Except that this money is now sitting idly as cash in the SIPP and we need to get it working hard generating more tax-free returns. So what to invest it in now?
We are looking for income and as this is a long-term investment (SIPPs, like most pensions, can only be accessed at 55), we can absorb some some short-term fluctuations in value. The total value available (£3,600) is around the size of my minimum normal lump-sum investment and is large enough for most securities, apart from some corporate bonds that require larger minimum lump sums.
Looking through the rest of the portfolio, the highest yields currently available are with fixed-interest securities:
- The 2018 6.5% Enterprise Inns corporate bond is offering over 10% redemption yield, which is unbeatable - the risks inherent in this security are discussed in a previous post. It is worth noting that the price has increased since my original purchase, indicating that the market perceives an improvement in the risk profile
- The Santander 10 3/8% preference share is yielding over 9%; again a bit of a gamble on the Spanish economy and financial system - again the price has risen a little in recent weeks
- Barclays Bank 7.125% perpetual corporate bond has a redemption yield of over 9% - there is a parallel 6.875% perpetual bond with the same yield. How risky is Barclays?
Dividend shares also offer good returns, although some of those in the portfolio with the highest returns do not have a good current forecast position. Of the more 'robust' shares can be identified:
- RSA Group has a forecast dividend yield of 8.8%
- First Group offer a forecast dividend yield of 8.3%
- Several shares have forecast dividend yields of over 6%
However, diversification is important - in this case across the whole of our portfolio (and not just the SIPP, which is relatively small). Although this sum is usually around the size of my minimum investment, the answer in this case may be to consider two smaller lots - although it incurs larger dealing costs, it will reduce the impact of a failure on the SIPP.
Before deciding, I will take a few days to scan the market for any new opportunities.
And if you have any suggestions - please let me know!
I am not a financial advisor and the information provided does not constitute financial advice. You should always do your own research on top of what you learn here to ensure that it's right for your specific circumstances.