What investment options are available to retirement planners?

When it comes to picking investments to build a retirement portfolio, there are a wide range of options for people to choose from. And understanding which option to pursue can be challenging.

Indeed, different types of investments offer varying levels of return potential – and of course, varying levels of risk (although it is important to remember that all types of investments do carry risk).

So, what different investment options are available to pension planners? We’ve broken down some popular options, which could be worthy of consideration.

Discretionary fund management

Discretionary managed portfolios are those which enable a client to pass on investment decisions and management to their own fund manager. This allows the fund manager to make changes to their client’s portfolios as and when they feel it is necessary.

So, a client’s portfolio manager will regularly review the markets so they can spot trends and adjust the funds invested as conditions change. In doing so, the investment manager will look to maintain the appropriate risk level and achieve competitive returns, in some cases, replacing funds completely.

The manager will have the know-how to make informed investment decisions on behalf of clients, aiming to maximise returns, manage risks, and outperform the benchmark, although the performance of the investments is not guaranteed.

As these funds are actively managed, fees are typically higher than other funds, and an additional Discretionary Fund Management fee will apply.

Passive funds

Unlike the active fund management style of discretionary managed portfolios, passive fund management, sometimes known as ‘tracking’, aims to deliver a return that is in line with current market benchmarks, but at a lower cost, as fund managers do not need to pick individual stocks. 

It will usually involve a fund that is made up of other funds, namely Index Funds or Exchange-Traded Funds. Each fund has a diverse set of investment holdings, with the aim to spread out the risk across numerous assets. 

To do this, fund managers replicate market indices, such as the FTSE100. This means that the value of a fund is tied to the performance of the market index being tracked, so the value of this fund will go up or down depending on general market performance. 

Stocks and shares ISAs 

The term ‘ISA’ stands for Individual Savings Account, and importantly any interest gained within an ISA is free from UK income or capital gains tax up to an allowance of £20,000.

Stocks and shares ISAs operate similarly to their cash equivalents found at banks or building societies; however, rather than earning a fixed annual interest rate, clients’ money is invested in a chosen portfolio, allowing it the potential to produce a greater return. Although, its value can rise and fall with the markets so, there is still a level of risk involved. 

Stocks and shares ISAs are usually recommended as a long-term investment as this gives them a greater chance of outperforming a standard cash ISA, but they are flexible in that money invested in a stocks and shares ISA can typically be accessed whenever it is needed.

General investment accounts

Those looking to invest more than the ISA allowance may wish to consider a General Investment Account (GIA) alongside a stocks and shares ISA.

A GIA provides access to the same portfolios as a stocks and shares ISA but there is no limit to how much can be invested on an annual basis. However, unlike an ISA, interest earned from GIA investments is taxable at a rate dependent on an individual’s circumstances.

GIAs also allow holders to easily deposit and withdraw funds whenever they want, and such flexibility can be a useful element within someone’s retirement strategy. However, it is recommended that they speak to an independent financial adviser before making any decisions in this regard, to ensure they understand any potential risks. 

Seek advice

So much choice empowers individuals to develop investment and savings strategies to achieve their long-term financial goals. However, so much choice can also be daunting. Further, it is important to remember with any form of investment, there is always a risk of loss; if a fund performed well in the past, there is no guarantee it will do so in the future. 

With this in mind, it is vital to speak to an independent financial adviser, like a member of our team at My Pension Expert. 

At My Pension Expert, our team of certified independent advisers can assess a person’s individual circumstances, financial position, and preferences. They will then provide them with personalised recommendations to help them find the investment products best suited to not just their future goals, but their current circumstances, including the level of risk they are comfortable with incorporating into their retirement plans. 

Investments can be a lucrative element of one’s retirement strategy. However, it is important to understand the different options available to them, in addition to the risks they can present. So, we highly recommend speaking to an independent financial adviser before making a final decision. In doing so, people will be able to select an option which is well suited to their needs and plan for their financial future with confidence.