BREXIT FOR INVESTORS
– TIME TO GET ACTIVE
Seneca Investment Managers ' hard hitting , deep thinking Chief Investment Officer , Peter Elston , has been weighing up the potential effects of Brexit on investment returns .
While it is far from clear what its long term impact will be , Britain ’ s vote to leave the EU has shone a light on the growth problems in general that face the global economy . Indeed , global growth has been disappointing for some time now , having never really regained the levels seen prior to the global financial crisis . From 2003 to 2007 , economic growth for the largest developed and emerging economies averaged 3.9 %. Since 2011 , it has averaged just 1.6 %. The reasons for this are complex , but it is certainly possible that lower growth is here to stay .
Lower growth of course means that one should expect lower investment returns . Add in rising longevity and for savers you have a toxic combination . In days gone by one may have only needed to make a savings pot last 10 years and could have expected real returns from a typical balanced fund in the order of 5 % per annum . This would have equated to an annual withdrawal of £ 12,950 ( rising with inflation over the 10 years ) on a pot of £ 100,000 ( see table ).
Initial portfolio value £ 100,000
Annual withdrawal
No . years savings pot to last
10 15 20 25 30
2 % £ 11,133 £ 7,783 £ 6,116 £ 5,122 £ 4,465
Real return achieved 3 % 4 % £ 11,723 £ 12,329 £ 8,377 £ 8,994 £ 6,722 £ 7,358 £ 5,743 £ 6,401 £ 5,102 £ 5,783
5 % £ 12,950 £ 9,634 £ 8,024 £ 7,095 £ 6,505
If returns fall to 2 % and you need your pot to last 30 years , this figure falls to £ 4,465 . ( These numbers assume the said investment return is achieved each and every year . In reality returns will vary from year to year , often considerably ).
Two Options
There are two ways to deal with this problem . Either you reduce your spending in retirement or you try to increase your investment returns . If you opt for the latter , you ’ ll have to take some investment decisions that you may not be comfortable with .
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