Which path does your investment follow?

Smiling middle aged man in a suit


MoneyPlus Features Team

23rd October 2012 at 9:16am

Sitting on a plane to Southampton heading to a conference where 10 investment fund management companies will be presenting to our Distribution teams.

It struck me how similar the plane journey is to your investment planning process – the importance of a strong take-off, the desire to have as little turbulence as possible mid-flight and the hope for a nice smooth landing as your reach your target.

Check your investment route

I saw a presentation last week which focused on the importance of the “take off” when investing particularly when using your investment portfolio for an income – say in retirement.

The examples used showed two portfolios one of which grew by say, 8% per annum and the other only 7%. Both showed volatility, with the values going up and down, just as they can in real life, but they assumed you would get back more than was paid in.

The audience was asked which one they would prefer and most were attracted to the investment portfolio which offered the higher return – why wouldn’t you? However as is often the case, the first and most obvious answer isn’t always the right one particularly when taking an income. The devil is in the detail.

Portfolio 1 had higher volatility and the impact of this combined with taking a fixed income had an adverse effect. The portfolio ran out of money too quickly. (If you’ve ever heard of “pound cost averaging” then this was the exact opposite – the volatility worked against you.)

The “Steady Eddy” option didn’t have the same level of volatility and therefore the negative impact of taking an income was lessened. It lasted the course and was able to supply an income for up to 10 years longer.

Time well spent

The big message to me was that sometimes the figures don’t tell the full story. It’s important you understand all dimensions of the problem before reaching a conclusion. Good quality financial advice is vital.

I would never dream of flying a plane – I’m obviously just not qualified to do so. Trying to take care of your own retirement planning may not put lives at risk but it surely puts at risk the quality of your life.

Have you considered the destination of your investments? What’s the best route to take and how does it compare to the one your on now?

I’ll let you know next time what our fund partners were saying about the current market conditions at the conference – once I’m off the plane!

What do you think?

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