Living in the UK we know that some days the sun will shine and others it will be cold and wet. And while we may not necessarily like going out in the bad weather, the dog still needs walking, the kids still need to go to school and we still need to go to the shops for food, so sometimes we just need to wrap up and brave the elements.
This is very similar to your pensions and investments. We all invest to make money, we know that markets will fluctuate, and we all understand that when markets are down it is not a good time to withdraw from your plans. However, for clients who rely on the pension and investment to provide them with income each month, it’s simply unavoidable. This can be a real concern for clients when markets go through volatile periods like they have done recently. This can lead to “behavioural investing” where clients panic and want to make knee-jerk reactions and changes on the back of short-term market volatility.
The impact of withdrawing at a time where investment returns and values are down is called “sequence risk”. I’ve also heard it referred to as “reverse pound cost averaging” or as I like to call it pound cost ravaging, as over time it can have an adverse impact on how long your funds will last.
So how does Wren Sterling protect your funds against the financial elements?
Well, there are a number of things that we do:
- We always recommend that you retain access to adequate cash savings for your short to medium term plans PLUS an amount for emergencies on top. While these funds will not grow much, it is more important that they are accessible.
- At the outset and on an ongoing basis we revisit your attitude to risk and capacity for loss to ensure that you continue to invest at the correct risk level for you and make changes if necessary i.e. if you have major changes to your circumstances.
- We can run regular cashflow forecast reports which can factor in anticipated investment returns, inflation and ad hoc future withdrawals to demonstrate the long-term sustainability of your funds.
- We select a competitive provider/platform that we feel meets your needs and investment preferences.
- We conduct research to ensure that you are invested in a well-diversified portfolio and we discuss and agree which investment management style you prefer.
- We take into consideration the impact that ongoing costs and fees can have on your funds.
- We will retain an element of the pension/investment funds in cash to ensure that the income stream can be paid from this and therefore allowing the rest of your funds to continue to be invested for greater growth potential.
- We have regular reviews to update you on your plans and discuss any changes to your personal/financial circumstances and also keep you up to date with any changes to markets and legislation that might affect your plans.
Finances can be complicated and tricky to deal with, that’s why clients use financial advisers as a reliable resource to help them plan for their lifetime and beyond. “There’s no such thing as bad weather, only wrong clothes.”