As you’ve invested throughout your working life, you’ll have likely designed and refined your investment strategy so that it has delivered the right level of returns for an appropriate amount of risk.
If your investments have been ticking along nicely, you may forget that your investment strategy – whether within a pension, or wider portfolio – should adapt and change as you progress through life.
Ultimately, how you invest should reflect where you are in your life, which is why it’s sensible to review your investments before, or when faced with, big life changes.
This is particularly true when you’re close to finally finishing work. Especially as most people tend to invest to build enough savings to support a comfortable retirement.
So, here are five points worth considering to help you manage your investment portfolio as you approach retirement.
1. Revisit your investment risk profile
The main reason you may need to reconsider your investments as you approach retirement is because you’re finally arriving at the stage when you’ll need to rely on these funds to support you for the rest of your life.
As a result, you may want to consider reducing your risk profile in your investment portfolio or maybe start to liquidate your investments.
Reducing risk can help to ensure that your investments stay at the level they’ve reached, rather than falling in value right before you’ll need to rely on them.
Meanwhile, selling your investments means you’ll be able to actively cash in on any growth that your investments have returned throughout the years.
The same is true for your pension pot.
You may wish to select a lower-risk fund with your pension scheme or, if you have a self-invested personal pension (SIPP), choose less risky investments so you don’t inadvertently lose out on income that you’ll need to support yourself in retirement.
2. Consider increasing your investment risk
Depending on your circumstances, you may wish to increase some of the risk in your portfolio as you get older.
Investing when your pot is at its largest means you may be able to make the most of greater gains in value brought on by a larger investment.
Increasing your pension contributions or your risk level even slightly could give your pots one last boost before you start drawing from them.
Indeed, for some savers, taking on more risk may be necessary. Targeting greater returns may be a way to ensure that your pot will sustain you for your entire lifetime.
As a result, increasing risk in retirement can be a useful or potentially even vital part of your retirement investing strategy.
3. Think about timing
If you do intend to try and boost your investments later in your working life, make sure you have sufficient cash savings on hand first.
This is important because of sequence risk – the potential danger of withdrawing or liquidating investments in retirement when markets are less favourable.
For example, if the market takes a dip during your retirement, your investments would likely fall in value. As a result, you’d have to cash in more of your investments to provide yourself with the same level of income during retirement.
When approaching retirement, it’s often sensible to have two to three years’ worth of expenses held in an easy access savings account just in case you ever need to rely on it.
This way, you may be in a better position to be able to leave your investments in place until the market recovers and the value goes back up. And, in the meantime, you could use your cash savings to sustain your desired lifestyle.
4. Remember the importance of diversifying
As with any time in your life, your investment portfolio needs to be as diversified and varied when approaching retirement as it has been throughout your investing journey.
So, double-check that you’re holding a variety of asset classes across different sectors, industries, and geographical locations.
This can help to spread risk across different types of investments, rather than having it concentrated in one place.
Read more: “Don't put all your eggs in one basket.” Here's why it matters for your investments
For example, your entire portfolio may be made up exclusively of US stocks. While there’s nothing wrong with this specifically, it may put you at risk if US investments as a whole lose value due to wider political or economic circumstances.
Meanwhile, if you held some investments in other countries, they will likely be subject to different pressures. So, even if your US stocks fall, your other investments may hold or even grow in value.
Ultimately, diversifying your portfolio could help to reduce the impact of falls in value of certain types of investments. This could also help to reduce the impact of sequence risk if you needed to cash in some investments during a market downturn.
This could become even more important in retirement, as short-term dips in value may have a direct impact on your income and your lifestyle as a result.
Working with a professional investment manager can make a significant difference. They can help you devise a bespoke portfolio that has the right balance of diversified assets for you.
Bear in mind that returns are not guaranteed. Diversification can only help to reduce risk, not eliminate it entirely.
5. Work with a financial planner
When approaching retirement, it may be worth considering taking financial advice from a professional financial planner.
A financial planner can provide personalised advice and recommendations, helping you to select an investment portfolio that works for you in later life.
Crucially, a planner can take your life goals into account, making sure that your investments are suitable for achieving your targets, while also being risk-appropriate.
That means you can be confident that your investments are all pulling in the same direction towards your retirement goals, no matter what they may be.
Get in touch
If you’d like help working out how to invest as you get closer to retirement, please get in touch.
We can design and implement an investment strategy that’s appropriate for you, your risk tolerance, and your personal circumstances.
Email enquiries@alexanderpeter.com, complete the online form, or give us a call on +44 1689 493455.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
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