What are the main differences between an ARF and an annuity?
The key differences between an ARF and an annuity are flexibility and risk.
Lets talk about cash
Alan Hanway | MIIPM QFA PTP
When you have worked hard to create a reasonable nest egg the last thing you want is to see it lose value in real terms because you are holding it in cash deposits of one form or another.
We are well aware that interest rates right now are at an all-time low and even negative in some instances. The banks are actually charging you to hold on to your money!! The longer you hold your money in cash the more value it will lose, particularly when inflation is taken into account.
“There’s too much uncertainty right now” or “I’ll put off investing for now until I see how things are going” are views we often come across. While it’s completely natural to feel uncomfortable about moving to active investments, there are many options available that help to mitigate the risk involved. Keeping money on deposit comes at a cost. In essence that cost is no growth or “negative growth” due to negative interest rates and annual inflation.
Equating Risk with Reward
Risk is associated with every asset class, even cash, as illustrated above however what you might not know is that Multi Asset or equity based funds have never had a losing 10 year period during the last 100 years.
The comparison below is a standard cash fund with an insurance provider (Aviva) versus a balanced managed fund (Zurich) for the ten years ending March 2021. The Zurich balanced fund had a return of over 150% during the period where the cash fund had a negative return! And we haven’t even mentioned inflation!!
Balancing Risk and Reward
There is no suggestion here that you should immediately transfer all your cash holdings into riskier assets however, for the funds you do not intend to access in the short term, it might be wise to consider the investment options available as opposed to leaving them in cash, effectively losing value during the current climate.
Reade Pension and Financial Services staff have been advising clients on designing and implementing pension schemes for their employees for more than 30 years. We would welcome the opportunity to meet with you to identify areas of financial planning that you or your employees may benefit from.
Please contact your Reade Pensions representative to set up an appointment.
About Alan
Director
Alan Hanway | MIIPM QFA PTP
Alan has over 30 years’ experience in the Investment and Pension industry having worked with Irish Pensions Trust, Mercer Human Resource Consulting, CIF, L&P Financial Trustees and Invesco.
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