Cheerful smiling elderly family couple sitting on the bench near the sea

Adjusting your investment portfolio with age

Is your asset allocation aligned with your risk tolerance?

Your retirement portfolio serves as crucial financial support for an enjoyable retirement. Retirees with substantial portfolios may enjoy living off returns without touching the principal. However, those with smaller portfolios will likely need to access their funds eventually.

Seeking professional guidance on your investment objectives can offer valuable insights into the ideal frequency for rebalancing your retirement portfolio, ensuring that your asset allocation consistently aligns with your risk tolerance.

Why rebalancing is important

Maintaining your desired asset allocation
Over time, your portfolio’s asset allocation may shift due to market fluctuations. Rebalancing helps you maintain your desired allocation, ensuring that your investments align with your risk tolerance and long-term objectives.

Managing risk
If left unchecked, your portfolio may become too heavily weighted in one asset class, exposing you to more risk than initially intended. Rebalancing allows you to redistribute your investments and maintain an appropriate level of risk.

Opportunity for reassessment
Regularly reviewing your portfolio allows you to reevaluate your investment strategy and adjust as needed. This can be particularly important when your financial needs and goals may change during retirement.

How often should you rebalance
There is no one-size-fits-all answer to this question, as the ideal frequency will depend on your circumstances and preferences.

However, some general guidelines include:
Annually: Rebalancing once a year is often sufficient for most investors. This allows you to take advantage of market performance while minimising the impact of short-term fluctuations.
Semi-annually or quarterly: Some investors may prefer to rebalance more frequently, such as every six months or quarterly. This can provide additional opportunities to adjust your portfolio and respond to changes in the market.

Tips for rebalancing your portfolio

Set target thresholds
Establish specific allocation targets for each asset class in your portfolio. When an asset class’s weight deviates significantly from its target, it may be time to rebalance.

Consider transaction costs and taxes
When rebalancing, be mindful of transaction costs and potential tax implications. These can eat into your returns if not managed carefully.

Remain disciplined
Stick to your rebalancing plan and avoid making impulsive decisions based on market movements or emotions. A consistent approach will help you stay on track with your investment goals.

Rebalancing your portfolio during retirement
As time progresses, your personal risk tolerance and investment objectives will evolve. Adjusting your investment portfolio with age – particularly as you enter retirement – can help align your asset allocation with your risk appetite and investment goals. It’s equally crucial to rebalance your portfolio during retirement.

Unlike younger investors who can weather market fluctuations, retirees aim to safeguard their capital rather than maximise returns. In retirement, your risk tolerance is likely to be significantly lower than when you were employed and received a stable income.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH. TAX TREATMENT DEPENDS ON THE INDIVIDUAL CIRCUMSTANCES OF EACH CLIENT AND MAY BE SUBJECT TO CHANGE IN THE FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.

A PENSION IS A LONG-TERM INVESTMENT NOT NORMALLY ACCESSIBLE UNTIL AGE 55 (57 FROM APRIL 2028 UNLESS PLAN HAS A PROTECTED PENSION AGE).

THE VALUE OF YOUR INVESTMENTS (AND ANY INCOME FROM THEM) CAN GO DOWN AS WELL AS UP, WHICH WOULD HAVE AN IMPACT ON THE LEVEL OF PENSION BENEFITS AVAILABLE.

YOUR PENSION INCOME COULD ALSO BE AFFECTED BY THE INTEREST RATES AT THE TIME YOU TAKE YOUR BENEFITS.


The new skyline of London at sunset time

Bonds vs Equities

Where should income-seekers turn?

UK income-seekers often face the dilemma of choosing between bonds and equities for their investments. Both asset classes have their unique advantages and risks.

To make an informed decision, it’s essential to understand the differences between the two and assess your risk tolerance, investment goals, and time horizon.

Bonds
Bonds are fixed-income securities governments, corporations, or other entities issued to raise capital. They pay periodic interest (coupon) to bondholders and return the principal amount upon maturity.

Some key features of bonds include:
Lower risk: Bonds are generally considered less risky than equities because they provide regular income and a predetermined return on investment.
Stability: Bonds can add stability to your portfolio as their values tend to be less volatile than equities.
Predictable income: Bonds provide a predictable income stream through coupon payments, making them attractive for income-seeking investors.

However, there are some downsides to bonds:
Lower returns: Bonds typically offer lower returns than equities due to their lower risk profile.
Interest rate sensitivity: Bond prices are sensitive to interest rate changes, and rising rates can lead to capital losses.
Inflation risk: Inflation can erode the purchasing power of bond income, making it less attractive over time.

Equities
Equities, or stocks, represent ownership in a company. You can benefit from the company’s growth and profitability as a shareholder.

Some advantages of equities include:
Higher returns: Equities have historically provided higher long-term returns compared to bonds, making them more suitable for investors seeking capital appreciation.
Dividend income: Many companies pay dividends to shareholders, providing a source of income.
Inflation hedge: Equities can potentially outpace inflation over time, preserving the purchasing power of your investments.

On the other hand, equities come with their own set of risks:
Higher volatility: Equities can experience significant price fluctuations, leading to higher potential returns and losses.
Company-specific risks: The performance of individual companies can significantly impact your investment, making stock selection crucial.

Diversified portfolio containing both bonds and equities
For UK income-seekers, determining whether to invest in bonds or equities largely depends on your individual goals, risk tolerance, and investment horizon. Bonds may be a better choice if you prioritise stability and predictable income. However, equities could be more suitable if you’re willing to accept higher volatility for potentially higher long-term returns and an inflation hedge.

A diversified portfolio containing bonds and equities might be the best approach, as it can help strike a balance between risk and return while providing multiple sources of income.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP, AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.


Teenage daughter hugging her father outside in town when spenidng time together.

Protecting our children, protecting your future

Our health, an invaluable asset, is often overlooked or taken for granted

As a parent, ensuring the well-being of your children is a top priority. From having open conversations with your partner to creating a Will, there are straightforward measures you can implement to provide them with the protection they deserve.

Open the conversation
Discussing sensitive topics might be uncomfortable, but it’s essential for planning and protecting your children’s future. Choose a time and place to start this important conversation when you and your partner or immediate family won’t be disturbed. By viewing it as a practical task rather than an emotional one, it becomes easier to handle.

Appoint a legal guardian
Many parents still need a formal plan regarding who would care for their children if they were no longer around. Selecting a legal guardian is crucial to ensure your children’s well-being. A legal guardian can be anyone over 18 years old, such as a close family member or friend. If a guardian isn’t chosen, your children may end up in foster care while the courts appoint a guardian.

Create a Will
After discussing your plans and selecting a guardian, make it official by creating a Will. A Will allows you to specify how your estate should be distributed upon death. Dying without a Will leaves the distribution of your assets up to the law, which may not align with your wishes. Moreover, a Will can help minimise Inheritance Tax, leaving more for your children to benefit from.

Look into life insurance
Having life insurance in place is a responsible way for parents to ensure the financial security of their children in the event of their death. It is an essential part of any family’s financial plan and can provide you and your family with the peace of mind that they will be taken care of in case something happens. It could provide a tax-free cash benefit to your children if something were to happen to you. This money can help pay for your children’s living expenses or any other financial needs. Having life insurance in place ensures that your children are financially provided for in the event of your death.

Seek expert advice when necessary
Having children is a financial game-changer. Not only do you increase your expenses, but you also gain the responsibility to protect them by providing for their future. One way to do this is by speaking with your professional financial adviser. By obtaining professional financial advice about your life insurance requirements for your children, you can protect their future and provide them with financial security. No parent wants to think of the unthinkable, but by investing in life insurance, you can give your children the security they need to face whatever comes their way.
Following these simple steps, you can take charge of your children’s well-being and guarantee their future is protected.


Wind turbines on hill

Responsible asset selection

Supporting responsible practices and contributing to a sustainable future

Environmental, Social, and Governance (ESG) investing is a strategy that focuses on companies that prioritise environmental, social, and governance factors in their operations. Investing in these businesses aims to support responsible practices and contribute to a sustainable future.

By focusing on companies with high ESG scores, investors can support sustainable and ethical businesses while enjoying the potential for superior financial performance.

Here’s a breakdown of the three ESG criteria:

Environmental: This criterion evaluates a company’s impact on the environment. Factors such as energy use, sustainability policies, carbon emissions, and resource conservation are considered when assessing a company’s environmental performance. Companies with strong environmental practices often have lower environmental risks and demonstrate a commitment to reducing their ecological footprint.

Social: The social aspect of ESG investing examines how a company treats its employees and interacts with the communities in which it operates. Businesses prioritising employee welfare, workplace safety, and community engagement are more likely to have a positive social impact and maintain a good reputation. Supporting companies with strong social values can promote fair labour practices and foster a more inclusive society.

Governance: Governance factors relate to a company’s leadership, management, and overall corporate structure. Key considerations include executive compensation, audit processes, internal controls, board independence, shareholder rights, and transparency. Companies with robust governance structures are more likely to be accountable, trustworthy, and better prepared to manage potential risks.

By considering ESG factors in investment decisions, investors can support companies that demonstrate a commitment to sustainability, ethical practices, and strong governance. This approach aligns investments with personal values and can lead to long-term financial benefits, as ESG-focused companies are often better equipped to navigate evolving regulations, mitigate risks, and capitalise on emerging opportunities.

Focused on sustainability, ethical practices, and strong governance
ESG factors are increasingly essential for investors when evaluating companies and making investment decisions. Investing in high-scoring ESG companies allows for responsible and ethical investments without sacrificing returns. Numerous studies have shown that companies with strong ESG performance tend to outperform their counterparts with lower ESG standards.

High ESG scores indicate that a company is focused on sustainability, ethical practices, and strong governance, which can lead to long-term success and reduced risk exposure. These companies are more likely to be resilient in market fluctuations and other challenges.

On the other hand, businesses with low ESG standards have often faced consequences like declining share prices and reputational damage. Examples of such companies include those causing significant environmental harm, engaging in unethical practices, or attempting to cheat regulatory systems. These events can lead to financial losses for investors who hold shares in these companies.

Challenges of ESG Investing: Greenwashing and Subjectivity
ESG investing has gained significant traction recently as investors increasingly seek to align their portfolios with ethical values. However, the varying interpretations of ESG categories and the rise of ‘greenwashing’ can make it challenging for investors with specific ethical requirements to navigate this space.

Subjective nature of ESG
One of the main challenges of ESG investing is the subjectivity in evaluating companies based on their environmental, social, and governance policies. What is considered a responsible investment for one person could be unethical by another. For instance, a sugary drinks manufacturer may have an excellent recycling policy, earning them high marks in the ‘E’ category. However, some investors might argue that sugary drinks are detrimental to society, making the company an unsuitable investment choice.

This subjectivity makes it difficult for investors to find a universally agreed-upon standard for determining whether a company or fund meets their ethical criteria.

Threat of greenwashing
Another challenge facing ESG investors is the phenomenon of ‘greenwashing,’ where companies or funds market themselves as environmentally friendly or socially responsible when, in reality, they do not meet these standards. This deceptive practice can lead to investors unwittingly supporting businesses that do not align with their values.

To combat greenwashing, investors must conduct thorough due diligence on the companies and funds they are considering. This may involve reviewing third-party ESG ratings, examining a company’s sustainability reports, and scrutinising the portfolio holdings of ESG-focused funds.

Navigating ESG investing challenges
Despite the challenges posed by subjectivity and greenwashing, ESG investing remains an essential tool for those who wish to align their financial goals with their ethical values.

To successfully navigate these obstacles, investors should:

Clearly define their values and priorities when it comes to ESG issues.

Conduct thorough research on companies and funds, utilising third-party ESG ratings and other available resources.

Be cautious of companies or funds that make bold sustainability claims without providing concrete evidence to back them up.

Diversify their investments across ESG-focused companies and funds to mitigate the risk of inadvertently supporting unethical businesses.

By taking these steps, investors can better ensure that their investment choices align with their ethical values and contribute to a more sustainable and socially responsible future.

THIS ARTICLE DOES NOT CONSTITUTE TAX OR LEGAL ADVICE AND SHOULD NOT BE RELIED UPON AS SUCH.

THE VALUE OF YOUR INVESTMENTS CAN GO DOWN AS WELL AS UP AND YOU MAY GET BACK LESS THAN YOU INVESTED.

THE TAX TREATMENT IS DEPENDENT ON INDIVIDUAL CIRCUMSTANCES AND MAY BE SUBJECT TO CHANGE IN FUTURE. FOR GUIDANCE, SEEK PROFESSIONAL ADVICE.


Grandfather Giving Granddaughter Ride On Shoulders As They Walk Through Sand Dunes With Grandmother

How to financially support your children & grandchildren

One in twelve grandparents use property wealth to support grandchildren

There’s no denying that grandparents have a wealth of knowledge and life experience to offer their grandchildren, but increasingly, they’re also able to provide much-needed financial support. With housing prices remaining sky-high, many homeowners are turning to the value in their homes as a way to give their grandchildren a living inheritance.

This could take the form of a substantial monetary gift towards a first home or the regular financial support necessary to meet the ever-rising costs of living. For those who cannot afford to give money, extended family members are also helping out, whether that means providing unpaid childcare or letting adult children move in to help them save up for their own home.

Financial support to their grandchildren
A recent study found 79% of grandparents have provided financial support to their grandchildren and identified that this type of support is becoming more common, with 8% of grandparents using their property wealth to fund this help[1].

Interestingly, younger grandparents are more likely to use their property wealth to fund financial support for their grandchildren. This suggests that attitudes towards using homes to support family members are changing.

Helping with day-to-day costs
There are many reasons why grandparents choose to give financial gifts to their grandchildren. Some grandparents provide help with day-to-day costs, while others give one-off gifts for big-ticket expenses, such as holidays or wedding celebrations.

Notably, grandparents in London are the most likely to use property wealth to provide financial support to their grandchildren. This is likely due to the region’s higher-than-average property values.

Important part of financial planning
Overall, the study highlights the important role that grandparents play in supporting their families both emotionally and financially. Whether through regular financial help or one-off gifts, grandparents are making a big difference in their grandchildren’s lives.

The survey revealed that younger grandparents (aged 50-64) are twice as likely to use property wealth to gift to their grandchildren than those aged 65-74. This suggests that the younger generation of grandparents are beginning to view their homes as an important part of their financial planning.

‘Bank of Mum and Dad’
Grandparents are offering financial support to grandchildren for a range of reasons, including helping during times of crisis (13%), contributing to one-off expenses such as holidays (17%) or weddings (5%), and providing support for rent or getting onto the property ladder (5%).

Previous research found that over half (56%) of those under 35 received a financial gift from the Bank of Mum and Dad to help them get onto the housing ladder. Grandparents are increasingly accessing their own property wealth to provide this type of support.

Making a big difference
According to the ONS, London’s average house prices are the most expensive of any region in the UK, at £543,099 on average. Financial support from grandparents can make a big difference in the lives of their grandchildren.

If you’re considering giving money to your grandchildren, it’s important to consider your own financial situation first. Make sure that you can afford to give without compromising your own financial stability. You’ll also want to think about how best to structure your gifts: will you give a lump sum, contribute to a university savings plan or give a monthly allowance?

Source data:
[1] https://group.legalandgeneral.com/en/newsroom/press-releases/one-in-12-grandparents-use-property-wealth-to-support-grandchildren