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The Generation Portfolio · PDF file Portfolio manager CJ Cowan Assistant portfolio manager Ian Jensen-Humphreys Portfolio manager Paul Craig Portfolio manager Hinesh Patel Portfolio

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  • The Generation Portfolio Investing for retirement income

    UK: For retail clients Singapore: For sophisticated investors only

  • 2 The Generation Portfolio

  • Investing for retirement income 3

    Contents Retirement calls ________________________________________4

    Retirement considerations _______________________________6

    Inside the Generation portfolio ___________________________8

    What are the risks? _____________________________________10

    The investment team ___________________________________12

    Glossary ______________________________________________13

  • 4 The Generation Portfolio

    Retirement calls Retirement offers new opportunities and challenges as the focus of your financial affairs shifts from your salary to your pension pot and other savings.

    Generating an income to help support your lifestyle, while trying to safeguard your money against inflation and ensuring it lasts as long as you need it, becomes the most important objective.

    The Generation portfolio is an investment solution that seeks to make the most of the opportunities, and tackle the challenges head-on.

    – It is aimed at investors who are either approaching retirement, at retirement or part way through retirement.

    – The portfolio can be used alongside other solutions, such as annuities, or as a stand-alone option and can be used across a range of investment products.

    – Generation has been designed by the investment team at Quilter Investors, in collaboration with financial advisers, to give you more flexibility regarding how you use retirement savings to support yourself in your later years.

    Pensions reforms Recent pension reforms offer far more control over how you can use the money you’ve saved for retirement.

    A key change, in the UK for example, is that you no longer have to buy a traditional annuity, an insurance product that allows you to swap your pension savings for a regular income. While an annuity can provide a guaranteed level of income for the rest of your life, it is also an irreversible decision.

    Although an annuity may still be the best option for some people, it may not offer the same level of freedom to those with a larger pension pot, to use their savings should their circumstances change.

    The Generation portfolio forms what is known as a ‘drawdown’ solution for retirement. It allows you to remain invested in financial markets while drawing an income, while aiming to protect and grow your pension savings. It does not prevent you from buying an annuity later in life – and you have the flexibility to leave some or all of your remaining savings to loved ones.

  • Investing for retirement income 5

    Generation has been designed to give you more flexibility regarding how you use retirement savings.

  • 6 The Generation Portfolio

    What are my income needs? Retirement offers many people an opportunity to realise lifelong ambitions, such as travel or a part-time career. It is therefore worth considering what kind of income you may need and whether you would like the flexibility to receive different amounts at certain periods:

    Essential income needs: – The minimum level of income to fund

    your basic lifestyle

    Desirable/additional requirements: – These could include travel, hobbies or

    starting a business

    Luxury/unexpected costs: – Healthcare costs, family emergencies

    and celebrations

    How much risk should I take with my money? All investments carry some level of risk. When deciding how much income you require and how your savings can match this, it is important to consider how much risk you would be prepared to take with your money. Taking greater risks offers the potential for higher rewards, but could trigger losses that might affect the size of your pot and limit your potential to draw income in the future.

    While having flexibility in how and when you access your money is key, drawing too much from your funds can have adverse effects, especially when markets are falling. If you experience investment losses early in retirement, you will probably struggle to recover them later on .

    Retirement considerations Ensuring your income meets your retirement goals while lasting as long as you need it to.

    Flexibility in how and when you access your money is key, but drawing too much from your funds can have adverse effects, especially when markets are falling.

  • Investing for retirement income 7

    Will I outlive my retirement pot? Many people underestimate how long they will live for, which means they could run out of money. It is important to generate a sustainable income as the money you’ve saved for retirement needs to provide you with an income for the rest of your life.

    Will I be able to maintain my lifestyle? Having the ability to grow your pension pot is important to pay for both the finer things in life and also the essentials, whose prices tend to rise over time. Many people don’t realise how much inflation can eat into their savings, and therefore their income, if it doesn’t grow at the same pace as the cost of goods and services.

    Changes in financial circumstances – leaving an inheritance While you may have an idea now about what sort of retirement solution you would like, it may change over time. For instance, you could remain invested in markets for a few years, drawing an income from your pension savings, before deciding to buy an annuity. If you are undecided about leaving an inheritance, you may want to retain the flexibility to change your mind later on.

  • 8 The Generation Portfolio

    The portfolio invests in a diverse range of funds and assets. This approach is known as ‘multi-asset,’ and is a way to spread risk and help cushion your money when financial markets are performing poorly.

    As markets can move up and down at different times, the variety of financial assets means they shouldn’t all move in the same direction at the same time.

    The portfolio invests primarily in funds, run by a range of fund managers, and also holds cash; property; commodities and investments that offer a fixed amount of interest, such as government and corporate bonds.

    The portfolio aims to achieve returns above inflation, so your income keeps pace with prices. An inflation rate of 3.1% – the UK CPI 12 month average for the 10 years to 2019 – means you can lose almost a third of your purchasing power in a decade. * Source: Bank of England inflation calculator.

    £150k – If a healthy couple that retires at age 65

    with a £150k pension pot bought a joint life annuity linked to the retail price index (RPI) with a five year guarantee

    50% – the annuity would drop in value by 50%

    on the death of the annuity holder

    £3,800 – it could initially pay out £3,800 a year

    with annual increases linked to RPI*.

    3.1% – But annual inflation of 3.1% would

    reduce that figure,

    £2,024.23 – in real terms, after 20 years to just

    £2,024.23 a year. * Figures sourced from the Money Advice Service lifetime annuity comparison tool, based on the annualised monthly income in arrears from a joint life annuity.

    Inside the Generation portfolio A risk targeted portfolio designed to help you meet your lifestyle goals

  • Investing for retirement income 9

    Investment risk is managed by attempting to mitigate the short-term risks posed by markets, while constantly monitoring the longer-term portfolio goals.

    In times of market stress the managers can take short-term decisions to help guard against the risk of losses. If some financial markets decline, they can take a more defensive stance by shifting money into assets considered to be less risky and potentially limiting losses, although this is never guaranteed.

    The managers establish trends and locate the best opportunities using analytical tools and experience, and then pick the fund managers who appear best-placed to take advantage.

    Generation CPI + 3 Portfolio

    Equity Asia Pacific (inc Japan) equity | Emerging markets equity | European equity Global equity | North American equity | UK equity

    Fixed Income Corporate bonds | Emerging market debt | Government bonds | Other fixed income

    Alternatives Other alternative (inc hedge funds) | Other equity | Private equity | Property

    Cash

  • 10 The Generation Portfolio

    What are the risks? The portfolio invests in a diverse range of funds and assets in order to diversify your investment risk. And while the managers look to even out the peaks and troughs, we want to outline the other risks that come with multi-asset investing:

  • Investing for retirement income 11

    – The value of investments, and income from them, may go down as well as up and investors may not get back the amount originally invested.

    – As the portfolio invests in bonds, the government or company issuer might not be able to repay either the interest or the original loan amount, so could default on the debt. This would likely lower the value of those investments.

    – The portfolio can use derivatives – financial instruments that are, in effect, simply legal contracts between several parties, which derive their values from other underlying assets. The value of