What’s the best kind of stock market investment for a self-invested personal pension (SIPP)?
Investing is always going to be a long-term thing for me, so I buy stocks I’m happy to hold for at least 10 years.
But for a SIPP, that’s even more important, right? The clue is in the name. It’s hard to think of a longer lifetime investment than a pension. And I think there’s one class of investment that could be perfect for the job — investment trusts.
City of London
I bought some City of London Investment Trust (LSE: CTY) shares some time ago. It’s one of the ‘Dividend Heroes’ picked by the Association of Investment Companies, which has raised its dividends for at least 20 years in a row. City of London tops the list with a 57-year record.
The trust targets UK equity income, and it’s currently on a dividend yield of 5.2%.
It holds stocks such as Shell, BAE Systems and Unilever. It’s basically a collection of what I consider the FTSE 100‘s safest stocks.
With such a track record, there’s a risk the share price could plunge should the dividend increase not happen one year. And investment trust share prices can be more volatile than the stocks it holds.
Still, City analysts expect FTSE 100 dividends to rise this year, and to set a new all-time record in 2024.
Adding a bit of global diversification can’t be a bad thing. So my next suggestion is Bankers Investment Trust (LSE: BNKR), which aims for a mix of capital growth and dividend income from some of the world’s biggest companies.
Microsoft and Apple are its current top two holdings. But it also has JPMorgan Chase, UnitedHealth Group and Toyota Motor Corp in its top 10. There’s a lot of global powerhouse going on there.
There’s some tech stock risk, which I think could be the biggest danger. Investment trusts can lurch between trading at a premium and at a discount, which can mean volatility.
Still, it does hold second place among those Dividend Heroes, with 56 years of straight raises. The yield is a fairly modest 2.5%, but capital gains should be better.
I don’t hold any bankers shares in my SIPP yet, but it’s on my wanted list.
I’ll finish with Scottish Mortgage Investment Trust (LSE: SMT). I pick this one because I reckon a fair number of SIPP investors will surely want to grab a part of world technology growth.
It would be a shame to reach pension age and have let the likes of ASML, Moderna, Nvidia and Tesla pass me by. Those are the trust’s top four holdings.
I think the risk here’s clear. All we need to do is look at the way the US Nasdaq index slumped in 2022. Nasdaq stocks can be very volatile.
But I see Scottish Mortgage as a way to put a small portion of my SIPP money into them, and be able to switch off and forget.
Right now, it trades at an 18.5% discount. And it’s even raised its dividend for 41 years in a row — albeit with a tiny 0.6% yield.