The best ways to trade for your pension by Darren Winters

Trading and investing your own pension pot is becoming ever more popular as more people open their own Self Invested Personal Pensions (SIPPs). Before I go any further, I would suggest that you don’t start trading your own pension fund until you feel competent enough to do so.

I remember Derek, the 72 year old who traded his own pension fund from£90,000 up to about £300,000 a few years ago, needless to say, he was happy with what he had achieved. But what should we look to do first of all and what is the best way to maximize our potential?

As a first port of call, ensure you’re using your yearly ISA allowance before you start with a pension. You can invest £7,000 a year into an equity ISA and many providers give you the opportunity to either invest into a wide range of investment trusts, OEICs, individual shares or cash.

If you’re already using your yearly ISA allowance and have a pot of money to put into a pension, then opening a SIPP account is the next step for you. Realistically, you need at least £10,000 to invest into a SIPP as this gives you enough money to negate any dealing expenses you incur and annual charges to still make it worth while.

So what are the benefits of a SIPP? Well a traditional personal or stakeholder pension often just gives you a choice of its own company’s funds or a limited number of funds offered by other fund managers. A SIPP lets you choose from a wide range of funds and other investments. A SIPP is merely a wrapper that provides the tax advantages and legalities for your collection of investments at retirement. You can switch between a large number of funds (typically at least 1000) and permitted investment types.

With a SIPP, you can invest in the following vehicles;

1.
Shares traded on the London Stock Exchange (including AIM); the Dow 30; Nasdaq 100; S&P 500; European top 300.
2.
Investment trusts
3.
Unit trusts (at least 1000)
4.
Covered warrants (such as the Soc
Gen commodity ones we have mentioned in the weekly updates recently)
5.
Commercial property
6.
CFD’s
You really do have a lot of flexibility with what you can place your money into within a SIPP wrapper. The charges are quite competitive too; I spoke to Hargreaves Lansdown who have one of the most competitive SIPPs in the market. They have no set up fee or transfer in fee and no processing fee. They have no dealing fees on unit trusts or OEICs and have large discounts off top performing
funds of up to 5.5%. To trade in and out of individual shares, they charge £9.95 which is also competitive.

The only disadvantage with Hargreaves Lansdown is that they do not currently allow you to trade CFD’s within their SIPP.

However, Killik & Co, one of London’s largest stock brokers will allow CFD’s to be traded within their SIPP plus they have another nice advantage; you can invest into Initial Public offerings (IPO’s) within their SIPP and their stock brokers can keep clients informed of new IPO’s that might be of interest. Their charges are slightly higher than Hargreaves but for larger investors, their service and advice might just have the edge.

Overall, ISA’s will offer more flexibility at retirement as you are free to do whatever you like with your money. It’s therefore essential you and your spouse are using your ISA allowance each year before establishing a SIPP. However if you have a fund you wish to trade, look up the two brokers I have written about.

Remember to correctly asset allocate your fund and take advice on this from these stock brokers if needs be. If you want to trade CFD’s in order to gain the leverage with each stock trade, remember you need to be considered an intermediate investor and have a sufficient funds in order to do this.

You can still trade outside of a SIPP for your pension but once you have used your ISA allowance, this offers the next best tax efficient way to do so.

Regards

Darren Winters
For more information please go to the following websites;

www.wininvesting.com and www.wininvestingnews.com