So if you've just opened a SIP and you're excited
to get started, don't make any big investments
to leave at least watch through this video and
have potentially been to see a financial advisor
as well. Right, let's get real for a moment.
Your SIP, your self -invested personal pension.
It's supposed to be your golden ticket for your
personal superpower for financial freedom and
retirement rights. It's the vehicle that's meant
to drive you towards those golden years, giving
you control and flexibility over your investments,
along with some pretty nice tax benefits as well.
But what if I told you there's some sneaky little
traps lurking in plain sight that could turn
that dream into a financial nightmare? For most
people, low -cost index funds are going to be
the answer. However, for some, that just isn't
enough and they want to get much deeper into
investing. So this video is for those that want
to dig deeper. Though, my general advice would
be low -cost index funds, much safer. I've been
knee -deep in my own paperwork and my investment
statements for the last few months. The very
foundation of my own family's retirement plan
is at stake. And honestly, I was shocked. I uncovered
four costly mistakes. I think that I was close
to making myself. And if I, someone who lives
and breathes financial planning, almost stumbled,
then I know many of you might be facing similar
risks. Now in this video, I'm pulling back the
curtain on these four traps so that you can protect
your pension before it's too late. So stick with
me because... We're going to get sorted together.
If you haven't had a chance to have a look yet,
have a look at my course at timetoretire .co
.uk. I talk all about pensions and the transition
into retirement. So welcome back to the channel,
future retirees. If you're new here, I'm Eric,
and since I retired earlier this year, I've had
the privilege of helping a few of you guys with
their retirement and their retirement planning.
But today we're... Cracking open the SIP handbook.
While a SIP can be an absolute game changer for
building your retirement wealth offering, a wide
range of investment options and significant tax
relief, it's also a tool that demands attention.
With great control comes great responsibility.
There are some common pitfalls that could seriously
dent your retirement dreams. Trust me, you don't
want that. So, what we're talking about. We're
talking about a vehicle called a pension designed
for those who want more direct control over their
investments, moving beyond their ready -made
portfolios of a traditional workplace pension.
Now, this is fantastic. It's flexible, but it
means the onus is on you to make some smart choices.
So let's dive into the four biggest mistakes
that could sabotage your retirement and, more
importantly, how to fix them. so mistake one
is putting all your eggs in one basket now this
is a trap that i always fell to and it's a classic
it's failing to truly diversify your investments
it sounds obvious but don't put all your eggs
in one basket yeah many people start their sip
with their best of intentions perhaps investing
in a few companies that they know or a sector
they believe in and they concentrate too heavily
on those few stocks or sectors now that's a recipe
for disaster now imagine you've poured a significant
chunk of your retirement funds into just one
hot tech or even a single property venture If
that company hits a rough patch or the property
market takes an unexpected dive, your entire
retirement plan could be seriously jeopardised.
You're essentially betting your future on a handful
of outcomes. And in the unpredictable world of
investing, that's a gamble you really don't want
to take. So what's the fix? Well, spreading your
bets wisely. Now, diversification isn't just
a fancy financial term. It's a fundamental recipe.
for managing risk and smoothing out your investment
journey. It means spreading your investments
across various assets, sectors and even geographical
reasons. Now, think of it like this. If one part
of your portfolio is underperforming, another
part might be thriving. Balancing things out.
Now, this approach reduces the impact of any
single investment's poor performance on your
overall portfolio. Channel members actually get
to look inside my SIP every few weeks. I open
up my SIP whenever I make a trade generally.
I show you what trades I made with my SIP and
why I made them. If that's of interest, consider
clicking that join button and becoming a member.
What does diversification look like in a SIP?
Don't just stick to stocks. Consider a mix of
equities, shares, bonds, government or corporate,
commodities like silver, gold or even real estate
through REITs or property funds. Each asset class
reacts differently to economic conditions. That
provides a natural hedge. For instance, bonds
are generally considered lower risk and can provide
a steady income stream, potentially offsetting
stock market volatility. With inequities, diversify
across various sectors instead of going all in
on technology. For example, spread your investments
across healthcare, finance, consumer goods, energy,
industrials. If the tech sector then faces a
downturn, only a proportion of your SIP will
be affected, while other sectors might be performing
well. Don't limit yourself to your home country.
Invest in different countries and regions like
the US, Europe, Asia, emerging markets. Economic
events can impact different markets in different
ways and global diversification helps protect
your portfolio from those localised downturns.
Consider a mix of growth stocks and value stocks
or even dividend paying companies. Funds and
ETFs are a fantastic tool for achieving instant
diversification across many companies and sectors
with a single investment. So take a moment right
now, assess your SIP. Pull up your laces statement.
Are you relying too heavily on a couple of investments?
If so, it's time to rebalance. It's about building
a robust portfolio that can weather market storms
and keep you on track. So that brings me to mistake
two, which is neglecting a clear investment strategy.
So the second mistake I noticed, and one I personally
wrestled with, was a lack of a clear, well -defined
investment strategy. When I first started my
SIP, I admit, I jumped into a variety of investments
without a cohesive plan. It was a bit like throwing
darts in the dark and hoping for a bullseye.
overexposure to volatile growth stocks without
a clear purpose now what was it trying to achieve
how much risk was i personally comfortable with
these were questions that i hadn't really fully
answered for myself now without a strategy you're
essentially investing blind you might chase the
latest hot stock panic selling during the dip
or simply accumulate random collection of assets
don't actually work together. This kind of reactive
investing can be really detrimental in the long
run. Now, creating a clear, adaptable investment
strategy is really essential. It doesn't have
to be overly complicated. but it needs to outline
your goals, your risk tolerance, and how you
plan to achieve them. Think of it as your SIPs
roadmap. Now here's what you should consider
when building your strategy. When do you want
to retire? How much income will you need? Now
these are questions that will inform how aggressively
or conservatively you should invest. SESC risk
tolerance means how much market fluctuation are
you personally comfortable with? How much will
keep you awake at night? Your risk tolerance
should guide your asset allocation. Generally,
younger investors with longer time horizon can
afford to take on more risk, while those closer
to retirement might prepare a more conservative
approach to protect their money. Now, for asset
allocation, this is where... the rubber meets
the road. Based on your goals and risk tolerance
decide on the proportion of your SIPP funds to
allocate to different asset classes. For example
you might go 60 % equities, 30 % bonds, 10 %
cash. Now consider the balance between growth
and income stocks and your exposure to the domestic
and international markets. Review and adjust
them regularly. Market conditions change and
your personal circumstances change as well. Your
investment strategy shouldn't be set in stone.
Regularly review the portfolio, perhaps once
a year, to ensure that it all still aligns with
your current goals and your risk tolerance and
the market outlook. Don't be afraid to rebalance
your portfolio to maintain your desired asset
allocation. We also want to protect against inflation.
So over the decades, inflation can significantly
erode purchasing power of your savings. So consider
including inflation protected securities like
index linked gilts or inflation linked bonds,
ETFs. And if your provider offers them, well,
why not take them? Ask yourself, what? are my
financial goals am i prepared for market fluctuations
do i have a plan for how i'll react to good and
bad news having a clear approach can significantly
enhance your investments and help you stay disciplined
as well so mistake three is overlooking small
costs this is the silent wealth eroder now This
is a sneaky one. It's often overlooked because
it seems so insignificant at first glance. Now,
ignoring the associated costs with your SIP,
many people don't realise how even seemingly
small fees can accumulate over time and it quietly
eats away at your hard -earned returns. You might
look at 0 .5 or even a 2 % annual fee and think,
well, that's tiny, it won't make a difference.
But it does. And that's... because of compounding
these small costs can erode your returns significantly
over the decades and we're not talking buttons
here we're talking tens if not hundreds of thousands
of pounds over the lifetime of your pension it's
like having a slow leak in your retirement boat
you might not notice it at first but eventually
you'll find your feet are very wet A recent survey
even revealed that a staggering 83 % of UK savers
don't fully understand what they're paying in
pension fees. Now that for me is a huge problem.
What's the fix for that? Well, become a fee detective.
Take the time to genuinely assess your SIP provider's
fee structure. Don't just look at the headline
figures. You need to understand all the associated
costs. And these will include your platform fees,
which are the charges from the provider for managing
your SIP accounts. These can be flat monthly
fees which often benefit larger pots or percentage
based ones which can become very costly as your
pot grows. Then there's fund management fees.
Now these are the fees charged by the funds you
invest in often ranging from say 0 .1 to 1%.
or even sometimes more per year. These are separate
from the platform fees and can be substantial.
Then there's dealing and transaction costs. Do
you pay a fee every time you buy or sell some
shares? These can add up quickly, particularly
if you're an active trader. Exits or transfer
costs. What if you decide to move your SIP to
another provider? Are there fees for that? What
about drawdown fees when you start taking an
income in retirements? Some providers charge
specific fees for managing that drawdown. The
cost drag from these fees can silently drain
your investment value. For example, a 0 .5 %
annual fee on a £100 ,000 SIP means £500 in charges
every year. Now over 20 years that... seemingly
small percentage could reduce the value of your
final pension pot by £40 ,000. Or even more,
depending on growth assumptions. And ensure that
your provider offers good value for money, not
just the lowest headline fee. And you can always
send me an email. I'll give you the latest on
what I know about what the providers are doing.
Now consider this. If you could save just a fraction
of those fees by switching providers or negotiating,
what could that mean for your retirement? Every
bit counts, especially with the power of compounding
working again. Don't ignore the details. Your
future self will thank you. Now the final mistake
four, mismanaging investment choices. This is
one that trips up many investors. It often stems
from a desire for a quick win or misunderstanding
of risk. Many investors choose stocks based solely
on high dividend yields or past performance without
truly considering the underlying risks involved.
Now, a high dividend yield might make a stock
look incredibly attractive. I mean, who doesn't
love income? What if a company's shares price
is steadily declining? You could end up with
disappointing total returns. as any income gained
is often offset by capital losses. Similarly,
past performance is never a guarantee of future
results. Chasing last year's top performer often
means buying high, only to see it potentially
cool off. Furthermore, some investments available
in a SIP require a level of expertise and risk
tolerance that many casual investors simply don't
possess. We're talking about things like... private
company shares hedge funds or direct commercial
property while these can offer high returns they
also carry significantly higher risks they can
be illiquid and they may not be suitable for
the average sip holder so what's the fix for
item four it's about being informed and taking
professional guidance so balance your portfolios
don't just chase dividends so while dividends
are great don't let them be your sole focus balance
dividend paying stocks with the growth stock
and other assets a diversified approach as we
discussed earlier is key now understand that
the total return capital plus dividends is what
truly matters understand what you're investing
in if you don't understand how an investment
works or the risks associated with it don't invest
in it It's that simple. Avoid complex investments
like private equity, venture capital, hedge funds
or illiquid commercial property unless you're
an experienced investor with a deep understanding
of these markets and a high risk tolerance. They
often come with higher fees and can be incredibly
difficult to exit if you need to. Continuously
review your SIPP portfolio to ensure it aligns
with your current risk tolerance. Also your investment
goals and market conditions. Your risk appetite
might change as you get closer to retirement.
So your investments therefore should adapt accordingly.
Potentially shifting towards lower risk assets
as you reach retirement age. And the final most
important thing here. this is huge if you're
feeling uncertain about complex investments formulating
a strategy or even just navigating the sip landscape
don't hesitate to seek professional advice a
qualified financial advisor can help you define
your goals assess your risk tolerance build a
suitable strategy and make informed choices tailored
to individual circumstances it's better to be
informed and get expert guidance than to risk
your future by making uninformed decisions. And
remember, a SIP offers you a wide range of choices,
but that freedom comes with responsibility of
making good choices. Now, I'm not a financial
advisor. If you do want to see one, make sure
they're independent. So in conclusion, take control,
secure your future. So the four costly SIP mistakes
that can destroy your retirement. One. failing
to diversify your investments, neglecting to
create a clear investment strategy, overlooking
seemingly small costs that silently erode your
wealth, and four, mismanaging your investment
choices by chasing returns or dabbling in overly
complex assets. Now, by being cutely aware of
these common traps and actively working to avoid
them, you can significantly safeguard your financial
future. A SIPP isn't just a pension, it's a powerful
tool for retirement wealth accumulation. But
only if you are proactive, informed and diligent.
Don't let your hard work go to waste. Take control
of your investments today and ensure that you
are on the right, well diversified, strategically
planned, cost efficient path to a truly secure
retirement. Well, I hope that was useful. Don't
forget the low cost index fund option. See you
on the next one.