When it comes to investing in funds at drawdown, investors often lean towards low risk. This is because low risk funds typically carry lower volatility, which leads to lower fluctuations of returns. They can also help manage sequencing risks and lead to a more stable monthly income.

This might seem like a sound retirement plan, but it is not necessarily sustainable. The reason being is that lower risk often leads to lower returns and this is especially true if the drawdown pot is on the smaller side. To offset this concern, one might reconsider and go for higher risk asset classes. This would allow for growth in the investment pot but at the expense of more volatility and with an increase in sequencing and longevity risks. Taking a more balanced approach could arguably be the best course of action because it adds a broader mix of lower and higher risk assets as well as a better chance of sustainability over many years of retirement, but is buying a balanced fund the best route?

In our latest research, we homed in on the various fund choices and compared the performances of each. Take a 65 year-old client, for example, with a current drawdown pot of £75,000. This retiree wants to boost his annual £8,546.20 state pension so that he can receive a total income of £1,000 per month which rises with inflation. (We added £500 on top of the £12,000 to pay for his advisory fees.) We found that over 30 years this client would need to increase his pot to £179,386 in order to meet his drawdown needs.

We calculated this by running one thousand simulations on the actual returns of the ABI Mixed Investment sectors with the use of Monte Carlo simulation, a technique used to understand the impact of risk and uncertainty by modelling the probability of different outcomes. For each simulation we randomly mixed the last 30 years of returns (to account for sequencing risk) to help us calculate the likelihood of the pot lasting. The table below highlights the results:


£75,000 initial investment

ABI 0-35 sector (low risk)

ABI 20-60 sector (mid risk)

ABI 40-85 sector (high risk)

Chance of money lasting full term




Source: Morningstar Direct & Canada Life Investments research, January 2019.


In this client’s case we found that a lower risk fund leads to a better chance of the drawdown pot lasting than an investment based solely on a balanced strategy. Nevertheless, we also looked into whether it was possible to increase that chance while at the same time providing a positive return at a 95% confidence interval. Our research showed that there is indeed potential for this when investing in all three choices in order to create an overall balanced strategy. We found that instead of choosing one fund clients could invest an even amount into all three (low risk, mid risk and high risk). By taking the income from the lowest risk and rebalancing the portfolio back into equal holdings, investors could increase the chances of both their drawdown pot lasting as well as achieving better growth.


£75,000 initial investment

Equal mix, rebalanced monthly

Chance of money lasting full term


Source: Morningstar Direct & Canada Life Investments research, January 2019.

When we ran the same simulations with the mixed drawdown pot we found that the chance of clients’ money lasting longer and the probable sizes of their pots all increased without a complex strategy. Therefore, our research highlighted that clients can potentially make their drawdowns last longer by arranging a drawdown pot to invest in a risk targeted fund range (say a Portfolio 3, Portfolio 5 and Portfolio 7), setting the monthly income to come from the lowest risk fund and then automatically rebalancing the pot back to its starting asset allocation.

Important information

Past performance is not a guide to future performance. The value of investments may fall as well as rise and investors may not get back the amount invested. Income from investments may fluctuate.

The information contained in this document is provided for use by investment professionals and is not for onward distribution to, or to be relied upon by, retail investors. No guarantee, warranty or representation (express or implied) is given as to the document’s accuracy or completeness. The views expressed in this document are those of the fund manager at the time of publication and should not be taken as advice, a forecast or a recommendation to buy or sell securities. These views are subject to change at any time without notice. This document is issued for information only by Canada Life Investments. This document does not constitute a direct offer to anyone, or a solicitation by anyone, to subscribe for shares or buy units in fund(s). Subscription for shares and buying units in the fund(s) must only be made on the basis of the latest Prospectus and the Key Investor Information Document (KIID) available at www.canadalifeinvestments.com. Some Canada Life Investments funds may invest in property funds that may be illiquid and subject to wide price spreads, both of which can impact the value of the fund. The value of the property is based on the opinion of a valuer and is therefore subjective.

Data Source – © 2018 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.

Canada Life Investments is the brand for investment management activities undertaken by Canada Life Asset Management Limited, Canada Life Limited and Canada Life European Real Estate Limited. Canada Life Asset Management Limited (no. 03846821), Canada Life Limited (no.00973271) and Canada Life European Real Estate Limited (no. 03846823) are all registered in England and the registered office for all three entities is Canada Life Place, Potters Bar, Hertfordshire EN6 5BA. Canada Life Asset Management is authorised and regulated by the Financial Conduct Authority. Canada Life Limited is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

CLI01338 Expiry on 21 August 2019

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