How would You
Invest a Pension'Windfall' ?
"I HAVE MADE MY CALCULATIONSANOCONCLUDED THAT I CANNOT .AFFORD TO
RETIRE UNTIL FIVE YEARS AFTER I AM DEAD"
As predicted. the UK's March budget
confirmedthat pensioners could'liberate their private and company
pensionsfrom the straightjacket
annurtres to which they were previously
condemned. There rs a catch of course
as the government stands to collectat least 30% in tax from the bulk ofany pensions immediately liberated.
They expect this to raise an estimated
GBP3.8 billion over five years. Verynice, but millions of pensioners will beleft to fend for themselves and with noaccess to professional financial advice
unless they are prepared to pay for it assuch advice in the UK is now fee-based.
While many will quickly spend or
mismanage their windfall. others will
act responsibly. perhaps using part of
it to pay off a mortgage or invest in an
income-producing buy-to-let property
or a new financial investment that will
generate an income. But what ktnd of
financial investment and how big a
return can be expected?
This dilemma rs not restricted to British
pensioners; it is one facing anyone inany country when considering how toinvest a lump sum. whether it is for
retirement or any other purpose.

WOULD YOU LIKE A RISK-FREE
10% PER ANNUM RETURN ON
YOUR INVESTMENT?
II so, forget it as rt does not exist I In fact
no investment rs completely risk-free.
Even failure to invest has its risks.
Every now and again a prospective
investor will tell me that he or she is
10 I UP.DATE ISSUE02 r·s

looking for an annual
return of between 5%
and 10% but it mustbe risk-free. I have to
explain that achieving
such a return ispossible but 1t will
never be risk-free.
This being the case,where on earth canyou put your money
without .t being at risk? Thereare certainly places where the riskof losing it is very low. but so rs thereturn. So how can you make yourmoney grow? Before addressing thequestion let s have a look at the risks
that atfect d1ffenng levels of annual
return. starting with zero.
0% return - keep your money underthe mattress
RISKS:- The money will lose purchasing
value over time
- It could be stolen or destroyed in a fire
0% - 1% - bank savings account m
USO EUR or GBP- The money will lose purchasing
value over time
- If the amount exceeds government
protection guarantees it could be
lost in the unlikely event the bankgoes under
1% - 2% - bank time deposits in USO,
EUR or GBP- Unlikely to preserve purchasing
power over time
- Same nsk of toss as with a savings
account
CC Vi RIGHT-Lack of access to the money when
you may urgently need it

2% - 3% - USO, EUR or GBP
government bonds- Possible fall in capital value if soldbefore maturity date
- Risk that inflation will exceed thereturn over the life of the bond
- Very tow risk of total loss throughdefault although risk can be higher
for certain European countries
offering rates above that range. (Thisfollows the universal principle of thehigher the rate the higher the risk)

4% - 8% - Corporate bonds- Possibility of reduced value if soldprior to maturity date
- Potential for total loss if theunderlying company fails
5% - 8% - Buy to-let properties- Risk of toss of tenants resulting mno income- Possible degradation of the property- Potentially high maintenance costs- ltliqurd asset; could lake a longtime to sells WI 5 Tiit ERITISh CHAMRf R CF COMMFRCE lti INDOl 1ESIA

Argentina (20141
Currency risk: For
example, in the 12 months
to 8 March 2015 the Rupiah
fell by 12.5% against the USDollar
8% - 12% - Alternative
investments "It:ance orilS"-EIS "u has hedg
funds, student
accornrn dan n,r:,,,r;; home fund ,aqn ultural
products, land!Of course the risks can becompensated by the potential ofsignificant capital gain over time,
although losses are possible in theshort term)
6% - 8% - Major stock markets - [This1,, an art rtr ary r anqe as there are many
variables but 1l reflects the annualised
growth of the US S& P 500 rndex overthe past I 0 vear 1- Risk of heavy falls in the short term;markets fell by up lo 50% in the2008 - 2009 global financial crisis- Can take a long time to recoverlosses in a prolonged bear market- If you invest in individual stocks
there is the risk of total loss ofcapital if the company in which you
have invested goes out of business-20% plus - Private Equity I Venture
Capital ~ c;ictude investment in a
research project or busmess venture,company start-up or even ones own
L .. s."<:ssl
Very high returns are possible ii theventure is successful but possible
total loss of capital if rt fails. Placing
all one s pension pol in one suchenterprise can prove disastrous

SO HOW CAN WE SAFELY MAKEOUR MONEY GROW?

market

The low-risk options are the best if
you are o! a nervous drspositron, but
your money will probably not keep
pace with inflation and you could be
struggling 20 years from now.

Possibility of a fall in value if soldbefore maturity date
Risk that inflation will exceed thereturn during the term of the bondPossibilityof default.
Recentexamples.
Russia 119981
andIf you have a lump sum to invest
diversification is the key so you can
aim for growth while manag ng risk.
You would be looking at a range ofinvestments to nclude lower. medium
and higher risk. The very high risk

6% - 10% - Emerging
government bonds-bankrnq assetbacked lendinq etc I- Risk of fundsuspension if
there are too many
redernptron requests
since assets are often
illiquid and cannot besold quickly- Greaterriskofmismanagement
or fraud withalternative funds as they are generally
less well regulated or supervised

FACILITATING

TRADE & INVESTMENTBETWEENINOONESIAAND BRITAIN

areas should be
avoided unless
you have ample
disposable funds
and allocate
just a small
percentage tothis category

Colin Bloodworth of
PT PP1 lnnones J 'ia~&0ptnt over 20 yenr~
in lnnones.a

If youhave any questions on

nus ar;i:li= or rel~1ed
tcpics you can contact

Time and human
hon at l121 ~5'1!! 5087
er conn llloodwart h!Clnature are also
pp1 adv:sory corn
factors that play
an importantpart, certainlywith stock
markets. Investing for the short term is
far more risky than taking a long term
view. Especially when you consider thathuman nature drives us towards anasset class when it is performing well
as opposed to when rt is performing
badly. Sales of mutual funds areinvariably high when markets arebooming but very low when markets are
doing badly. The same applies to mostasset classes. For example, people
were rushing to buy gold as rt got close
to $2.000 an ounce three years ago but
few are looking at it today at $1,200 anounce. Following the 2008 crash people
fled lhe stock markets; yet if anyone
had taken the risk and invested at thebottom of the market they would havereaped some rapid profits: the S&P 500
gained 100% between March 2009 andJuly 2010.
An investment portfolio for retirement
should be treated in the same way thata company would manage its pension
fund. There must be ample liquidity
to produce an uninterrupted income
stream but also sufficient 'meat' in thepie to ensure long term growth. Ideally,
the capital should grow by at least therate that income is being withdrawn.
Risk is unavoidable; whal rs important
rs to fully understand and manage
the risks. If the risk rs well spreadthe likelihood or a calamity is greatly
reduced and that should ensure
steady and modest gains over time.
If I can use a casino analogy, spreadyour chips right across the table; don't
put all your money on your one lucky
number It may not be your lucky day.
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