Structuring your portfolio has moved on recent years consisting of two drawdown pots, aiming to respond to investors short-term needs and reduction of volatility , while benefiting from long term growth
For those who are either withdrawing income from their portfolio or will do so within the next seven years.
The short-term portfolio will provide income for the first seven years of retirement. It is invested in a mixture of cash - typically providing income for the first two years - and structured or fixed income - maturing every six months and thus catering for the subsequent five years’ income.
The second drawdown pot, targeting growth, aims to beat inflation risk over the longer term by investing in equity.
The long term pot is converted every year into fixed income and the fixed income is converted in cash. There is a tolerance to push this back a year or two.
With longevity and inflation risks, investors are often uncertain how to manage their money and make it last through their retirement.
This is an innovative approach to retirement drawdown, aiming to mitigate these risks and to give a greater degree of certainty over income throughout retirement.
Investors need to be invested for years and know the importance of embracing risk. The two pots help manage the financial behaviour of the investor.
This is in conjunction with their cashflow modelling, which has become a core tool for financial planning. By linking the investment portfolio to the investors future expenses the portfolio is better positioned to avoid the classic mistakes investors make.