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Should pension planners diversify their investment portfolios?

“Hedge your bets”, so the saying goes. Whilst this may seem somewhat cliched, this philosophy is undoubtedly worthy of adopting when managing one’s pension portfolio.

Indeed, building a diverse investment portfolio – one which sees an individual’s portfolio contain a healthy mix of distinct asset types and investment vehicles – can offer multiple benefits. Perhaps the most attractive quality diversification provides is that it minimises the overall risk associated with the investment portfolio. This is because the person’s investments are less vulnerable to industry or enterprise-specific risk.

Consequently, the portfolio is more likely to remain stable in the long term because not all investments are likely to perform poorly all at once. As such, it eases the pressure when certain funds underperform if other investments perform very strongly – undoubtedly reducing the stress of the individual investor.

An attractive proposition

Evidence certainly suggests that more and more individuals are now viewing investments, and more diverse portfolios, as an attractive mechanism to incorporate into one’s retirement strategy.

Indeed, My Pension Expert recently commissioned a survey amongst 550 UK adults with at least £50,000 in investments (excluding property they own as their primary residence or money in savings accounts) to identify trends in popular investment strategies. The research found that 42% of respondents prefer to actively invest their money in assets instead of putting their money in traditional savings accounts or pensions. A similar number (44%) expect more of their retirement income to come from investments rather than a pension pot.

Such figures suggest that more and more individuals are open to the prospect of investments, and consequently, portfolio diversification. Worryingly, however, a substantial number seem to be failing to seek advice.

Indeed, My Pension Expert’s research mentioned above found that just 25% of wealthy pension planners have consulted a wealth manager about their investment strategy. This suggests that, whilst appetite for investments – and diverse investment portfolios – is growing, investors could be putting their money in investments that don’t suit their needs. Worse still, it could be exposing them to higher risk than they are able to manage.

The value of advice

Evidently, having a diverse investment portfolio will benefit investors and their retirement strategies. However, a diverse portfolio is pointless – unless such investments suit the individual’s specific needs, goals, and risk appetite. As such, it is vital that Britons consult a wealth manager or independent financial adviser before making a final decision.

For example, our team of qualified experts at My Pension Expert’s bespoke investment offering, Imperium Advice, offers tailored analysis and advice throughout the entire process – from an initial discussion to understand the clients’ financial goals and risk appetite, to regular portfolio reviews and strategy updates. In doing so, clients can rest assured that their investment portfolio is being appropriately managed and all investments are geared to helping them achieve their long-term retirement goals.

Diverse investment portfolios can play an important role in developing one’s retirement strategy. However, the key is to seek independent financial advice or consult a wealth manager to ensure that it is completely tailored to individual requirements and not exposing them to too much risk. In doing so, more and more pension planners will be able to achieve a stronger retirement outcome than they perhaps initially expected.