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I like the fact that investing in a SIPP allows for a long-term perspective. As a long-term investor, that ties in perfectly with my own worldview.
When choosing stocks to buy for my SIPP, here are a trio of things I usually take into account.
Discontinuous changes in customer demand.
From one year to the next it is relatively easy to try to forecast the demand for a given industry or company. Yes, there can be external shocks. But in general I think that this estimation is usually not too difficult.
Fast forward a decade, let alone two or three, and things can become a lot less clear. Many of the largest companies in the world today did not even exist three decades ago or were small.
Given the long-term nature of a SIPP, I weigh up those potential changes in demand when analyzing the investment case for a stock. This could be because it operates in a market that I expect to see benefit from the explosion in demand, or one that I think could collapse.
Always stay balanced
A company that existed three decades ago is Apple (NASDAQ:AAPL).
Shows why I believe in long-term investing. If I had invested in Apple three decades ago, in 1994, my investment now would be worth it. more than 77,000% more, even ignoring the dividends it would have received along the way.
Is it because Apple was unknown then?
No.
The second highest grossing film worldwide in 1994 was Forrest Gumpin which the main character marvels at the incredible returns he received thanks to having money invested in… Apple.
Talk about hiding in plain sight!
But the problem with such incredible success (and frankly, it's a problem I'd love to have to wrestle with for my own SIPP) is how to stay diversified.
Warren Buffett started buying Apple shares less than a decade ago, but the phone and computer maker's success and rising share price means it has come to take up a huge portion of his portfolio.
That's bad for diversification.
All actions carry risks. Apple has had runaway success, but faces risks including a potential tariff war as well as antitrust concerns over dominance of its app store. In the long term, staying diversified may mean cutting the role of winners in one's portfolio.
The power of capitalization
When buying dividend stocks for my SIPP, I take into account their long-term price prospects, but also what I expect to happen to the dividends.
After all, big dividends can generate enormous long-term wealth accumulation when combined. In my opinion, a SIPP that does not allow me to withdraw money for a set period of time anyway is an ideal vehicle for compounding.
If I invest £1,000 today and compound it at, say, 8% a year, after 30 years I will have increased the value of my investment. more than ten times.
