How much money will your clients withdraw in 2022?

For financial professionals only

‘It’s beginning to look a lot like Christmas’, is how Michael Bublé introduces himself in our house every December and despite the fact the year is barely half over, my thoughts are beginning to turn to what my spending pattern is likely to be over the next 18 months.
So, I wonder if other investors, people 60 years and over, are starting to have the same thoughts?

For one thing, thanks to Covid, I reckon I am three decent holidays behind the plans set out in my bucket list, maybe even four. When am I going to be able to catch up? Will I ever get to visit Madrid or Prague or Copenhagen before I hit 70? Having not used one of our cars in the last 15 months, I’m beginning to lose interest in replacing them but I rather fancy doing something out of the ordinary to cheer myself up. When the Covid dangers looks safe enough, maybe I should make the effort and explore New Zealand?

What’s making all these pleasurable moments in dreamland seem ever more feasible is that pension savings seem to be doing very nicely. A good chunk of mine have been invested since we launched the solution in PIM’s Conviction portfolios, at Risk Grade 6. Here’s a chart of how that money has performed over the last six years. Conviction was launched in August 2015.

As always, past performance cannot be used as a guide to future returns, investments can rise as well as fall in value and you may get back less money than you invested.

Chart of Conviction Yony Performance To June 2021

Source: Investment Quarterly (performance is shown net of OCF)

If I had added nothing to my portfolio in these last six years its value would have charted something like this.

Chart showing Conviction Cumulative Performance To June 2021

Source: Investment Quarterly (performance is shown net of OCF)

A 54% increase in value in six years, in my opinion, is quite acceptable, for the level of risk being run. It’s also quite consistent with my financial planning modelling assumptions – which have been for growth of around 2.5% pa – in real terms – that is after the effects of inflation.

And that is the point of this article. Over the last six years, CPI has not been the factor that’s been worrying me. The dislocation of Brexit and its consequences, a string of General Elections and now Covid, have all been bigger headaches. So, what has been the effect of CPI growth on my returns? Here’s the chart, netting off CPIH inflation (which includes housing costs) and showing where my planned returns should be to achieve 2.5% on top of inflation.

Chart showing Conviction Cumulative Performance CPI To June 2021

Source: Investment Quarterly (performance is shown net of OCF), ONS

There is still a healthy return of nearly 40% in real terms over almost 6 years and the portfolio return is some 20% cumulatively above my planned return level, too. So, is this my chance to blow 20% of my retirement savings pot on getting past the post-Covid blues?

Unfortunately, I don’t think so. I think I’ll take it steady. I don’t want to be a victim of price gouging abroad, in a stampede of frustrated tourists all desperate for tranquillity. I want to see how the inflation threat plays out over the next year.  And I am reminding myself I should not be creating a self-inflicted sequence risk event in my retirement plans by letting my spending rip.

And of course, markets are at very high levels. How would I feel getting home after ‘the holiday of a lifetime’, to hear of bad news from the markets?

No, 2022 will be a normal year for spending – as I had originally planned. And that old Michael Bublé CD only cost a tenner, I think, and will be good for years to come.

This article is for financial professionals only. Any information contained within is of a general nature and should not be construed as a form of personal recommendation or financial advice. Nor is the information to be considered an offer or solicitation to deal in any financial instrument or to engage in any investment service or activity. Parmenion accepts no duty of care or liability for loss arising from any person acting, or refraining from acting, as a result of any information contained within this article. All investment carries risk. The value of investments, and the income from them, can go down as well as up and investors may get back less than they put in. Past performance is not a reliable indicator of future returns.  

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