To mark the fourth anniversary of pension freedoms on April 6th, we consider how investing at income drawdown is evolving today given Brexit and other growing uncertainties affecting the markets. Over the years we have discussed the following: move from growth to income funds since the latter offers higher yields that can be taken as income and with potential growth on top; invest in low risk in the beginning since it offers a potentially smoother ride with a lower chance of having the pot hit at an early stage; and last but not least consider allocating to some higher risk assets to help add potential for better returns.
Although volatility has settled down from the violent end of 2018, global growth has moved into the slow lane and geopolitical uncertainties continue to drive the markets at higher-speeds. In the UK, assets remain unloved and, as the Brexit clock ticks, recent rallies in sterling suggest the market would welcome any sort of agreement that helps pave the way for leaving the European Union.
After some remarkable ups and downs in 2018, asset prices have come back to earth and global growth is now firmly in low gear. The US Federal Reserve’s quantitative easing (QE) withdrawal with four interest rate hikes last year made an impact across the board from widening corporate bonds to battered emerging market currencies and we expect this and the reaction to other central banks’ tightening to provide a headwind for the wider markets in Q1 of 2019.
As 2018 winds down, we are faced with the fact that Brexit and the cloudy uncertainties it poses on UK businesses and investors continues to drag on. Although it is difficult to predict what will happen given the range of outcomes and indeed the range of forecasts on the impacts of those outcomes, we at Canada Life Investments in London feel it is important to communicate a brief analysis of it as we move into 2019.
Markets took a downward turn in October as the impact of the global monetary tightening cycle, excessive valuations within some asset classes, political uncertainty and issues across emerging market currencies turned sentiment sour. However, we believe this was a sensible correction, not the first leg down in a long-term bear market.