How to approach retirement financial planning during a global pandemic

Nick Toubkin, Strabens Hall

By Nick Toubkin, Senior Client Director (pictured), Strabens Hall – Successful investing for retirement isn’t just a matter of putting your savings into assets and waiting for income and profits to be generated... It is, instead, about playing the long game and keeping an eye on your investments, monitoring performance over a period and having periodical conversations with your adviser. 

Planning for retirement should always be at the top of everyone’s agenda. Much more so during a global pandemic with an uncertain day to day as well as economic situation. The recent pandemic is a stern reminder that times can change fast and markets can respond viciously to crises. Covid-19 has and will be a particularly important factor for investors, due to the uncertainty of how long the crisis will last and the effect it will have on investors

It is important, then, for those with long-term retirement plans to sit down with their advisers to update, review and discuss their personal retirement strategy to effectively  ensure that they weather the storm and receive the income they desire in later life. 

Revaluate your risk profile

Different levels of risk are appropriate for different types of investors regardless of crisis. For example, for younger investors higher risk profiles make more sense as short-term volatility isn’t as important when investing for the next 40 years. However, somebody nearer retirement should typically take a lower risk stance to ensure that they have enough income in retirement and a more certain value of assets to pass onto the next generation.

At a time like this, its always unsettling to watch the value of investments dip. Nevertheless, it’s good to remember that investing is more about time in the market rather than timing the market. Before any rushed decisions are made, it is vital for those planning for retirement to re-evaluate their risk profile taking current circumstances into consideration but without losing site of the end goal. 

Update long-term strategy to take account of current uncertainty

The current crisis should act as a reminder those circumstances, and therefore markets, can change drastically in short periods of time. These changes are not black and white, however. Dependent on the circumstances, some assets maybe uniquely resilient while others are hit hard. For instance, a number of technology and healthcare driven companies have performed extremely well during COVID, whereas other industries, such as property and leisure, have suffered.

The Bank of England’s response to the crisis has raised the prospect that low interest rates will continue for the foreseeable future. Therefore, investors need to ascertain whether their current mix of assets will be able to deliver the right level of income in the future. Restructuring may be necessary to reflect the long-term risk and reward for different companies and sectors.

Alternative assets in a low-return landscape

The turbulence coronavirus has caused has fostered a low-return landscape in the UK. Companies were expected to pay GBP100 billion in dividends this year, but new estimates predict this could be as much as halved. Moreover, UK bond yields, usually attractive to the less risk tolerant investor, have hit new lows during this crisis, turning an investment many rely on into a redundant one. Additionally, we have already had a period of low interest rates, which is likely to continue due to the state of the economy.

It is a challenge, therefore, for investors to achieve an acceptable level of income without taking undue risk in traditional asset classes such as equities and fixed income. Thus, alternative assets present a solution to this issue. Typically, their returns are often long-term projects with inflation protected returns. For instance, infrastructure, renewable energy funds and social housing. Investors should not overlook these alternatives and their ability to bolster and diversify their portfolios.

ESG focused investments offer diversification and resilience

Finally, environmental, social and governance investments, including impact stocks have proved resilient in their first real stress test. Prior to the pandemic, at Strabens Hall, we were already seeing an increase interest in these investments and professional investors are using ESG factors in their investment decision making process more than ever. This can only continue after a global health crisis.

Furthermore, with great wealth transferring from baby boomers to millennials, ESG-conscious investing should continue to increase in prominence. Indeed, contrary to previous years, a recent survey conducted by Morgan Stanley found that 84 per cent of millennial investors cite investing with a focus on ESG impact as a ‘central goal’. Many ESG friendly investments, such as wind farms and energy efficiency funds, are also alternatives which have proved resilient during this crisis.

Similarly, other impact investments, such as schools, hospitals and prisons, may benefit from future government fiscal expansion in their attempt to combat the negative impact of coronavirus on the economy. Thus, investors should definitely consider the potential beneficial contribution these stocks could give to their portfolio, in terms of both risk and reward as times of crisis often throw up new opportunities, which could help the boost investment returns that are a core feature of any good retirement planning.

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