WEALTH CYCLE GUIDE

INVESTMENT JOURNEY

Investment portfolios should be designed to meet specific goals and be matched to a level of risk. This could be saving for a specific reason, such as a saving to purchase a house, to pay for future school fees or something more general, such as building wealth for retirement or inheritance.

Your portfolio can be tailored to a level of risk. Risk can be separated into two elements. Your ability to take risk, which is affected by the timeframe for investment, your wealth, earnings, and need for income and withdrawals. This will change throughout your life, according to personal circumstances.

The second element is your willingness to take risk, which is subjective and based on your personal disposition.

Risk is critical to your portfolio and how it will achieve the objectives. As risk is individual it is strongly recommended that a professional financial adviser help you assess your risk profile.

As we take you through this journey we have based the illustration on saving for retirement according to typical circumstances around basic stages in life and how this might link to a risk rated portfolio.

It is important that you understand that this information is general and is not meant as financial advice. The information is designed to help illustrate different investment portfolios according to different levels of risk.

Understand the reasons for taking risk

WEALTH CYCLE GUIDE

WEALTH CYCLE - FIVE STAGES

As already discussed, risk and objectives are unique to every investor and one investor is likely to have more than one goal. To illustrate how risk may change as you approach a goal we have used a typical wealth cycle for pension planning. The below focusses on saving for retirement for an individual’s career. Choose from the selection to see how this could lead to an investment portfolio managed by Margetts. Your personal circumstances are likely to lead to different risk profiles. This section is for illustration purposes only.

investment characteristics

Wealth and Earnings
Relatively low levels of assets/wealth
Relatively low earnings/income

Investment Time Frame
Really Long

Accumulating/Distributing Wealth
Accumulating

Goals
Debt repayment
Saving to buy assets
such as property
Saving for retirement

View Risk Level

investment characteristics

Wealth and Earnings
Growing levels of assets/wealth
Growing earnings/income

Investment Time Frame
Long

Accumulating/Distributing Wealth
Accumulating

Goals
Debt repayment
Saving for assets or other substantial outgoings (school fees)
Financial security
Saving for retirement

View Risk Level

investment characteristics

Wealth and Earnings
Relatively high levels of assets/wealth
Peak earnings/income

Investment Time Frame
Medium to Long

Accumulating/Distributing Wealth
Accumulating

Goals
Financial security
Growing assets
Saving for retirement

View Risk Level

investment characteristics

Wealth and Earnings
Peak levels of assets/wealth
Peak earnings/income

Investment Time Frame
Short to Medium

Accumulating/Distributing Wealth
Accumulating

Goals
Financial security
Protecting assets
Planning for retirement

View Risk Level

investment characteristics

Wealth and Earnings
Diminishing level of assets
Low or no employment income.

Investment Time Frame
Short

Accumulating/Distributing Wealth
Distributing

Goals
Using money for retirement
Planning distribution of inheritance

View Risk Level
WEALTH CYCLE GUIDE

EARLY CAREER

In this illustration we have assumed that someone in the early stages of their career will have relatively low levels of wealth and earnings. Withdrawals cannot be made from a pension until retirement. Therefore, someone in this position may decide to ignore their lower levels of wealth and earnings in order to focus on maximising the long term growth of the portfolio value.

Longer time frames increase the chance of recovery from market losses. Therefore, someone in this position may decide to ignore their lower levels of wealth and earnings in order to focus on maximising long term growth of the portfolio value.

The above does not make any assumptions about the level of risk that someone is willing to take. Your willingness to take risk is an important factor. However, as someone’s willingness to take risk is individual it is ignored in this illustration.

In addition, it is important to remember that your individual circumstances may affect your risk profile and your financial adviser will help you to assess this. The purpose of this section of the website is to provide an example illustration.

investment characteristics

Wealth and Earnings
Relatively low levels of assets/wealth
Relatively low earnings/income

Time Frame
Really Long

Accumulating /
Distributing Wealth

Accumulating

Goals
Debt repayment
Saving to buy assets
such as property
Saving for retirement

WEALTH CYCLE GUIDE

MID CAREER

In this illustration we have assumed that someone in the mid stages of their career may have started to accrue assets and increase their earnings.

However, their level of wealth is still likely to be relatively low compared to an individual later in their career. It is more likely that they will have dependants, which may reduce their ability to take risk. Withdrawals cannot be made from a pension until retirement and therefore the timeframe for the investment is still very long.

A long time frame increases the chance of recovery from market losses. For someone in their mid career the long time frame for investment must be balanced against built up savings, with the likely focus still remaining on maximising long term growth of the portfolio value.

The above does not make any assumptions about the level of risk that someone is willing to take. Your willingness to take risk is an important factor. However, as someone’s willingness to take risk is individual it is ignored in this illustration.

In addition, it is important to remember that your individual circumstances may affect your risk profile and your financial adviser will help you to assess this. The purpose of this section of the website is to provide an example illustration.

investment characteristics

Wealth and Earnings
Growing levels of assets/wealth
Growing earnings/income

Time Frame
Long

Accumulating /
Distributing Wealth

Accumulating

Goals
Debt repayment
Saving for assets or other substantial outgoings (school fees)
Financial security
Saving for retirement

WEALTH CYCLE GUIDE

ESTABLISHED CAREER

In this illustration we have assumed that someone with an established career has built up and is continuing to build assets and is more likely to be considering options for retirement. Earnings are reaching peak levels and living costs are diminishing relative to those earnings.

In this period, disposable income is more likely to be saved for retirement, building assets at a faster rate, which provides a greater capacity for loss. However, although still relatively long, the time frame for the investment is shorter than someone earlier in their career, which will limit risk.

The above does not make any assumptions about the level of risk that someone is willing to take. Your willingness to take risk is an important factor. However, as someone’s willingness to take risk is individual it is ignored in this illustration.

In addition, it is important to remember that your individual circumstances may affect your risk profile and your financial adviser will help you to assess this. The purpose of this section of the website is to provide an example illustration.

investment characteristics

Wealth and Earnings
Relatively high levels of assets/wealth
Peak earnings/income

Time Frame
Medium to Long

Accumulating /
Distributing Wealth

Accumulating

Goals
Financial security
Growing assets
Saving for retirement

WEALTH CYCLE GUIDE

NEARING RETIREMENT

In this illustration we have assumed that someone who is nearing retirement is likely to have their peak level of accumulated wealth and is considering options for retirement.

At this stage it is more likely that someone in this position may wish to preserve the value of their assets in order to protect their future income if entering drawdown in retirement, or obtain the best annuity at the point of retirement. The shorter time frame limits the amount of risk that can be taken.

The above does not make any assumptions about the level of risk that someone is willing to take. Your willingness to take risk is an important factor. However, as someone’s willingness to take risk is individual it is ignored in this illustration.

In addition, it is important to remember that your individual circumstances may affect your risk profile and your financial adviser will help you to assess this. The purpose of this section of the website is to provide an example illustration, for a typical investor in this situation.

investment characteristics

Wealth and Earnings
Peak levels of assets/wealth
Peak earnings/income

Time Frame
Short to Medium

Accumulating /
Distributing Wealth

Accumulating

Goals
Financial security
Protecting assets
Planning for retirement

WEALTH CYCLE GUIDE

RETIRED

In this illustration we have assumed that someone who is retired has decided to take income from their pension portfolio, rather than buy an annuity, which provides a fixed level of income in exchange for the assets.

At this stage it is more likely that someone in this position may wish to preserve the value of their assets in order to protect their future income. In addition, withdrawing income makes it more difficult to recover asset values following market falls, which means that risk should be reduced to limit any losses.

The above does not make any assumptions about the level of risk that someone is willing to take. Your willingness to take risk is an important factor. However, as someone’s willingness to take risk is individual it is ignored in this illustration.

In addition, it is important to remember that your individual circumstances may affect your risk profile and your financial adviser will help you to assess this. The purpose of this section of the website is to provide an example illustration, for a typical investor in this situation.

investment characteristics

Wealth and Earnings
Diminishing level of assets
Low or no employment income.

Time Frame
Short

Accumulating /
Distributing Wealth

Distributing

Goals
Using money for retirement
Planning distribution of inheritance