6 Vital Questions You Should Ask About Any SIPP Or SSAS Investment BEFORE You Part With Your Money
Which SIPP Or SSAS Investment: 6 Vital Questions
Question 1: Does This Particular Investment Fit With My General Strategy?
Question 2: Do You Understand Your Potential Investment Thoroughly, Or Are You Willing To Learn?
Question 3: How Much Of Your Time Does This Investment Require?
Question 4: Do Your SIPP Investments Benefit Your Non-Pension Income Or Taxes?
Question 5: Do You Have A Due Diligence Plan?
Question 6: Do I Need Advisors For Any Portion Of This Investment?
Question 3: How Much Of Your Time Does This Investment Require?
In answering this, you should consider both the time to make the decision, and the on-going time to manage your position. You should also be honest about learning more about the investment at the beginning to fill in potential gaps in your knowledge.
From this perspective, the “super” trading strategy ranks poorly for most people. Some trading strategies require looking at a screen all day. This is like another job. This may rob you of your free time or interrupt your current work. Alternatively, if you are in retirement already, or when you get to retirement, this type of strategy would rob you of your retirement. Furthermore, understanding the trading system may take years in itself, before you even get started.
Property scores average on the time front, maybe a little on the high-time-invested side. Looking for a property and renting it out seem in-line with your likely investment amount. However it is not the least time intensive. You could finance people investing in property, but you will likely earn less. This would take less time, probably. You run the additional risk of their ability (which might be better than yours) and honesty. Solar panels installed on your own roof or someone else’s whose space you rent can take less on-going management. There are also firms that know how to install and potentially how to find other partners to find space for the panels.
Anaerobic digestion (producing energy from composting waste) has better returns these days. It also has minimal on-going maintenance. However, finding a deal is harder. A typical deal requires a willing farmer to maintain and feed the site with biomass. This makes for a longer initial time commitment from you since the farmer/operator must also feel comfortable with the commitment. Installation may take months and must be timed with the planting seasons, or you might lose the first year’s production. Finally, anaerobic digestion deals are usually larger, requiring most people to team up for a deal. Finding other investors to partner with may take time.
Another type of investment that I see around London is shops, cleaners or other such businesses. To run such a business might require you to be on site for any number of reasons. If you work there 8 hours a day, is it a good investment? To me this seems more like a job for which you need to pay (i.e. buy the business) to get.
A good rule of thumb is to consider what your time is worth. Even though you may not pay yourself a salary or hourly rate, you should calculate as if you did. Is that attractive investment, after deducting for your time, still so attractive? Of course, if the time is minimal, you may not need to go to the trouble with this calculation, but if your time commitment seems significant, this may be the most important aspect of the investment.
It is tempting to let the time commitment, or the lack of it, guide your decision too much. A technology start-up might seem attractive because you just give the money and they do all the rest. There is no real time commitment. Perhaps whoever is presenting the process has already done all of the analysis for you and all you need to do is pay. Well, this is probably too little work. You probably do not understand the risks and the investment sufficiently to wisely decide.
There is no general rule of thumb regarding time commitment and there is no final answer. You must develop your own opinion about your time commitment. There is nothing wrong with needing a low time commitment strategy. You may need to give up other aspects, such as yield or flexibility of the investment. On the other end of the spectrum, there is nothing wrong with committing considerable time to these projects, especially if you enjoy the process. Some property investors, for example, seem to love looking at new properties, negotiating deals, refurbishing and the entire process.
The only thing I would advise is to be honest. The worst situation is getting into an investment that requires a certain amount of time commitment from you but you only spend a fraction of that. Overestimating your ability or willingness to commit the required time will lead to either an idle portfolio, or one where there is a lot of risks due to lack of care in selecting and/or managing the investment.
About Dr Matt Modisett
With more than 25 years’ experience, Dr Matt Modisett PhD FIA ASA MMA has spent his career in investments and insurance. He's worked in the USA, Japan, The Netherlands, Spain, Belgium, Hungary, Australia, and the UK. He was formerly a Chief Investment Officer for an insurer, Asset-Liability Manager for three insurers, and has consulted for many years, all for top tier institutions. He has served as Professor of Actuarial Science and also as Professor of Finance.
He holds a PhD in Mathematics, is a Fellow of both the UK Institute and Faculty of Actuaries and the Hungarian Society of Actuaries, and is also an Associate of the USA Society of Actuaries. He has numerous publications to his credit.
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