Those who take the flexi-drawdown retirement option effectively become investors. They (or their advisers) are responsible for managing that investment over time.
The amount of income that may be withdrawn from a retirement fund is directly related to the initial value of the fund and its growth over time. The objective should be to maximise fund growth and therefore the level of income that may be withdrawn from the fund without taking undue risk.
Simple in theory but not so easy to achieve in practice. For those taking the self investing route, we thought it may be useful to summarise some key investing Do’s and Don’ts.
Prepare an investment strategy and plan. Investment is a long term process. Things change over time. There may be sudden and unexpected events. It is important to have something to refer back to. Why was a decision taken to do ‘X’ and not ‘Y’? What are the goals? What is progress v original forecasts?
After taking the time to prepare a plan it is important to stick to it unless there are strong, well thought out, reasons to change. It is important to tune out the short term noise, avoid knee jerk reactions to events and continue to focus on the long term.
Keep it simple and stick to known assets groups. Learn about the long term history of performance and compare against industry averages. Although history is not an indicator of the future it can help the decision making process.
Don’t invest in anything that is not fully understood.
Diversify investments across asset groups. Diversification reduces risk.
Monitor a portfolio regularly. It does not need to be weekly or even monthly but things do change over time and action may be appropriate.
Ensure costs (fees) are reasonable when compared to industry averages. Does the service offer justify the fee? It is important to keep costs under control.
Be aware of current SCAM’s. Check out any person or business trying to sell something in detail. Research them and their background. Are they authorised? Are they trustworthy?
Don’t invest without a strategy and plan. (it’s so important we mentioned it twice)
Don’t try to forecast the future. Don’t try to guess the best time to buy and sell, it’s a fools game.
Don’t be seduced by so called high-yield investment schemes. Don’t fall for the no risk (or minimal risk) but high returns pitch. All investments carry an element of risk.
Don’t leave too much in cash. There may be valid reasons for keeping part of your drawdown fund in easy to access (cash) reserves but leaving significant sums in current and low interest accounts leaves them exposed to the impact of inflation.
If you employ an adviser they will come at a cost. It is important to weigh that cost carefully against the potential downsides of any decisions you make. Of course, not all advisers are worth their fee. It is therefore important to choose your adviser wisely.
The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance. This blog is intended to provide a general review of certain topics and its purpose is to inform but NOT to recommend or support any specific investment or course of action.