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Lifestyle investment Portfolio planning – a different way to invest.

Many investors and investment professionals build portfolios using the well known concept of asset allocation investing (this is the process of having a model portfolio which is spread across a range of assets and across different global markets).

Whilst good asset allocation is vital for improving long term returns and reducing investment risk (volatility), we believe that it is no longer the ‘be all and end all’ of good investment management. Since the year 2000, the pure asset allocation model has not been as successful as in previous periods and we now regularly see markets and, in some instances, different asset classes “re-correlating” and moving in the same way as each other.

Think DIFFERENT: Because different investment themes, stories and strategies will be appropriate to different people at different stages of their lives we feel it is worth using a more forward looking “Lifestyle Investing Process” to design portfolios to fit with your own personal situation today, with an eye on the future, not the past.

The concept is simple… what is the world likely to look like when you need access to your money and what sort of stories are likely to provide investment opportunities over that time.  Asset allocation is still important but is now used to check that the balance of each portfolio is not over exposed to any particular sector, asset class or region and a currency overlay should also be applied as appropriate to each investor.

We have formulated four main portfolios for the four major stages of an investor’s life:

Accumulation – younger investors with a long term outlook. Appropriate stories include: The changes in global consumer spending, commodity companies, real asset inflation, emerging markets.

Consolidation – still working, but now with one eye on retirement, need to beat inflation but with less volatility compared to when they were younger.  Appropriate stories and strategies include: Equity Income (reinvested dividend income), High yield bonds, Emerging market bonds, small exposure to precious metals

Pre-Retirement – as you approach the time to draw an income it is vital to try and maintain capital. Five years from retirement start to move to this strategy so that any market volatility doesn’t destroy the value of your asset pot just before you need it. Appropriate strategies include: Absolute return funds are very useful here due to low volatility. Deposit based accounts and funds with capital protection or guarantees. Invest in corporate bonds and non-core government debt;

Income – now in retirement it is time t use the asset pot you have built to pay for your lifestyle. It is important to consider cash flow and not just concentrate on short term capital security. Strategies include: Multi asset income funds, non-core government bonds, corporate bonds, high yield bonds and equity income.

Of course past performance is not necessarily a guide to future performance. The value of investments and any income from them may fall and rise and the value of investments may also increase or decrease subject to the changes in exchange rates between currencies.


This article is for information only and should not be considered as advice.
This article is written by Peter Brooke The Spectrum IFA Group


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