Pension Investment Process


Once you have a pension in place, or have agreed to start one, the most important decision remaining is where to invest your money. This can be both your regular contributions and funds that have built up in other pensions over a period of time.

Your individual attitude towards risk is incredibly important in all financial matters as it impacts directly on where you invest your money. Our advisers will discussing the subject with you, to both establish your understanding of risk, and explain important aspects of investment risk.

Other factors to consider will be your investment experience and the range of funds or options available within the employers pension scheme. We will work with you to select an appropriate fund or combination of funds to start you off, ensuring it fits with your attitude to risk.

Some employers are now offering pensions with access to full fund supermarkets. These are typically of interest to those with larger funds or high regular premiums or to those of a speculative nature who wish to have access to emerging market and specialist funds like China or Gold. If you fit in to this category we will take a more structured approach to your portfolio and design an asset allocation and a bespoke portfolio for you. As pensions are a type of investment please refer to our Investment Centre and the sections entitled asset allocation and fund selection for more information on these specialised processes.

Factors to Consider

When looking at attitude towards risk, one of the most important factors is the term, or length, of the investment. For a pension, this is typically many, many years. In general, the longer you invest in a fund, the less risky it becomes. The best way to imagine this is to ask two simple questions.

  • Will the stock market be higher in 20 years than it is now?
  • Will the stock market be higher in 6 months than it is now?

Many people would feel comfortable saying that the stock market will be higher in 20 years, while understanding that it is far more risky to suggest this would be the case in 6 months. This is because during a 6 month period, you only have a short time to make up for any losses, whereas this is not the case over a 20 year period.

It is also important to understand that having a medium attitude towards risk does not mean only choosing medium funds. The age old phrase ‘you do not put all your eggs in one basket’ is the epitome of diversification, the idea that you reduce risk by spreading your investments around. This can be done within a balanced managed fund, or by selecting several funds, some above your attitude towards risk which are balanced by some below.

All of these issues need to be taken into consideration when determining your attitude towards risk. If you have any specific questions, or would like to speak with your adviser, click here to contact us.

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