What are some low-risk investing options during retirement?
15 July 2021
Question by Keith
We have just retired to France. We have pensions that cover our expenses but we also have savings of around £230k which we would like to invest for a monthly income. On a risk scale we are relatively low risk. Could you please explain the low-risk options we might want to consider? Best regards, Keith
Answered by David Stone
Congratulations on your retirement, and having your expenses covered by pensions sounds like a great result!
If you had retired to the UK I would split my answer in two, the first part would discuss what tax “wrappers” to use - starting with £20k each into ISAs for you and your partner. Then I'd probably suggest a pair of General Investment Accounts (GIAs) which could then be used to fund ISAs in future years so that eventually your entire portfolio would be tax-free.
When retiring abroad...
However as you are no longer UK residents you cannot contribute to ISAs, furthermore you would need to take more specialist advice around how best to structure your investments to ensure they are efficient in terms of French legislation.
The second part is less affected by your move to France, i.e. what assets you should hold in order to produce a low-risk income. For a relatively low risk appetite, I would typically suggest a highly diversified portfolio of Equities, Bonds, Property, Cash and Alternative assets.
In an ideal world, holding these different asset classes would reduce the overall correlation in your portfolio, thus avoiding the extremes of volatility as the individual assets swing in price Although please note there is a view that assets have become more closely correlated since the credit crunch of 2008.
A realistic aim
It might be realistic to aim at producing a total annual return in the region of 5%. You could choose to just withdraw the “natural” income produced by the assets (dividends, interest etc.) and/or you could sell some of the profit each year to supplement your income.
Other than holding the monies in cash, and then risking the true value being eroded by inflation, there is no way of avoiding investment risk, so focus on the things you can control such as A) cost B) tax-efficiency and C) diversification.
I hope this is of some help, and I wish you all the best with your retirement.
David started Mansion House Capital with his (now) wife back in 2000, they advise across all areas and mainly look after London-based professionals who are too busy and/or too bored to prioritise planning their own finances. David is a Chartered Financial Planner and Fellow of the Personal Finance Society.