James Baxter assesses options for post-crisis income drawdown investors in current market uncertainty

  • Diversify investment strategies
  • Have a segregable drawdown account structure
  • Plan your withdrawals based on realistic real returns
  • Get cost effective expert advice

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:

  1. Diversify investment strategies and go global - invest for higher income in some areas, but not exclusively and not in all your equity investments. The UK and Europe economies already under performing may well turn out to be the worse hit by the virus so invest globally, not just in the UK.

    Consider:
    a. High yield bond funds
    b. Global Infrastructure funds

    Both of which should be less reliant on future economic growth which is going to be severely dented by lock downs.

    Combined with:
    c. Global equities funds exposed to big US Tech and Healthcare
    d. Global Equity Income funds
  1. Have a segregable drawdown account structure - like a low-cost SIPP which allows you to siphon off the investment income from your portfolio - and which allows you to select what investments get sold to avoid selling investments at a loss. Funding withdrawals by selling investments at loss completely defeats the objective of investing to reap a better longer-term return and will rapidly accelerate the decline of your capital and account value.

    Such an account will also allow you to maintain a cash holding or very low risk investments like short dated bond funds which can be used to supplement portfolio income in the shorter term acting as a buffer.
  1. Plan your withdrawals based on realistic real returns - after fees and inflation, these should be in the 1-2% region not 6% or 8%. Try using Tideway’s drawdown calculator, or income in retirement calculator if you want to include ISA and GIA investments into your modelling.

    www.tidewaywealth.co.uk/p/151/drawdown-calculator

    www.tidewaywealth.co.uk/p/153/income-in-retirement-calculator
  1. Get cost effective expert advice. ‘De-accumulation’ is much harder than regular saving and it should be possible to get the right account structure, proper ongoing advice and investment management for less than 2% p.a. That might seem like a lot but good advice should add value both in terms of protecting you from the worst impact of volatile markets, saving tax and unnecessary fees and giving you peace of mind that your funds are optimally invested for the long term.

    “As Europe begins to return to work and the UK government prepares to deliver a route out of lockdown, there is light at the end of the tunnel. Investors should not think they can time the market – but by spreading risk and (particularly for those at the decumulation phase) reviewing current holdings, many will emerge from the crisis in reasonable shape as the global economy is re-stoked,” said Mr Baxter.

About Tideway Wealth

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.

www.tidewaywealth.co.uk

7 May 2020

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Tideway Investment Group comprises the following entities: Tideway Investment Partners LLP and Tideway Wealth Management Limited. Tideway Wealth Management Limited is an appointed representative of Tideway Investment Partners LLP, which is authorised and regulated by the Financial Conduct Authority. FCA number: 496214.

Tideway Wealth Management Ltd
107 Leadenhall Street
London EC3A 4AF

+44 (0)20 3143 6100
info@tidewayinvestment.co.uk

© Tideway Investment Group 2020

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