- The most popular fund among AJ Bell drawdown investors has delivered total returns of 238% since the pension freedoms were introduced in April 2015, new analysis reveals
- Someone who invested £100,000 in the Fundsmith Equity Fund in April 2015 could now be sitting on a pot worth £338,000
- The five most popular drawdown fund picks have all delivered total returns in excess of 150% over a nine-year period
- By contrast, three of the five most popular individual stock picks have delivered negative returns over the period – although Tesla, the 10th most bought company, has returned over 1,400%
- Top tips for people choosing retirement income investments
Tom Selby, director of public policy at AJ Bell, comments:
“This week marks a decade since George Osborne’s pension freedoms bombshell announcement in the 2014 Budget, when the former chancellor ripped up the pensions tax rulebook and ushered in a new era of freedom and choice for retirees.
“Since those reforms were introduced in 2015, drawdown has become by far the most popular retirement income option among Brits, with around three people choosing drawdown for every person who buys an annuity – a complete reversal of the trends we saw pre-2015.
“For those entering drawdown, the performance of the investments they choose is absolutely critical to their long-term retirement success. The good news is that plenty of fund pickers have made shrewd choices, with the top five most bought funds delivering total returns (excluding platform charges) of over 150% since April 2015.
“Not everyone will have been invested in these funds since Day 1 of the pension freedoms, of course, but those who were would have been richly rewarded. If you’d invested £100,000 in the Fundsmith Equity Fund, the top choice among AJ Bell DIY investors, you could be sat on a pot worth £338,000 today, while someone invested in the Baillie Gifford American fund, the fourth most bought, could have a pot worth £371,000.
“By contrast, the most popular individual stocks have generally underperformed, with three of the top five delivering negative total returns over the period. However, Tesla, the tenth most bought stock since April 2015, has returned a staggering 1,410%.
“When it comes to investing in drawdown, taking a long-term approach, diversifying your portfolio and keeping your costs as low as possible is critical to achieving the outcome you want.”
How the top fund picks among drawdown investors have fared since April 2015…
…versus the top individual stock picks among drawdown investors…
Source: FE Analytics. Notes: Latest data taken 19 March 2024. Total return in pounds sterling and does not include platform charges.
Top tips for people choosing retirement income investments for drawdown:
- Make sure you’re comfortable with the risks you’re taking. The more risk you take, the higher the potential returns…but this is by no means guaranteed and more risk means a bumpier investment ride.
- Think about your time horizon. How much risk you are comfortable with is a personal decision but, generally, the longer your investment time horizon, the more risk you can take. If you aren’t comfortable taking any investment risk, drawdown probably isn’t for you.
- Diversification is key. As the performance of the most popular individual stocks shows, having all your eggs in one basket is extremely risky. You should aim to have a diversified portfolio of investments, either by choosing different investments yourself based on your appetite for risk or paying a fund manager to do it for you.
- Keep your costs low. Investment performance is inherently uncertain, but you can control your costs and charges. Even small differences in percentage charges can make a big difference, so picking a good value platform is crucial.
- Stay engaged…but avoid unnecessary tinkering. Regular engagement is vital in drawdown and you should review your investments and withdrawal strategy at least annually. This doesn’t, however, mean you need to chop and change your investments every year. This could risk you drifting from your long-term goal and incur avoidable costs.
