INVESTING TO SUSTAIN YOUR CLIENT’S INCOME NEED

What is the ideal investment solution for clients withdrawing an income? There is obviously not a single correct answer to this question, and the most suitable solution or product will depend on what the outcome is that needs to be achieved.

Sustaining an inflation adjusted income for as long as possible requires consistent returns above inflation. However, for the investment strategy to be truly successful, the long-term journey during the retirement years also requires that the client experiences financial wellbeing: balancing eating well with sleeping well! This necessitates an investment strategy that focuses on both the long-term return and the journey to achieving those returns.

Consider a solution that is suitable for private investors who need an investment that has the highest probability of sustaining the required income for as long as possible. Consider a solution that is managed with the aim of not only producing a consistent growth, but also aims to generate a high level of annual income while minimizing the downside risk over the short-term.

At Amity Investment Solutions we built exactly such a model portfolio. Our research of the long-term characteristics of asset classes and our proprietary scorecard methodology has led to the development of an outcomes-based income solution. This investment strategy optimises the probability of achieving a consistent long-term outcome which can sustain the client’s income need, whilst reducing the adverse effect that regular withdrawals will have on the capital when markets are down. This balance between long-term growth and active risk management provides the client with financial wellbeing during the retirement years.

Introducing the BALANCED INCOME MODEL PORTFOLIO

This portfolio combines capital growth assets as well and income generating assets in a way that produces a predictable annual income, whilst enhancing the probability of delivering a more consistent capital growth over the long-term.

The primary objective is to manage a solution that:

• delivers a return between cash and CPI + 4% over any rolling 5-year period
• delivers a return of more than cash with a 90% probability over a rolling 5-year investment horizon
• limits downside risk over any 12-month period, and
• focuses on generating a high level of income

The recent one year number illustrates that this portfolio managed to do well. Given the back tested data, the model portfolio managed to achieve it's targeted outcome: