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The Business Magazine July 2024
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Planning for retirement

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By Rebecca Stein, Investment Manager, Charles Stanley Wealth Managers.

It is important to think about how you want to allocate your money to investments to help ensure a comfortable and secure future.

Most people are aware of the risk that your investments can fall as well as rise but haven’t heard about a concept called sequencing risk. If you are considering exiting your business and retiring, sequencing risk is important to understand.

Sequencing risk refers to the negative impact for portfolios due to a combination of falling markets in the early years of retirement and the timing of your withdrawals. If you continue to withdraw funds from a portfolio when stock markets are falling, then the portfolio must work much harder to get back to the original position. You have to sell more shares to meet your expenses, and this reduces your ability to regain your losses when the market recovers.

The opposite is true if in the first decade of your retirement you experience good investment returns, you will find that your investment pot will last significantly longer.

Here are our top tips for managing this risk. 

Communication is key.

It’s important that your investment manager knows the amount you are likely to draw from your investments each year. This allows careful planning, extracting money when the stock markets are high, negating the need to sell investments at the market bottom.

Remain flexible.

There are unforeseeable events that can cause the stock markets to fall such as natural disasters or terrorist events. When market conditions are unfavourable, for retirees that can afford to do so, it may make sense to either postpone withdrawals until market conditions improve, or to be flexible and withdraw a lesser amount when the markets are down. This should play into your thought process when deciding how much of your money to invest and how much to keep aside as a cash reserve.

Asset allocation.

The way in which a portfolio is constructed can help mitigate this risk. The amount of money that you allocate to riskier investments like equities often reduces as you reach retirement. It is important to avoid a portfolio of investments that move in the same downwards direction and at the same pace when the markets fall.

Selection of investments.

It is only once the asset allocation has been established based on your own circumstances that the underlying investments should be chosen.

By selecting investments that are less volatile and ensuring that they are closely monitored for any turn of fortunes, the impact of a market fall may be less severe.

Happy,Stylish,Mature,Old,Woman,Remote,Working,From,Home,DistanceIn a market fall you may still withdraw the natural income from the portfolio from the dividend return, without drawing on too much capital. Therefore, higher dividend-paying stocks can be useful.

Each portfolio we build is tailored to the individual. It is important that the portfolio adapts not only with the changing investing landscape, but with your changing circumstances.

Investing for your future requires careful planning and consideration. By taking proper legal advice and financial advice and by allocating you investments appropriately, you can help to ensure a comfortable and secure retirement.

If you would like to discuss any of the themes in this article, or to find out how Charles Stanley can manage an investment portfolio on your behalf, please contact a member of the Oxford team.

01865 987 485

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The value of investments, and any income derived from them, can fall as well as rise. Investors may get back less than originally invested. Charles Stanley is not a tax adviser. Information contained in this article is based on our understanding of current HMRC legislation. Tax reliefs are those currently applying and the levels and bases of taxation can change. Tax treatment depends on the individual circumstances of each person or entity and may be subject to change in the future. If you are in any doubt, you should seek professional tax advice. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.




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