Nobody has a crystal ball
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Clients and, indeed, potential clients, often ask us about our investment strategy. It’s quite a tricky thing to outline, because every client is different and, at the end of the day, nobody has a crystal ball which predicts the direction of the worldwide economy. We wish we did.
However, while there are many things which we will take into account when making investments on your behalf, the key is that any investments we get involved with must be regulated. We’ve written about stories in the press recently when people have been tempted into investing in unregulated investments, such as ‘truffle trees’ and have seen their investments disappear… As Chartered Financial Planners, we must demonstrate that we have completed research into every investment we make on your behalf.
We also believe in the not putting ‘all your eggs in one basket’ strategy and would probably suggest that you diversify your assets.
So, more simply, exactly how much is invested in each asset class, i.e. equities and fixed interest and market sector depends on the current economic outlook, your target return, the likely investment term and your appetite for, and tolerance of, volatility. We also generally advise that a pension investment strategy in the years leading up to retirement should reflect the basis upon which benefits are likely to be drawn in retirement.
Your age will also affect how risk adverse you might be. Pension plans are different to other investment products because you cannot access your funds until age 55 at the earliest and you will probably not need to draw any funds until you reduce your working hours or stop working completely. In our view, this means you can probably be less concerned with volatility while you are six or so years away from retirement.
About five years before you believe that you might need to access your pension arrangements you should consider how you are going to draw your benefits.
If you expect to purchase an annuity with some of your pension funds it's sensible to reduce the exposure to investment risk as you approach retirement, to provide some certainty as to the emerging level of benefits.
If it's more likely that you will draw benefits directly from the pension fund i.e. flexi-access drawdown, then the pension fund will remain invested. The continuing arrangement would then require regular monitoring and investment reviews.
It is vital that we understand your objectives and requirements before providing guidance on the options which are available, and suitable, for your circumstances.
Added to that, some of our clients have personal preferences and, where we can, we will take these into account. Some investors may prefer not to invest in companies active in the armaments, alcohol or tobacco industries, in which case a ‘socially responsible’ fund may be appropriate. Alternatively, some investors might prefer to avoid companies that may cause harm to the environment.
Finally, it’s worth pointing out that the perfect portfolio does not exist and it is impossible to predict which asset types, sectors or funds will produce the highest or lowest returns in the future.
To find out more about how we can make investments on your behalf which suit your particular needs, call us on tel: 01892 500 600.