Will Informed Financial Planning notify clients individually if you think we should take some actions, e.g. moving money?
Yes, if we ever felt this necessary. Our current stance is to stay invested and that is how we think all should act right now. However, we recognise that our clients all have individual plans and therefore there may be some unique circumstances where a client may need to take action away from this stance.
What we have to do is take sentiment out of it and focus on our original advice to ensure any movements away from our stance are right for the client and not just because of the current investment conditions. We believe that right now the best thing for most, if not all, of our clients is to stay invested and benefit from the recovery.
There has never been such a big fall in the markets, how certain are you of recovery as per historical falls?
There is no certainty to it, first of all we need to appreciate that no recovery does not just mean problems for investments, it means problems for the economy for a long period. Where our investments are concerned, we think this document creates a good picture of why we are confident in recovery. It’s not because we are certain, but it’s because history has told us this is repeatable. Coronavirus has / will arguably push us into a recession, which is a cyclical event.
We must go through recession and recovery; we did that in 2000 and 2008. They were for very different reasons, very different losses and different return periods but they all had the same outcome which was recovery pushing beyond the previous high point.
My concern is how my pension fund is protected when i retire and i start to ‘drawdown’. I am more concerned about security compared to growth.
Hopefully we can go back to the point of “stick to your plan”. The initial discussions with your adviser should have led you to a lower risk strategy which means you will not be experiencing the same losses we are seeing in global markets right now. This is because you will have less invested in equities and more in things like fixed interest and cash.
Specifically to our clients, we believe that you should be invested, we are not looking to recommend products that will not fall in value (guaranteed products). However, we should have had the discussion about your investment concerns and therefore have you invested in line with a Cautious investment strategy. That does mean returns will be limited when growth/recovery is here but, more importantly, it means your losses will be reduced in times like we are seeing now.
With the FTSE falling 30% in the last month we have seen one of our Cautious investments fall by only 6% which is only a 20% proportionate loss.
How much further do you feel equities could fall?
We simply don’t know, we can only look at other markets for indicators. The Chinese index has done OK lately, and the Dow Jones has had some good and bad days. The FTSE has had some OK days but obviously we have some much bigger decisions to be made that may impact lifestyle and therefore our economy.
There is no certainty about where the bottom lies and therefore, we cannot say that our clients will not experience further losses in the coming days / weeks.
What we cannot do is try and guess where the bottom is because we cannot be sure of the answer. For example, if we felt further falls were likely and advised clients to pull out of their investments, if markets picked up quickly they would miss out in investment growth. They would have crystallised losses and be sat out of the market when things are growing.
I have been drawing from my pot each year to augment my income, should i pause until the upturn?
This falls completely down to individual circumstance. In general it is a good principle but it has to be right for you. For those that have the surplus cash available, they could use this as their income source for a period. We can turn income off very quickly and then cash could be used as a replacement, this would leave the entire fund invested to hopefully benefit from recovery. This would be a wise choice for some.
However, if you need a retirement income continuing this is not a problem. If you draw, for example, 5% of your fund for income per annum, you are leaving 95% of your fund invested for at least the next 12 months. That means you still have a large proportion of your fund invested to hopefully enjoy the recovery.
This is not about pausing income to enjoy your retirement, it’s about considering if you have the other resources to pause income temporarily but still maintain your current lifestyle.
Tax year end is coming up, is it worth making my usual pension and isa contributions?
Absolutely! If you haven’t done these already, if it’s an affordable, habitual thing then you should continue. It’s a great time to invest, you would arguably be buying in at a lower price than last year or even the year before and you would be utilising the tax efficient allowances before the end of the tax year.
I am retiring next month, should I retire the spare cash that i have?
That completely depends on how much spare cash you have. We mentioned above about now being a great time to invest, but it’s also a great time not to access your investments. We would need to consider if you could leave your investments and spend your cash at the start of your retirement.
You will have worked hard to build a pension fund that you plan on accessing next month, to avoid crystallising any losses you could defer this and spend your cash temporarily to supplement your retirement income. If there is spare cash away from this then it may be sensible to consider investment for some this, particularly because of the tax relief investing in pensions can offer.
Which sectors will benefit most from recovery?
Hopefully all of them! But realistically we would expect it to be equities as they have fallen by the greatest margin.
If I had a lump sum to invest now, would i be better to do it as a single or lump sum instalment?
That is a constant issue that we consider, should I subject all of my money to investment risk straight away or phase it in?
The way to answer this question is to outline the advantages and disadvantages of both options:
Lump Sum: If we get it right and we are now somewhere close to the bottom, you will have all of your money invested to benefit from the recovery. Conversely, if the market continues to fall you would see the greatest loss.
Phase: If things continue to fall you would buy units at a cheaper price each time you invested, as things were falling. However, if things pick up and you haven’t invested everything you would be missing out on investment return.
Both options work in different market conditions, but now could be a low enough point in the market to invest everything.
Should I move from high risk to low risk investments?
It follows the same principle as why you shouldn’t move to cash, just in a slightly different way. You are de-risking your portfolio, for example moving from a Balanced to a Cautious approach. You move out of equity investments and into things like fixed interest and cash, investments that are regarded as safer investments.
You will absolutely protect your downside which means you would miss out on some investment recovery when it comes. You have experienced all of the loss in your current strategy but would benefit from less return in a lower risk strategy.
In our view, this wouldn’t be a sensible option as you wouldn’t benefit from the recovery as much compared to staying invested in your current portfolio.
If you have any further questions, please do not hesitate to get in touch with your adviser!