Saving for retirement is one of the most important financial goals for many, yet there is a lack of pension provision in the UK, leading to 21 per cent of people having no private pension at all, and the average pension pot standing at only £35,000.
Retirement income advice is a crucial part of the financial planning process and successfully investing your pension should be a key priority.
The economic climate has been highly volatile over the past four years, and the resulting increase in interest rates and inflation has caused significant fluctuations in most investments.
While the economic climate seems slightly more favourable now, the future is likely to throw up further challenges for investors.
Depending on whether you’re in the accumulation or decumulation phase of life, it will influence how your retirement portfolio is positioned and constructed, with accumulators having a greater focus on capital returns, and decumulators likely to be more focussed on a balance between capital and income.
There are four broad areas that we’re positive can play a role in a retirement portfolio that is in the accumulation or the decumulation phase.
The stock market
The UK stock market is the first area of interest at the moment as sentiment seems to be finally turning after nearly eight years in the doldrums.
Cheap valuations (both relative to other markets and to history), less political instability, improving economic conditions and increased M&A activity have all helped push the FTSE 100 to a string of all-time highs over the past month.
Despite the recent performance the FTSE 100 continues to look attractive but mid/small-cap companies look even more appealing, both areas trading at significant discounts and well below all-time highs.
The Mercantile Investment Trust is our favoured fund, providing exposure to mid-caps while standing at an 11 per cent discount and providing a dividend yield of 3.2 per cent.
Smaller company exposure can be achieved via the Gresham House UK Smaller Companies fund run by the highly experienced Ken Wotton.
Investors who are in the decumulation stage of life should consider the Gresham House UK Multi-Cap Income fund, providing exposure to all parts of the UK market, whilst providing a healthy dividend yield of over 4 per cent.
Emerging markets
Emerging markets have been as unloved as UK equities, but there are a number of reasons to be slightly more cheerful and to consider allocating towards them.
Aggregate valuations trading at multi-decade relative lows is appealing, as is increased government support in China and stronger long-term economic fundamentals than many western economies.
Indian markets continue to look highly attractive over the long-term due to favourable demographics and a growing middle-class and we’d favour the Pictet Indian Equities fund.
General emerging markets exposure can be achieved via the JPM Emerging Markets Income fund, which provides diversified exposure to many emerging markets, while providing a healthy dividend yield of 3.5 per cent.
