Pension & retirement
Harry Scargill, Portfolio Manager at Fairstone, guides you through the benefits of making sure your portfolio is well-balanced over time.
Your retirement portfolio serves as crucial financial support for an enjoyable retirement. Retirees with substantial and appropriately allocated portfolios may enjoy living off the income generated by their investments, without touching the principal. However, those with smaller portfolios will likely need to access their funds.
Seeking professional guidance on your investment objectives can offer valuable insights into the ideal construction and frequency for rebalancing your retirement portfolio, ensuring that your asset allocation consistently aligns with your risk tolerance and investment goals.
Over time, your portfolio’s asset allocation may shift due to market fluctuations. Rebalancing helps you maintain your desired allocation, ensuring that your investments align with your risk tolerance and long-term objectives.
If left unchecked, your portfolio may become too heavily weighted in one asset class or investment style, exposing you to more risk than initially intended. Rebalancing allows you to redistribute your investments and maintain an appropriate level of risk.
Regularly reviewing your portfolio allows you to re-evaluate your investment strategy and adjust as needed. This can be particularly important when your financial needs and goals may change during retirement.
There is no one-size-fits-all answer to this question, as the ideal frequency will depend on your circumstances and preferences.
Annually: Rebalancing once a year is often sufficient for most investors. This allows you to take advantage of market performance while minimising the impact of short-term fluctuations.
Semi-annually or quarterly: Many investors may prefer to rebalance more frequently, such as every six months or quarterly. This can provide additional opportunities to adjust your portfolio and respond to changes in the market.
Establish specific allocation targets for each asset class in your portfolio. When an asset class’s weight deviates significantly from its target, it may be time to rebalance.
When rebalancing, be mindful of transaction costs and potential tax implications. These can eat into your returns if not managed carefully.
Stick to your rebalancing plan and avoid making impulsive decisions based on market movements or emotions. A consistent or rules-based approach will help you stay on track with your investment goals.
As time progresses, your personal risk tolerance and investment objectives will evolve. Adjusting your investment portfolio with age – particularly as you enter retirement – can help align your asset allocation with your risk appetite and investment goals. It’s equally crucial to rebalance your portfolio during retirement.
Unlike younger investors, who can weather market fluctuations, retirees may aim to safeguard their capital rather than maximise returns. In retirement, your risk tolerance is likely to be significantly lower than when you were employed and received a stable income.
Regularly rebalancing your portfolio during retirement is crucial for maintaining your desired asset allocation, managing risk and staying aligned with your financial goals. For additional advice on planning for your retirement, please get in touch.
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THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.
A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE).
THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.
YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.