Maximising your returns and reducing your risk

Pile of liquorice sweets

Lorna Blyth, Investment Strategy Manager at Royal London, and Trevor Greetham, Head of Multi Asset Investments at Royal London, describe how we balance managing risk with growing your returns over time

CAPTION: How does Royal London balance managing risk with growing your returns over time? And how do our fund managers change your investment mix to get you the best possible returns? Hear from the people who manage your pot…

LORNA BLYTH: Hello, my name is Lorna Blyth and I’m Investment Strategy Manager at Royal London.

TREVOR GREETHAM: I’m Trevor Greetham. I’m Head of Multi Asset Investments at Royal London.

LORNA BLYTH: Pensions allow you to invest in lots of different investments and typically we call these asset classes, and how much we invest in each asset class depends on how much risk you’re comfortable taking. Now it’s important that you take some risk with your pension because over the longer term there is more likelihood that your investments will grow by more. You’ll have heard of the phrase ‘don’t put all your eggs in one basket’ – well that’s similar with investment.

TREVOR GREETHAM: When we’re managing your pension savings, we want them to grow for you while we’re controlling risk, and we control risk in a couple of different ways. One way is by having a spread of investments, not just all invested in company shares or commodities, but basically a mixture of lots of different things that do well at different times. The other way is we manage that mixture actively, so we’re analysing all the time what’s going on in the world economy, what’s going on in the business world, trying to decide which kind of shares we should be buying, which sort of buildings are the best investment at the moment. And that’s on an ongoing basis, throughout your journey from your first investment through to retirement and beyond.

LORNA BLYTHE: Royal London design investment strategies based on different risk attitudes, and then we look at how long you’ve got to go until retirement. So for example, if you’re in your twenties you’ve got a long time to go until you retire so you can afford to take more risk. Whereas if you’re closer to retirement and you’ve built up your pot you want to take less risk with that.

So, we manage investments to make sure that they are aligned to your attitude to risk and how long you’ve got to go until retirement.

TREVOR GREETHAM: It’s very normal for an economy to go through phases of expansion and contraction. In fact, over the long run, there’s a recession every five to ten years and we’ll be there all the time for you analysing where we think we are in that cycle and which sorts of investments we should be moving up or down in importance in your portfolio.

The business cycle can be thought of as these two waves: the growth and the inflation waves. But we like to think of the business cycle as a clock, and when you draw it as a circle you can see that growth becomes that up/down direction of the clock, and inflation is left to right. Once you’ve got the investment clock you can think about your investments in terms of whether they’re the sorts of things that do better when growth is strong or weak, or the sorts of things that do better when inflation is rising or falling, and depending on what we’re seeing in terms of the growth and inflation picture worldwide that will point you towards a particular part of the investment clock, where you’d like to select investments to buy. And typically the very opposite part of the clock is where you take that money from. So on a day to day basis we’re analysing a large amount of economic data for the UK and world economy to try and decide what time it is on the clock and how that picture is changing, and how much money we should be moving to try and optimise things for you, to try and generate the best possible return and avoid some of the losses.

CAPTION: If you’re unsure about your investments or pension planning, an impartial financial adviser can provide guidance based on your needs.

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