Important and careful consideration needs to be made when choosing funds for an ARF;
Choose funds that are too low risk and you run the chance that client withdrawlals will erode the value of the ARF too quickly.
Choose funds that are too high risk and you run the chance that stockmarket falls will similarly erode the value of the ARF.
So its important to find the right balance between risk and reward.
Analysis identifies some surprises; A high percentage of ARF’s are invested in funds in a risk 2 or 3 bracket, the lower end of the scale.
Perhaps this is understandable given that people are more cautious about managing the post-retirement money but while low risk options will shield investments from market volatility, they do heighten the impact of withdrawals.
Automatic investment strategy may be more appropriate for ARF investors; Zurichs RetireRight is an innovative way of managing ARF investments once a person retires. It moves the funds from higher risk assets into lower risk assets over 15 years, helping to balance income requirements with the need to preserve the capital in later life.
De-risking for later life investing; The automatic de-risking strategy within RetireRight helps to ease this difficult issue as it automatically moves customers money into lower risk funds as the get older.
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