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HL financial adviser's top tips for drawdown investors in the current crisis

HL financial adviser, Mufaddal Travadi, lets us in on his thoughts on what Drawdown investors could do during this difficult time.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

This is a very difficult time for people relying on their investments to help fund their retirement. Markets are volatile and lots of companies are scrapping, suspending or delaying dividends in the wake of the coronavirus pandemic.

Both capital losses and disruption to income are likely to be painful. But, once restrictions on consumers are lifted, and we move past the crisis, companies will most likely return to distributing cash.

Here’s what I’ve been discussing with Drawdown clients.

This article isn’t personal advice. It’s important you make decisions based on your own circumstances and objectives. If you’re at all unsure of the suitability of an investment or drawdown please seek advice. All investments rise and fall in value, so you could get back less than you invest.

Now is the time to use your emergency cash buffer

As an adviser, we nearly always start by making sure clients have a good level of cash in place to act as an emergency reserve. It can provide a source of short term funding, but also gives a blanket of reassurance when markets start to fall.

With the ongoing volatility, now is most likely the time to use your cash and leave any investments alone where you can.

It’s also prudent to hold some additional cash in a pension to support income for a 3-5 year period. This again can provide some certainty on income, and lets clients focus more on how to drive growth from the remaining portfolio. It generally leaves clients feeling less anxious about their retirement income.

Holding additional cash has other benefits. It can let you make strategic investment choices when markets fall. It also removes the necessity to always invest with a view to generating income, meaning clients have the opportunity to look at more growth focused markets if they wish.

Why cash is more important than ever

Sit on your hands when it comes to your investments

If you’re relying on investments to provide an income, you should try leaving your portfolio alone and only draw on your investments when absolutely necessary.

There’s still lots of uncertainty and we think it’s very likely markets will remain volatile for some time. As painful as it might feel now, we will survive this crisis. As such, abandoning the market wouldn’t be the right thing to do. It’s important to avoid knee-jerk reactions.

If you can’t sit on your hands, think about an annuity

I’ve met many clients who are attracted to the idea of a Drawdown plan. Since 2008 up until the outbreak of COVID-19, markets have generally been on an upwards trend and this can cause a false sense of security for some, as they think markets will continue to rise forever. But, it’s during times of market volatility that your resolve is tested, and you really need to have a clear strategy in place.

It can be easy to undervalue security and certainty when the stock market has largely been rising. But, if you buy an annuity - you’ll get a secure income for the rest of your life, no matter what happens in the stock market. If you don’t have the financial capacity for volatility, your needs might be better met with an annuity.


Extra help available if you need it

Now more than ever, it’s important your next steps take you in the right direction. The information in this article is only a guide and your adviser will get into the details of your situation to give you a personalised plan. If you rely on your investments to fund your retirement and you need a helping hand, our financial advisers could help.

We’re offering free telephone consultations with a fully qualified adviser, to sense check your strategy and find out if you could benefit from personal advice. Book an appointment to ask our experts anything about your finances during this difficult time.

Book your call

Please note that personal advice will not be given on this call. If you’d like personalised recommendations, your telephone adviser will explain how to progress and any charges associated with going down this route. Charges will apply if you decide to take advice, typically 1-2% of the portfolio value subject to a minimum of £495 + VAT.

What you do with your pension is an important decision that you might not be able to change. You should check you're making the right decision for your circumstances and that you understand all your options and their risks. The government's free and impartial Pension Wise service can help you and we can offer you advice if you’d like it.

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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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