Drawdown

As I write, the FTSE 100 is down 7.4% over the past 12 months; 4.5% with dividends. The charges within products and the adviser fees would increase this loss by, say, another 2%. Of course not all portfolios track the FTSE 100. But all the same it’s not a pretty picture for clients looking to take the typical 4% per annum income.

As a matter of fact I am in drawdown myself. But as a low to medium risk investor I keep a couple of years’ income on deposit because it it is inevitable that at some stage there will be a significant “correction” and I don’t want my discretionary fund manager (LBG Vestra) to have to sell assets at that time. I wonder how many other people in drawdown take the same approach.

Ideally, the financial adviser  responsible for the investment would hold a watching brief over the markets and maybe contact clients if at any time the upside looked less likely than the downside and suggest selling sufficient assets to finance  imminent  drawdowns. Coincidentally I had a call from my IFA (Tony Ahearne at Anthony Bryant) as I was writing this. And he did exactly that. LBG Vestra had taken profits on some shares in my portfolio and he suggested we keeps the proceeds in cash for the time being rather than re-invest. I agreed wholeheartedly. He’s earning his fees. Not all advisers do!

Talking of fees, Clive Waller wrote an article on adviser fees and drawdown last week and was kind enough to mention me. You can read the whole article here.