A Self-Invested Personal Pension (SIPP) and a Stocks and Shares ISA are the two most common UK investment wrappers. While they can both hold a mix of shares, commodities and bonds, they work very differently. So the best approach is not the same for each one.

A SIPP is usually the better home for long-term money because you get tax relief on contributions, but the trade-off is that the cash is locked away until pension age.

An ISA is more flexible because you can withdraw money at any time, and any growth is tax-free. 

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

In practice, many investors use both: the SIPP for retirement first, and the ISA for nearer-term goals and easy access. But when taking this approach, make sure not to fall foul to the following mishaps.

Common mistakes

First-time SIPP investors often make the same errors. They chase hot stocks, forget that pension money has a long time horizon, or build a portfolio that is too risky for a ‘set-and-forget’ account.

That matters because a SIPP is not the place for constant tinkering. The aim is to own investments that can keep compounding over years.

Some errors new SIPP investors make:

• Putting too much into one share or sector.
• Ignoring dividends and cash flow.
• Failing to identify resilient businesses.
• Underestimating their investment timeframe.

What you actually want to focus on:

• Stocks with dependable demand.
• Solid balance sheets.
• A long track record of paying dividends.
• Low volatility during all market conditions.

Shares with these characteristics are typically referred to as defensive. But how do we identify them?

Stock-picking

The FTSE 100 has plenty of familiar defensive names in sectors including utilities, healthcare and consumer staples.

Some of my favourites include:

• Tesco
• AstraZeneca
• Reckitt Benckiser
• National Grid
• Unilever

But to get a better idea of how to identify defensiveness, I’ll use a lesser-known example: AEP Plantations (LSE: AEP).

This mid-cap palm-oil plantation business operates in Indonesia and Malaysia, so it sits outside the usual UK defensive sectors, which makes it a bit more interesting.

On the numbers, it looks sturdy. The company has a market-cap of about £684m, a share price of £17.80, and the shares are up 176.4% over five years. It also offers a dividend yield of 3.7%, has a 34-year unbroken dividend track record, and its cash flow covers dividends 3.6 times.

Just as important, it has a spotless balance sheet, with almost no debt and minimal liabilities. It basically ticks all the defensive boxes.

So what’s the catch?

Defensive or not, every stock carries risks. Palm-oil prices can be volatile, weather can affect output, and plantation businesses are exposed to commodity swings and regulation.

So while long-term profit and dividend growth prospects are encouraging, it’s not a 100% pure defensive share. Investors should rather treat it as a cyclical business with defensive qualities.

For a SIPP, that kind of business can work well if you want income, resilience and a little more interest than a plain defensive stock.

As such, I think AEP Plantations is worth considering because it combines a strong dividend record, low debt and long-term share price momentum with a business model that’s easy to understand.