We recently held an event where attendees asked key financial planning and investing questions related to what was on their mind for 2024 and beyond. Here is an edited version of some of their questions and answers.
How active is your strategy regarding changing asset allocations in response to things like COVID?
The portfolio management team meets on a bi-weekly basis – to review every portfolio. That does not necessarily mean they will make changes in each meeting, because we don't believe in making knee jerk reactions to various market events. However, they will certainly review the cyclical positioning of portfolios as well as the underlying instruments to ensure that each Risk Level is still invested in line with their best thinking and makes sense for where we are in a market cycle.
An example of that would be our risk level one portfolio. This was amended recently to take advantage of the current higher interest rate environment. So that is now composed of predominantly a money market fund and short dated corporate bonds. That adjustment was made in response to the changes the Bank of England were making to monetary policy but also to meet the evolving needs of clients over the past 12 months.
Equally, with higher risk portfolios, the team regularly assesses which instruments or ETFs are appropriate. They want to position portfolios to capture market movements, and to respond to events like COVID, or geopolitical and election risk – these are all factors we watch out for, to try and anticipate as we maintain the outperformance we have managed over the past seven years.
How should you invest for income drawdown?
How you approach retirement greatly depends on your personal circumstances and how much you need and wish to live on. So if, for example, you are taking very little from your retirement pot each year, you can maybe afford to take a bit more risk – by taking such a tiny percentage each year, you can aim for higher growth. Conversely, you may choose to take lower risk because you are taking such a small proportion from your pot and you may prefer a more stable investment journey.
A key thing to think about is your drawdown rate – how much income you are taking from your retirement pot each year. If you are taking out a lot of money and you are in a higher risk portfolio, this can be more volatile so you run the risk of having to sell assets (or units) when markets are so weak, which you generally want to avoid.
We all want a fairly smooth investment journey with volatility adjusted according to our own needs and ability to take risk. It may be optimal therefore if you need a higher amount to live on each year to typically choose a lower risk portfolio. If you are taking a small amount, you could potentially take more risk. Equally you don't necessarily need to – your own individual circumstances will ultimately dictate the best path for you.
Let’s not forget that investing while you're in drawdown can give you the opportunity to grow your retirement pot as well. You could be taking an income while hopefully seeing your pot continue to grow. That could mean a potentially larger pot to leave to loved ones or that the likelihood of a sustainable income for longer is increased.
We would suggest that if you are retiring or close to retiring, taking advice is always a good option. An expert adviser can help you come up with a personal plan. You can both explore what level of income is sustainable, what you can realistically achieve with your money in retirement, and what is the appropriate level of risk to make your objectives happen.
Getting a clearer picture of what is possible can bring tremendous peace of mind. Your retirement could look much rosier than you first thought, allowing you to do more than you expected. The right personalised advice could be a good place to start for that clarity – helping you to see that as there is no set way to live in retirement, there is equally no set level of drawdown or risk to take to achieve your goals.
How are dividends treated in portfolios?
Within the equity part of our portfolios, the underlying companies in which we invest will distribute dividends. These cash funds are then reinvested to keep our client portfolios aligned with their target asset allocation of the risk level that they chose.
If clients decide to make regular withdrawals from their portfolios, perhaps in retirement, those withdrawals will first come from the cash position – so initially from those dividends as they come in, before we sell any investment assets, depending on the size of those withdrawals.
Again, we are very happy to go through how we treat dividends and income in more detail and discuss your specific circumstances – just get in touch.
When you invest can you choose more than one risk level?
Not all investment companies offer flexibility but when you invest with Netwealth you can open up a blend of portfolios. This means you can choose portfolios with different risk levels based on your time horizon and your objectives for each pot of money.
For example, a client in retirement may want their pension to be invested at a low risk level as they're drawing from it, but they've marked an element of their funds to be used solely for estate planning. Therefore, they are willing to take on a bit more risk with that portion of their portfolio which they can invest at a higher risk level and because they don't intend to draw on that money any time soon.
We offer seven centralised risk level portfolios, with the aim to be able to offer options to meet the objectives of most clients. Very often, a thoughtful combination of these can make the most sense – and you can talk to us if you need some help in deciding what might work best for you.
What's the process of transferring a pension to Netwealth?
It’s really simple. You open a pension account online, in our portal, by registering with us. Then you design the investment portfolio for your pension using our online modelling tools and, once you are happy with your design, you follow the steps through to complete the account opening. During this time, we will gather some information around your financial circumstances and experience of investing as well as your individual details. This usually only takes around 30 minutes or so to complete and it is then with us to let you know when your account is up and running.
From here, by completing our online pension transfer form, you can authorise us to arrange the transfer of your pension on your behalf and our team will manage the entire process for you.
Our head of operations and client service, Rachel Willox, explains more about how the process works – and how you can experience wealth management as it should be.
For more context around the questions above, and extra insights that may be relevant to you, you can watch the recent webinar.
Please note, the value of your investments can go down as well as up.
Netwealth offers advice restricted to our services and does not provide independent advice across the market. We do not offer advice in relation to tax compliance, personal recommendations with regards to insurance and protection, or advise upon the transfer of defined benefit pensions.