I am increasingly talking to clients who have pensions, but who aren’t being given regular financial reviews or who aren’t having their attitude to risk assessed regularly. It is absolutely vital that you receive regular financial reviews on you pension and that you have your attitude to risk assessed at least annually to ensure your pension is performing in a way you want it to and that when you get to retirement you receive the amount of income you want and need to live a comfortable lifestyle.
How much investment risk is right for you?
Every investment involves risk and, generally speaking, the greater the return (or growth) being sought, the greater the risk that needs to be taken. The problem is that while it is easy to measure return, it has been very difficult to accurately measure the amount of risk being taken. We’ve seen many examples in recent years of investors not fully understanding the level of risk they were taking until it was too late - gold, commercial property and residential buy-to-lets spring to mind. On the other hand, there are many investors who are so risk averse that they fail to meet their long-term goals. Understanding the right amount of risk to take is possibly the most important aspect of any financial plan.
Matching your attitude to risk to your investments
The good news is that it’s now possible to accurately assess not only the level of risk of an investment, but also your individual attitude to risk. By matching the two, we are now able to give you the peace of mind of knowing that you are neither taking more risk than is comfortable for you, nor too little risk and so reducing the chance of meeting your goals. Financial markets are becoming ever more volatile, the array of investment products is becoming more and more complex and, over time, your own personal circumstances will change so it’s more important than ever to correctly understand the amount of risk you are taking. What’s more, the sophisticated tools now available not only allow us to assess your attitude to risk and recommend the right initial mix of products, but mean we can keep your investments on track over time.
What could the consequences of not having regular financial reviews be?
Black Monday – October 1987.
By the end of October the UK Stock Market had dropped more than 26%, the US Stock Market dropped more than 22%, Hong Kong and Australia both dropped more than 42%. To this day the reason it happened is still argued about.
(Source On this day BBC website)
Between February 2006 and February 2011 the difference in performance in the best and worst funds in the IMA UK All Companies sector was 140% (the equivalent of 28% per year).
(Source: Lipper Hindsight 22nd March 2011. Bid to Bid with income net of UK tax reinvested)
Over the last 5 years, the Canada Life/ Henderson Multi Manager 4 fund has given an annualised return of (– 1.2%) meaning £1,000 invested 5 years ago would be worth £942. This fund had a volatility (a measure of the amount of risk the fund manager has taken) of 4.1
Over the same time period the Phoenix R Sol/ Newton Balanced fund has given an annualised return of 8.5% meaning £1,000 invested 5 years ago would be worth £1,503. This fund had a volatility of 4.2
(Source Money Management May 2011)
If these statistics worry you, if you don’t know how your fund has performed in relation to its benchmark, if you don’t receive regular financial reviews on your pension or if you just want to talk through any concerns you may have please contact me on the number free phone number or drop me an e-mail.
