and mistakes), over 91% of long-term portfolio performance is derived from the decisions made regarding asset allocation.

Gary Brinson, Brian Singer, & Gilbert Beebower “Determinants of Portfolio Performance: An Update,” Financial Analysts Journal, June ’91

Intuitively, facing such a weight of empirical evidence, a prudent investor would wish to ensure that they had available, to them, the widest possible choice of asset classes from which to construct their investment portfolio.

However, research by Gold Investments in Dublin has found in the UK and Ireland that, despite both the Revenue Commissioners and H M Revenue and Customs changing the rules relating to the admissibility of Bullion within Pension Schemes, major players in the provision of pension plans are not prepared to admit Bullion investments.

What is even more surprising, is that many of these pension plans are being sold as ‘self-directed’ or ‘self-invested’ and promote ‘the widest range of investment choices’”. In reality, many investors are being subjected to a form of “asset class censorship” by their pension provider.

In our experience, it is the larger Insurance Company based schemes who will not entertain the inclusion of Bullion investments and we are finding that some trust-based schemes are much more flexible.

Given the significance of carefully choosing the best mix of assets to purchase, as Irish Investors have learnt to their cost in the last 12 months, our advice to our clients is to also take great care in your choice of pension provider: you might find you have a version of “self-directed” which is not quite as flexible as you were lead to believe.

The information available through this Website is for your general information and use and is not intended to address your particular requirements. We do not, nor are we authorised to, offer advice on specific investments in the UK.
In particular, the information does not constitute any form of advice or recommendation by Gold Investments and is not intended to be relied upon by users in making (or refraining from making) any investment decisions. Appropriate independent advice should be obtained before making any such decision.
For your information we would also like to draw your attention to the following general investment warnings. The price of shares and investments, and the income derived from them, can go down as well as up. Investors may not get back the amount they invested. Past performance should not be regarded as indicative of future performance.

Mark OByrne


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