SIPP offer potential but not without risks
I have seen the rise (and rise) of SIPP pension compliant investments especially since ‘A-Day' back in 2004.
The SIPP or self Invested personal pension is a fabulous vehicle in which you can personally control your tax-free pension investments.
Basically, as long as the investment meets certain criteria you are able to invest your money. It's unlike a normal pension where a large pension provider will manage your money and the investments on your behalf and effectively steal most of the returns through their intricate systems of fees and charges. Anyway don't get me started on that topic.
The trouble with SIPPs is that the investment decisions are in your hands and that means that you have to take full responsibility for them. While it should be noted that SIPP investors would normally be considered sophisticated and high net worth, this may not always be true when you consider the full array of investment opportunities possible.
I've seen opportunities as far and wide as clean energy, oil research, tea trees, Australian farmland, Caribbean holiday lets, wind farms, carbon credits, hotel rooms as well as the usual commercial property and industrial property.
My reason for writing this article is just to sound a warning alarm. Far too many investors with SIPPs are investing without understanding the investment they are getting into. Even worse they aren't doing their full investment research or due dilligence.
Almost out of frustration at the low returns offered by traditional share-based investments they are turning to all manner of alternatives, investment they really know nothing about in industries that are totally unproven by start-up companies with very few real assets.
Comments like ‘global warming', ‘ethical investment', ‘up and coming technology', ‘ground floor opportunity' as well as other usual ones like ‘beach front', ‘new area', ‘regeneration' DO NOT mean the investment is worthwhile or viable.
Just because the glossy brochure says “it's SIPP compliant” doesn't mean it is safe and certainly doesn't guarantee you a return. In fact many scams are designed around people investing their SIPP money, as many times these sharks cannot get normal bank financing so they turn to securing your SIPP money.
It's my belief that unless you are going to become a professional investor in this specific strategy and learn all the upsides and downsides then stay away from it.
Quick story – I had a Matheus sit down with me a few months ago, he had a large private pension (around £350,000) which he'd converted into a SIPP, not really ever having been an investor or having to manage the rather large pot of money before, he decided that he'd diversify across a number of investments.
Some of the investments were listed above and in the space of 4 years he'd turned his £350,000 pot which took 20 years to grow into just over £200,000. In the worst case he'd invested in Australian farmland and turned out the company didn't own the land, their marketing programme was huge (and expensive) and it all came crashing down.
This illustrates how easy a few bad decisions can cost what took ages to build up.
So if you're going to change over from a private pension to a SIPP or if you already have a SIPP remember that the rules apply in the same way as every other investment. Just because its money you don't normally see as yours (well until you retire) doesn't mean the rules of investing change.
If you're not 100% on the rules of investing why not let the team teach you from the coalface, we cannot help you invest your SIPP monies but we can help you avoid loosing it. Call the team on +44 (0)207 923 6100.
Live with passion,
Best selling author, The 3+1 Plan: The Insider's Way to Financial Freedom with Just 4 Properties