Assessing your retirement investment risk appetite

4th February 2022

The level of investment risk that is right for you depends on a number of factors. An adviser can assist you in evaluating your options and produce a plan to help you achieve your retirement goals.

The quick read:

  • Accepting a certain amount of risk with your investments is important, to increase the likelihood that you’ll receive the returns you hope for.
  • The risk level that’s right for you is dependent on your views and risk appetite, your personal circumstances and your financial objectives, including retirement planning.
  • St. James’s Place Partner can help you with your decision, and also guide you through responsible investing.

When making decisions on how and where to invest for your retirement, one of the most important questions to consider is about risk. How much is right for you?

In fact, many people are reluctant to invest because they don’t understand the long-term balances between risk and reward – and how getting the balance right can increase your options in retirement.

While it is obvious to most that taking on too much risk is a bad idea, it can also be limiting in many cases if you don’t accept any risk when investing for retirement.

This is where talking to an adviser is essential.

St. James’s Place Partner can set out your options and explain the trade-offs between risk and reward, then help you produce a plan that works for you.

“You can create a financial plan that will take you through your lifetime,” said Tony Clark, Senior Propositions Manager at St. James’s Place.

“To create that plan, you need to answer certain questions. What are your objectives? What’s the purpose of any particular savings or investments and when are you looking to use them?”

Play the long game

Particularly if you are a long way from beginning your retirement – in your 20s, 30s or 40s – it is important to take a long view on how your investments are likely to play out.

It’s vital not to become obsessed by short-term swings in asset prices – by understanding that you are investing for the life you hope to lead in several decades, you can avoid worrying about much of the volatility that can shock markets in the short and medium term.

Where you sit on the risk spectrum can depend on a range of factors, including your personal views and risk appetite, your personal circumstances and financial objectives, and what your plans for retirement are.

Whereas it used to be common to target a specific return with certain investments, it is now possible to deploy a range of savings and investments to create different income streams in later life.

Your pension is likely to be the main source, but ISAs, investments, property and other savings could all form part of your planning.

It is also likely that your risk appetite will change over time as your priorities in life change.

The accumulation phase – when you build up savings and investments to use in later life – requires a different approach to the access, or decumulation, phase.

In the latter, you are asking your assets to work a lot harder, by providing an income while maintaining capital value, which may necessitate a different approach to risk.

It’s never too early to start – or too late

The question of when to begin investing has no precise answer. There might be certain key life events that trigger it, such as receiving a bonus or inheritance.

It is important to remember that while it is never too late, the earlier you can begin investing for retirement, the more able you will be to ride out volatility and take advantage of the compounding effect.

It is always worth taking advice from an adviser for investments because they will do the heavy lifting for you.

St. James’s Place Partner will examine all of the potential options in the marketplace to better fit your view of risk. They can also help you diversify your investments and make them more resilient.

“It’s a broad conversation when you speak to an adviser,” says Clark. “Pensions are an obvious place to start because they are tax efficient and flexible once you get into retirement. But there are many other things to consider.”

“An adviser will talk you through all the options and help you understand where your money will be invested, and discuss why some investment trends might not be appropriate for your risk appetite.”

Responsible investing

One growing area of interest for retirement investors, especially those just beginning their journey, is responsible investing.

Assets held in sustainable funds globally were worth $1.7 trillion last year and are expected to keep increasing, according to a recent report by Morningstar1.

Wanting to grow your money in a way that is positive for the planet is far easier to do than it has ever been before, but it requires knowledge of where and how to invest.

Having objectives such as responsible investment in mind lets you understand how to structure your plans for the future and create a retirement you can enjoy – even if it is many decades away.

The value of an investment with St. James’s Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.

1 Sustainable fund assets hit record $1.7 trln in 2020: Morningstar, Reuters, 28 January 2021