Drawing an income from your investments in an uncertain world


01-04-2020
green field with tree on the horizon

A message to clients, both current and prospective, from Benjamin Sear, Managing Director at Indepdendent Financial Advice firm Martin-Redman Partners.

We are now a week and a half into the new normal of living with lock down and social distancing, I have started to adjust to my new boundaries, smaller horizons and social distancing. It certainly is a challenge, living with a very talkative 12 year old can be trying at the best of times, when she has a captive audience though it is magnified. However, to put your mind at rest the dog and I are still bearing up, retreating to the office and enjoying the fields once a day.

Drawing an income in volatile markets
A key issue Julian, I and the team at Martin-Redman Partners are all very concerned about is the impact of drawing an income in these volatile markets. We appreciate that for many, the need to draw money from pensions and investments is still there to meet your day-to-day needs.

Yet as Indepdendent Financial Advisers we also understand that taking the same level of income from a reduced investment can have an impact on the ability of your investments to recover their lost values as quickly as we all hope they will.

By way of a worked example;

  1. At the end of 2019 your investment was valued at £100,000 and you were taking £5,000 per year as income (or taking a 5% withdrawal).
     
  2. Your investment then fell by 20% to £80,000 at the start of 2020, and you continued to draw £5,000 per year –you are now taking a 6.25% withdrawal from your investment. Or to put it another way you are now selling an extra 25% of your units to generate the same level of income.
     
  3. What this means is you will need to sell 1.25% more of your investment in 2020 to get the same level of income, when it is already down in value. When the markets and your investment recovers, there are less units to benefit from this growth. In effect it is compounding but in reverse.

So what can you do and how can we help you?
In these times of isolation where we all doing less and spending less, it is worth reviewing your outgoings as your costs may have reduced. If they have, can you reduce the income you are drawing from your investments? The impact this will have on the longevity of your investments, meaning you are less likely to run out of money too soon, can not be underestimated.

If you want to talk to an Independent Financial Adviser about your current situation, to review your investments or your income or to find peace of mind by asking questions of us then please either drop us an email at info@martin-redmanpartners.co.uk or call the team on 01223 792 196.

If you want to talk about your finances or anything else we are here to either offer our advice at this time. 

We wish the best of health to you and your families.

Best

Benjamin Sear
Managing Director

About Martin-Redman Partners  

We are a team of experienced Independent Financial Advisers (IFAs) who can advise on your personal or business financial arrangements. We have been building trusted relationships with clients for many years by articulating clear and tailored recommendations in areas ranging from investments to retirement planning, to complex estate planning advice.  

We offer expert independent financial advice throughout Cambridgeshire, Leicestershire, Suffolk, East Anglia and the South East.  Many of our clients are within, or are in the surrounding areas of Cambridge, Grantham, Stamford, Bury St Edmunds, Frinton on Sea, Ely, Peterborough, Huntingdon, Cambourne, Newmarket, Soham and Oundle.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of UK legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly, no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.

 

We provide independent financial advice on investments, pensions, inheritance tax planning and protection. We work with private individuals, businesses and professional introducers, such as accountants and solicitors, to ensure our clients financial advice needs are met.

Martin-Redman Partners