Investment Strategies And Age

Many people with pension plans think the job is done once they have made their contributions. They are oblivious to how and where the money is invested. In most UK schemes, investors are normally guided towards what is known as the default investment fund; an insurance company’s managed fund with mixed, but generally poor, performance.

A fund is a collective investment scheme whereby unit holder’s money is split across a portfolio of underlying investments, usually stocks (equities) and bonds (debts). The fund manager may actively manage the amount of money allocated to the different underlying investments using their expertise to cash-in on growth opportunities or to avoid risk. Or they may manage the fund passively, whereby the allocations are weighted in order to try to follow benchmark portfolio, such as the FTSE 100 index or the price of gold, for example. Passive funds are normally cheaper than actively managed investments.

To avoid having all your eggs in one basket, it is sensible to hold a diversified portfolio, spread across different assets ‐ stocks, corporate bonds and government bonds, property, alternative investments such as commodities and cash. It is also wise to spread these investments across different geographical areas and sectors.

A managed fund purports to do this, but it is rare that one company is good in all investment areas all of the time. A QROPS or SIPP allows you to pick a portfolio of specialist fund managers, each with demonstrable ability in their chosen area, or delegate the investment choices to a regulated discretionary manager, who will design a portfolio to fit your unique circumstances and objectives.

• Before retirement

  If you have ten years or more to go until you retirement, equity‐based (stocks) funds would generally form the bulk of your portfolio. An international investor would usually have exposure to UK, American, European, Japanese, Asian and Emerging Markets equities in their portfolio. Exposure to fixed interest and commercial property funds could also be considered.
  
  As you near retirement volatility becomes a greater risk. Therefore, around as a rule of thumb, at around ten years before you retire, it is prudent to start ring-fencing the gains you have made on your portfolio by increasing your exposure to fixed interest investments, such as corporate and government bonds, money market funds and cash and gradually moving fully into cash and fixed interest once you are close to retirement. This will help to shelter your retirement funds against sudden falls in the stock markets.
  
  In a QROPS or SIPP you are able to select a portfolio of investments that match your circumstances, the risk you are prepared to accept and various views on the market at the time you are investing. It is important to review your investments regularly with your financial advisor or discretionary manager to ensure your investment portfolio is still aligned with your circumstances and objectives over time.




At retirement

• At and after retirement, it is normal to have a portfolio that is built to provide returns through income rather than growth. A portfolio of corporate and government bonds, money market funds and cash than investments can do this. If you still want exposure to stocks, we believe a good place to start is with equity income funds and or direct holdings of stocks that pay steady streams of cash dividends. These investments will allow you take benefits from your QROPS of SIPP by way of the income drawdown arrangement.
  
  In a QROPS or SIPP you are able to select a portfolio of investments that match your circumstances, the risk you are prepared to accept and various views on the market at the time you are investing. It is important to review your investments regularly with your financial advisor or discretionary manager to ensure your investment portfolio is still aligned with your circumstances and objectives over time.

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