Personal Pensions & SIPPs: Managing Your Money

 

So it’s fair to say that fixed income products are providing low returns, structures products offer the potential of better returns but it is hit-and-miss. This coupled with the rising cost of living mean pensioners and those approaching or planning for retirement can no longer shield themselves from risk if they want to live out retirement comfortably.

 

Pressure on your pocket from all sides means the traditional shift towards lower-risk assets during middle-age makes less sense and effective asset allocation is even more crucial. There was a time when during middle-age, as an investor, this was the period when you would be shifting away from risk to protect your capital. The rationale was, you were approached retirement and you needed growth but also needed to protect your capital. Now after four years of low growth, negligible returns on cash savings, the soaring cost of living, stagnant property prices and entirely new costs, such as university tuition fees, unemployed children, children who can’t afford to leave home – mean investors can no longer afford to slacken the pace and protect their capital. Middle-age was a different thing 10 years ago. People were aspiring to the idea of an early retirement – seriously expecting they could retire some time after the age of 55 but now, this is not really feasible for the majority. Those seriously planning for retirement are being hammered from all sides – so they need the returns to make those dreams possible – how can they de-risk?

The risk is, if you move solely into bonds are you just taking on a different type of risk? – all eggs in one basket and no guarantee that you won’t make a loss. The returns on cash savings does not keep up with inflation – so this approach only guarantees a loss in real terms. So, up the risk ladder we head with more volatility, just to sustain your pot in real terms hopefully, never mind grow it.This makes grim reading for off-the-peg pension investors, the majority of who will be in products that are doing exactly the opposite. They are either throttling back their exposure to equities in the traditional manner or ignoring the market and investing with a plan that nothing actually has changed and it will be alright in the end. I wonder if they noticed we had a near collapse of the banking system, free-trade as it was has changed possibly forever, global debt is at levels unrecorded in modern history, we are enforcing structured write-down of debt larger  than seen ever in history, including the periods during and after the Great Wars.For investors who are looking for proactive asset management – a quality personal pension or self invested personal pension (SIPP) may provide the structure and access to funds and assets to suit. Now is the time to think carefully about asset allocation. Admittedly, it’s a tough call and there’s quite a balancing act to perform here. Let’s say, you’ve got about 20 years of savings you don’t want to fritter away, but still have a 15- or 20-year time horizon and the ability to make a real difference to your retirement by taking on extra risk when suitable and also reducing that exposure when not.This is basically the only time that attitude to risk really matters – at all other times it’s pretty much overshadowed by time horizon and other situational factors.

The majority of your exposure should remain in equities but this is dependent on the market cycle, tolerance to risk, plans and aspirations (what return are we trying to achieve?) and chosen strategy – with exposure also to fixed income, property, fixed interest, structured products, alternative strategies and absolute return strategies.

 

International equities should include emerging markets such as China and India, not just the big developed nations such as the US, UK, Europe and Japan.

Many believe that China will drive stock market growth in the future, and it is tempting to pile into Chinese equities on that basis – but not everybody is convinced.

So if the Chinese miracle is more of a magic trick and the fragile recovery seen this year in UK equities isn’t to be trusted either, what choice does that leave investors who have money to put somewhere? 

A practical approach is necessary. You want to diversify as much as possible to shelter yourself from the extreme volatility we’re seeing. You can access a broad range of superior funds in different asset classes, equities, bonds and alternatives – that’s the beauty of a quality personal pensions and SIPPs.

My contact details are :- tel 029 2020 1241, email welshmoneywiz@virginmedia.com, twitter welshmoneywiz, linkedin Darren Nathan