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My UK pension company allows me to make one-off online payments, and surprisingly I found out I can invest the money in any way I want. My options are as follows:

  1. International
  2. All Share Tracker
  3. Balanced Growth
  4. Cash
  5. Consensus
  6. Environmental
  7. European
  8. Fixed Int Tracker
  9. International Equity Tracker
  10. Mixed
  11. SafetyPlus
  12. Pension Protector
  13. Stockmarket Growth
  14. Strategic Growth

I can assign percentages of my one off payment to the above categories so long as the total is 100%. I realise my question is a bit of a tall order, but can anyone shed light on each of these, i.e. how money is invested, the pros/cons, do's/dont's, etc.?

Or else if this is too much to ask, my main interest for now is between Stockmarket Growth and Strategic Growth. What are the differences between these two, and what are the risks involved? Thank you.

  • 1
    Holy cow, that is going to be a very very long answer. – DumbCoder Feb 25 '15 at 12:07
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    The financial industry have done very well to get us to a point where we're surprised at being allowed to choose how our money is invested! But seriously - if you're just asked to choose between faceless categories with those names - I urge you to ask about what charges you'll be paying... – AakashM Feb 25 '15 at 15:28
  • I think it will be difficult to answer this question in a specific way, since I can't tell what those names mean. Are they names for mutual funds offered by a specific company? There are some general notions to be learned about, say, stocks vs. bonds, or emerging vs developed markets, but it shouldn't be surprising that terms like "Mixed" won't have any specific meaning in and of themselves. – BrenBarn Feb 25 '15 at 18:12
  • @pbs - How old are you? – EkoostikMartin Feb 25 '15 at 18:55
5

Taking examples from this loosely Googled page:

http://www.fundlibrary.com/features/columns/page.asp?id=14406

If you find, or calculate, the standard deviation (volatility) of the returns from your various investment classes you will find they range from low-risk (low volatility), such as Cash, to high-risk (high volatility), such as Strategic Growth.

enter image description here

The risk rating (volatility) is a good indicator of how reactive to market conditions your investment is likely to be. As you can see below, from mid-2010 to mid-2011 the High Risk index performed really well, but it was also most reactive when the market subsequently turned down.

enter image description here

The medium risk indices performed the best over the chart period, 2010 to 2013, but it could have turned out different. Generally, you choose your investment according to your "risk appetite" - how much you're willing to risk. You might play safe with, say, 30% cash, 60% medium risk, 10% high risk. (Then again, are you paying someone to manage cash, which you might be able to do for free in a bank?)

Assuming, for a moment, European (3.) and Intnl Equity Tracker (9.) had the same medium risk profile, then holding 50% & 50% would also add some currency diversification, which is usually advisable. However, the main choice is down to risk appetite.

To address your specific question: "my main interest for now is between Stockmarket Growth and Strategic Growth", first thing to do is check their volatilities.

For a further level of sophistication you can check how they are correlated against each other. If they are inversely correlated, i.e. one goes up when the other goes down, then holding some of each could be a good diversification. FYI: An Introduction to Investment Theory

The historical returns are important too, but the investment classes your pension fund is offering will probably be reasonably aligned on a risk-return basis. You should check though. I.e. do they line up on a plot of 3 year Return vs Volatility? e.g. the line through SA Cash - SA Bonds - Vol Target 20 - SA Equity.

enter image description here

Source

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