A strategy that would offer our invested capital the best chance of growing significantly over time
	The potential financial returns must have an excellent chance of beating the professional fund managers, otherwise why bother?
	The strategy must be simple to understand, implement, and run as an ongoing basis

Were These The Wrong Questions?

A great investor I know once told me that the stock answer to a question he was often asked 'how did you become such a great trader' was 'because I always screw my head on backwards'.

What he meant is that he always approaches the market from a different angle, one which the majority of investors and traders never even consider. Although his answer is somewhat ambiguous it does in fact make a lot of sense if you think about it. The trouble is when I applied this way of thinking to my problem I soon realised that I was probably asking all the wrong questions.

So what then are the right questions for a SIPP investor to ask? Well, all the questions listed above relate to 'making money', where best to invest, what to invest in etc. Let's therefore screw our head on backwards and start asking questions related to 'saving money when investing'.

If you do this you'll find that a SIPP account can actually be split into two distinct parts -

1. Offensive - what investments we hold and how much they make or lose, and

2. Defensive - How much it costs to both buy and sell those investments, plus far more importantly, their yearly running costs

An interesting equation now starts to appear. Think of it like this, if a company making widgets wants to make more money how can it achieve this goal? The simple answer is 'to sell more widgets' but although easy to say it's often hard to put into practice because you cannot force your clients to buy more of your product.

But there is another way to increase profits, it's far more subtle, a lot easier and we're in full control - reduce costs.

If any business can reduce costs by 5% the chances are that it is pure profit even with the same sales volume. In fact, I would suggest that by reducing costs it's sometimes even possible to increase profits even when your sales drop. The beautiful thing about this way of thinking is that most investors can start to reduce their costs very easily. This is because so many of their investments are expensive and run on a yearly basis. The average charge for an investment fund is now a very steep 1.75% per annum.

How To Easily Turbo Charge Your SIPP Returns

This defensive thought process, a whole new way of approaching my SIPP, was starting to get me excited and even more so when I fired up an Excel spreadsheet, typed in some sample data and saw the results. Put simply I was amazed, and so will you be when you see the following example -

• Take two investment funds, Fund A and Fund B
• Both invest in the same stocks in the same quantities and return exactly 8% every year
• Fund A has running costs of 2.5% a year
• Fund B has running costs of 0.5% a year
• Both funds start with £10,000 and no money is withdrawn over the 20 year period

If you're not shocked by these figures then you should be because Fund B which saves just 2% a year in fees returns around 45% more over a 20 year period versus Fund A.

Do Your Actual Investments Matter That Much?

What is really interesting from these results is that the 45% difference in profits between Fund A and B is purely down to charges and not because Fund B invested in better performing stocks (both funds had exactly the same holdings). This therefore proves what many retail investors never even consider, I certainly didn't until I ran the numbers:

Fees and charges levied on investments are probably the most dominant factor when determining long term returns, and hence the retirement income you'll receive

I now firmly believe that for SIPP investors the investments we hold are nowhere near as important as we think - as long as we make sure they don't underperform the markets. It's a bold claim I know and one that is at odds against current wisdom, but I have spent the last year researching this topic in great detail. I have run many different calculations and the answer has always been that a significant proportion of your overall SIPP gains will come from the work you do on reducing costs rather than always trying to pick the best investments (which may or may not perform).

Or to put it another way, if you don't control your costs and try to slash them at every opportunity your actual monthly income when retired will be greatly reduced.

This means that SIPP investors do not have to fret and worry too much about where to invest, how much, in what stocks or funds etc. All they must do is to construct a sensibly weighted portfolio of different investments (stocks, bonds, cash and property funds) and make sure that they keep track of the markets, ie they never have the potential to grossly underperform.

If you do this and slash costs, over time it will be almost impossible not to beat at least 90% of the professional money managers. And again, it's got nothing to do with you picking better stocks or investments than the professionals (offensive thinking) - it's all because your SIPP will be managed first from a bullet proof defensive angle.

Incidentally, some readers might be thinking that it's impossible to run a portfolio of investments for just 0.5% per annum but because of the online internet revolution providing cheaper access to the markets plus with the help of new financial products, believe me it's very possible.

Summary

I have written a book entitled 'How To Manage A Successful SIPP - And Beat The Professional Money Managers'. The investment strategy contained in the book ticks all the right boxes -

Investing my way means that the majority of your pension money will be used to invest in the markets, rather than the professionals continuing to inflict long term damage on your portfolio and future retirement income by taking their hefty cuts each year.

15 Chapters (155 pages) - View the table of contents Step by step investment approach fully backed up by detailed research Learn how to build the perfect mix of investments for your SIPP portfolio based not only on your current age but also how to change the ratio of investments as you grow older

Wishing you all the best investment success,

Alexander Green

P.S. If you have any questions or need assistance please don't hesitate to email me.