Since the global financial crisis, central banks around the world have adopted monetary easing policies such as quantitative easing and sharp interest rate cuts. More than a decade later and the current economic environment, certainly within the developed world, continues to be a ‘lower for longer’ view on interest rates.
Income dilemma
For spenders and borrowers this is clearly great news, but for savers and those thinking about retirement, the long-term nature of this trend can significantly impact investors’ plans to generate a regular and sustainable income that might have to last for decades.
This presents income investors with a serious dilemma, the low interest rate environment means that cash and government bonds, the traditional sources of income returns, are no longer sufficient to generate a meaningful retirement on their own. The hunt for better returns, or yields, means investors are having to expand their search and find new investment ideas, but this inevitably means moving further up the risk ladder to a level they may not be comfortable with.
A fine balancing act
Creating the right balance between risk and reward and building a portfolio that generates sufficient income to be either withdrawn or reinvested for a later date, is a difficult task. But it is one that can be made easier with the help of financial advice and innovation within the investment industry to provide solutions that meet these specific needs.
The pension freedoms that came into effect in 2015 opened up the possibilities for those reaching ‘retirement’, the requirement to buy an annuity disappeared and people are now allowed to keep building their pensions, to stay invested and even pass on their money to the next generation.
But with more freedom comes more choices, which are not always easily explained, and more investment decisions that are not always easy to make. Particularly in an environment where economic and geopolitical newsflow affects market sentiment possibly more than it ever has in the past.
Investing for the future to ensure the right mix of assets are working for you to meet your income needs has become a fine balancing act. It is also one that requires careful monitoring to ensure you make the most of the new opportunities without taking on an unacceptable level of risk.
The reality of pension freedoms
At the recent Quilter Investment Symposiums, an expert panel addressed these issues and what these changes have meant for you and your clients. The panel included former UK Pensions Minister, Baroness Ros Altmann; Quilter Investors portfolio manager Helen Bradshaw; and managing director of Square Mile Investment Consulting and Research, Richard Romer-Lee.
Click here to watch the speaker sessions from the day and find further opinions from Richard Romer-Lee and Baroness Ros Altmann.
For further information on the Quilter Investors Monthly Income range, please click here
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