How you can take control of your pension funds
I HAVE enough money to live comfortably for the rest of my life. As long as I die next Thursday! Just kidding! But of course we do not want to be in that situation when we retire.
We can never have too much set aside for our retirement, especially since we may spend between a quarter and a third of our life as former workers.
To maximise our income during that time, and thus increase the quality of our lifestyle, we can leave nothing to chance, and it is becoming increasingly common for people to build up a savings nest egg to complement their pension income.
Have you ever given any thought to investing in funds? A properly managed funds portfolio can be a great way of doing just that.
If the thought of a funds investment seems a little foreign to you, you should know that, if you have a workplace pension, you probably have a funds investment already.
The portion of your salary that goes into your pension is invested by your pension company in funds. You have probably been playing the stock markets for years, without even knowing it.
But did you know that you don't have to sit back and leave everything up to them? Did you know you can have more control over where your pension fund is invested?
A financial adviser can take a look inside your pension, see where your savings are invested, and if necessary make changes to ensure that your pension is growing as quickly as it can.
A meeting with a financial adviser can literally ‘turbo-charge' your pension so that, when the day comes to retire, you have more to live on than you otherwise would have.
However, pensions are only one way of investing in funds. As I say, you can create a second income stream for your retirement by investing in funds yourself.
There are many kinds of funds. You can invest with conscience in ethical funds, which place your money only in industries considered to be environmentally friendly, you can invest in relatively ‘safe' markets such as the US or UK, or you can hope for rapid growth from regions that are now on the rise – the so-called ‘emerging markets'.
It all depends on your appetite for risk. We all know the phrase ‘the value of your investments can fall as well as rise, and you may get back less than you put in'.
It is therefore an issue of concern to hear the results of a survey by the wealth manager Scalable Capital, which showed that three quarters (76 per cent) of investors go it alone, investing their money without asking for the help of a qualified adviser.
At the same time, their research found, the risk categories used to describe funds investments are a source of confusion to the average investor.
One in five British investors do not know the potential level of loss that they could experience in a “cautious”, “balanced” or “aggressive” portfolio, and fund values can often fall a lot more than they expect.
Nearly three quarters (71 per cent) of investors thought that a “balanced” portfolio should not fall more than 20 per cent in a bad year. In reality, 10-year data shows that the worst-performing balanced fund would have lost 43 per cent, had an investor entered the market at the peak and sold at the bottom.
Scalable Capital also said that in their experience, investors are prone to panicking when markets fluctuate, and will often sell their portfolios too quickly, when things take a temporary downturn.
The fact is that often, investors acting without advice unknowingly take more risk than they are prepared for.
As with all investments, a proper strategy is best put in place in consultation with a qualified, independent financial adviser.
:: Michael Kennedy is an independent financial adviser and pensions specialist, and can be contacted on 028 71886005 . Further information on Facebook at “Kennedy Independent Financial Advice Ltd”