This is good news particularly for clients in retirement (drawdown) who have chosen to listen to my guidance and whose primary investment strategy is to invest in dividend-focused funds to support all, or a significant part of, their income withdrawals.
One of the early consequences of the pandemic was the cancellation or reduction of dividends which was very scary for those depending on dividends to support their lifestyle.
Fortunately, my other guidance has always been to hold sufficient cash, which together with dividends, could support income withdrawals for three years or so. No-one, therefore, had to significantly reduce their lifestyles, although expenditure did reduce for many of us with no holidays, eating out, etc.
My view was always that dividend reductions/cancellations were likely to be temporary and that is turning out to be the case. The total value of payments declared or restored by FTSE 100 firms since March 2020 now exceeds that of dividend reductions or cancellations. The worst now looks to be over, but we still need to see the UK economy gather some real traction before we can totally relax.
As always there have been lessons to learn. Following a dividend strategy, although right for many, has always resulted in less than the ideal level of diversification and an overexposure to the UK. Over the last six months, we have seen many international markets recovering from the pandemic quicker than the UK and dividend investors have felt left behind. However, switching out of UK funds now could well mean that a significant bounce back is missed just as international markets start to run out of steam.
If pension funds are primarily invested in dividend-paying funds to support income withdrawals my guidance now is that other investment funds, such as ISA accounts, should follow more of a capital growth strategy with greater diversification.
The key elements in an investment strategy, particularly in retirement, is to have good, deliverable, common sense processes in place to:-
Select the right funds in the first place.
- To monitor both performance and fund investment strategies.
- Never have short-term funds exposed to natural stock-market fluctuations.
- Avoid panic and poor short-term decisions.
- Take the appropriate guidance/advice whilst always being aware of the impact of fees. If you are paying a financial adviser annual fees of 1% pa, or even higher, that has a massive impact on performance and thus lifestyle.
I have been a pension specialist for more than 30 years and have been drawing from my pension fund for the last 8 years. I am not a regulated financial adviser and cannot give personal financial advice, but I can provide far more personal guidance than the government-sponsored services such as Pensionwise. https://www.pensionwise.gov.uk
If you would like to know more just click this link to arrange a preliminary, no fee, discussion.
Retirement Risk Zone: If you are in what I call “The Retirement Risk Zone“ – the three years before retirement and the three years after – this is a particularly important time for you, so do please get in touch. Just use this link to book your Free Zoom chat. Make the wrong decision, or no decision, now and it could have a major impact on your lifestyle for the rest of your life.
How good will it feel to know that, at long last, you are on top of your retirement planning and can look forward to the future with confidence? Is it safe to do it alone or do you need someone with more than 40 years as a pension expert on your side?
This document and our on going services are not personal advice. We'll give you all the help and guidance you need to make your investment and retirement decisions, but we can't advise you. If you're not sure whether you need regulated financial advice we can put you in touch with a suitably qualified and experienced regulated adviser. Because we are not regulated by the Financial Conduct Authority you will not have access to the Financial Ombudsman Service in respect of any complaints. If you use one of the "no advice" on line services to handle investment transactions they will be Regulated and you will have access to the Ombudsman and The Financial Compensation Scheme in respect of their services. The value of investments/pension plans can fall or rise depending on market performance. The Retirement Team and The Investment and Retirement Coach are trading names of Capture Success Ltd Reg No 01825075 Tel 07770575122