In this period of intense market volatility, investors will be worried as to how the economic fall-out from the COVID-19 virus is likely to impact their portfolios.
These concerns will be particularly acute for those investors in the near or at-retirement stage of their lives. For those already now dependent on their investment portfolios and pension plans for income, what strategies should they be considering?
James Baxter, of wealth management and retirement planning specialist TIDEWAY WEALTH, offers some tips to income seeking investors – with a focus on those in the post 55 age group.
“One of the most popular fund sectors for drawdown investors in recent years has been UK equity income – but this has frankly been a horrible place to be in more recent times, with many funds not delivering any returns over the last five years,” said Mr Baxter. “These same investors are now facing significant dividend cuts to potentially make matters worse,” added Baxter.
According to FE Trustnet on the 6th May 2020 the average UK Equity Income fund was still down 25% in 2020 so far versus the average Global equity fund down just 9%. Compare that to average returns in global equity funds of plus 40 per cent since 2015. Or, a well-run high yield bond fund Like Royal London’s Sterling Extra Yield fund.
“Most investors who have been correctly advised will have a good portfolio spread, but we are concerned at the number of investors who have been top heavy in UK Equity Income and have received a serious bloody nose,” added Mr Baxter.
So, what to do now? The fall-out from the virus is likely to be with us for some considerable time to come, but global economies will begin to gear up as lockdowns continue to be eased.
Some investors will be tempted to sell now, but this would inevitably involve crystallising paper losses at what may well turn out to be decent time to start investing when looking back in 5-10 years’ time.
Tideway’s advice at this extraordinary time focuses on 4 key points:
Tideway offers income drawdown solutions using liquid and fully authorised investment funds and low-cost account solutions. Investment portfolios are managed on a discretionary basis with ongoing advice for those approaching and in retirement covering SIPPs, ISAs GIAs and offshore bonds.
Tideway’s multi asset drawdown portfolios currently aim to generate around 3.5% p.a. of net income after all fees without over reliance on equity dividends. This is only 0.5% p.a. less than a current level annuity, but Tideway clients get to keep their pension and over the long term the aim is to increase their capital for flexible access in the future or to pass on to the next generation. Fixed Income portfolios can be created to pay out more than 4% p.a. after fees and more than current level annuity pay outs, without accessing the capital.
Note: The above is for information purposes only and should not be construed as actual advice. Performance cannot be guaranteed, these are actively invested portfolios where capital, and the income it produces, are at risk.
Tideway’s service has total ongoing cost of around 1.7% p.a. including account administration, advice and investment management.
7 May 2020