How interactive investor's SIPP millionaires invest

Ever wondered how and where SIPP millionaires invest to keep their money growing? We reveal their favourite investments and how to build a decent nest egg.

interactive investor is launching a cashback offer of up to £4,000 on qualifying SIPP transfers made between 4 November 2019 to 3 January 2020.

The last time interactive investor ran this offer, over the summer, qualifying customers received an average of £389 cashback.

Have you ever wondered how and where SIPP millionaires invest to keep their money growing?

Some 2.5% of SIPP accounts with interactive investor, the UK's second largest investment platform, hold £1 million or more in assets. The average age of a SIPP millionaire is 61 and the typical seven-figured portfolio is powered by funds, with over a third (35%) invested in the asset, 29% is in investment trusts, 15% in equities, 13% in cash and 8% in exchange traded products.

When it comes to the most popular funds among SIPP millionaires, Fundsmith Equity comes out on top, ahead of Lindsell Train Global Equity. The remaining funds on the top five selling list are from Vanguard, including one from the popular LifeStrategy range.

The usual suspects also populate the list of bestselling investment trusts. Scottish Mortgage (LSE:SMT) ranks number one, ahead of Alliance Trust (LSE:ATST) and RIT Capital Partners (LSE:RCP). Finsbury Growth & Income (LSE:FGT) and Murray International (LSE:MYI) complete the top five. 

Stocks that pay a dividend are generally most popular with SIPP millionaires, with Royal Dutch Shell (LSE:RDSB) on top ahead of Lloyds Banking Group (LSE:LLOY) and GlaxoSmithKline (LSE:GSK) in second and third positions respectively.

Meanwhile, iShares Core FTSE 100 UCITS (LSE:ISF) is the most sought after exchanged-traded product, ahead of two physical gold funds – one is managed by BlackRock via its iShares brand and the other is run by WisdomTree.

Although pension savings are meant for the long term, interactive investor's SIPP millionaires display an appetite to tweaking their portfolio to accommodate a potential opportunity. Of the 82% who invested in the previous 12 months, 45% do so at least once a month and 23% at least twice a month on average.

The most popular funds, investment trusts and ETPs among interactive investor's SIPP millionaires

Moira O'Neill, Head of Personal Finance, interactive investor, said: "Our most successful customers enjoy investing and looking after their portfolio, so will buy and sell investments when they spot an opportunity. What unites them is diversification, spreading their investments across different assets, markets and sectors to ensure that all their eggs are not in one basket. The importance of diversification is true to every saver - whether or not you have a seven-figured pension pot.

"The most important thing is to make sure you are comfortable with you level of risk. You can also increase the potential upside by considering more adventurous assets for your portfolio, but too much risk can wreck your portfolio. So, a realistic strategy is important.

"SIPP millionaires should beware of exceeding the lifetime pension limit, currently at £1,055,000 which applies to the total of all the private pension."

The Lifetime Limit

Moira O'Neill continues: "While the prospect of becoming a SIPP millionaire is a lovely one, the one big danger with saving more than a million pounds in your pension is that you could potentially breach the lifetime allowance - and punitive tax applies if you do. Some of our SIPP millionaires were able to take advantage of pension protections that were available in the past, so have higher lifetime limits. For those investors who don't have the same luxury now, you need to be mindful of how much to put into your pension and whether other tax advantageous options, such as VCTs or ISAs, might be a good alternative."

Whether a seven-figure pension pot is elusive or not, Myron Jobson, Personal Finance Campaigner, interactive investor, offers some tips on how to help build a decent pension pot.

Start early

The longer you have money in investments, the longer it has to ride out the inevitable bumps in the stock market. The magic of compounding means that your pension can grow further and faster – in particular if you keep one eye on your annual costs.  Given time, this can grow to a substantial amount which can go a long way to help bankroll life at retirement.

Take enough risk

Time and risk are key investment considerations, but time in the market should influence the amount of investment risk you take on. History shows that you can also increase the potential upside by considering more adventurous assets for your portfolio – although it is a strategy that comes with increased risk. When investors were forced to buy an annuity, you needed to be more careful about how you approached your retirement date. Now, most investors have far more time on their side and could be investing for 30 years in retirement, significantly increasing the amount of time you have to invest and potentially the risk you could take. 

Claim tax perks

Pension contributions are boosted in the form of tax relief. This is particularly true if you are a higher-rate taxpayer. The taxman offers a basic tax relied of 20% on pension contributions, adding £20 on top of contributions of £80.

The taxpayer can then claim a further £20 of higher-rate relief through their tax returns, turning a £60 pension contribution into £100 after the tax relief has been take into account. Millions are lost each year because investors don't claim the tax back they are due – so higher rate taxpayers need to take note. 

Maximise employer contributions

Be sure to maximise how much free pension cash might be available to you. Many employers will pay a significant amount into your pension which could make a huge difference to your pension. 

For example:

If you pay £5,000 into your pension and receive 40% tax relief, the cost to you is £3,000.

If your employer matches your contribution, then you get another £5,000.

So, you now have an extra £10,000 in your pension which has only cost you £3,000.

Even if you are in a company which is part of an auto-enrolment scheme and may not be as generous, it is still worth your while being a member.  

The auto enrolment minimum is currently 8% of qualifying earnings of which at least 3% must be paid by the employer, 4% by the employee and 1% is available in government tax relief. However, your employer may offer additional ways to improve the amount you can save, including salary sacrifice pension arrangements where pension contributions are made in lieu of salary. It is worth revisiting your employer's benefits package to gauge your pension entitlements.

interactive investor SIPP cashback offer

interactive investor is launching a SIPP cashback offer of up to £4,000 on qualifying SIPP transfers made between 4 November 2019 to 3 January 2020. For more information, visit the interactive investor website.