How to create a long-term investment plan

  • Understand the difference between accumulation and decumulation.
  • Consider when in the accumulation stage, what sort of investment strategy does a client need.
  • Learn how the investment strategy should change when a client reaches decumulation.
  • Understand the difference between accumulation and decumulation.
  • Consider when in the accumulation stage, what sort of investment strategy does a client need.
  • Learn how the investment strategy should change when a client reaches decumulation.
Supported by
Scottish Widows
pfs-logo
cisi-logo
CPD
Approx.30min
pfs-logo
cisi-logo
CPD
Approx.30min
Supported by
Scottish Widows
twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Supported by
Scottish Widows
pfs-logo
cisi-logo
CPD
Approx.30min
How to create a long-term investment plan

“We would expect to see DC savers in accumulation taking advantage of greater risk when they are younger, and being able to tolerate higher levels of volatility. As they move closer to retirement we would expect them to gradually reduce their risk exposure and to potentially become more diversified as their savings reach their largest point.”

When accumulating, what type of strategy is best?

Scott Gallacher, chartered financial planner at Rowley Turton, explains: “To a large extent this is led by the clients’ future income/capital requirement compared to their available resources, i.e. if you have a big pot and low income requirement, you may be able to achieve your goals with lower risk investments. 

“However, if you have a small pot and big ambitions then higher risk investments might be necessary. That said, the client’s attitude towards investment risk and tolerance for loss must also be key considerations.”

It is likely an adviser will already have an idea of their client’s risk parameters, assuming they are a longstanding client.

Getting them to reiterate these when planning one of the most important parts of their lives is, therefore, crucial.

Risk parameters

Mr Gallacher points out in his experience most of his clients are somewhere between cautious and balanced in their attitude to investment risk, yet many “traditional” investment strategies are skewed to those with medium to higher risk tolerances, he notes.

“There’s a danger that people chase higher returns without being aware of, or able to stomach, higher risks and this approach is almost certain to end in tears when people panic during the inevitable downturns in the markets,” he cautions.

“We tend to construct well diversified portfolios for clients, trying to avoid over reliance on any one investment idea or area.”

Mr McGowan points out: "A multi-asset, life-styling approach to the accumulation stage offers the flexibility for clients to make the choices that best suit their individual needs – whether they’re taking an adventurous, balanced, or cautious approach, and whether they are targeting an annuity, cash distribution, or flexible access.

One of the big challenges for many advisers is convincing older clients to take the right level of investment risk.Henrietta Grimston

"As clients near their target retirement date, many might plan for a gradual rebalancing towards a lower-risk portfolio, although as advisers will be aware, that’s not always the case for everyone."

It can be a fairly common behaviour among some clients to shy away from risk at times when it is most appropriate to take more risk.

Henrietta Grimston, relationship manager at 7IM, argues that whether in the accumulation or decumulation phase, the underlying investment strategy or philosophy does not need to change.

PAGE 2 OF 5