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Achieving steady returns in challenging times for later life planning

by gbaf mag
Achieving steady returns in challenging times for later life planning

By Matt Dickens, Senior Business Development Director at Ingenious

For over a year, many investors have held off on making vital decisions due to the fear of the unknown, longer-term impact of the pandemic. While investors can be forgiven for their continued caution when it comes to making long-term financial planning decisions, they need to accept that yet another year or more of inaction brings its own real risk. And the longer they vacillate, the more risk they are taking in missing out on the potential benefits of the right financial strategy.

Advisers with clients planning for later life are typically looking to achieve steady, inflation-beating returns with low volatility. But investors are cautious about listed markets where they see high volatility driven by market sentiment, so increasingly, many are considering unlisted investments as they are not affected in the same way. Still, the pandemic has had a profound impact on most industries, but one sector that has remained resilient, and in fact surprised most with positive results, is residential real estate.

Residential real estate

The affordable end of the housing market benefits from some core fundamentals that helped it withstand the pressures experienced by other sectors. There is a structural lack of supply to meet demand in the UK and in 2018 alone, 80,000 fewer houses1 were built than were required. This has caught the attention of the Government and supportive policies such as Help to Buy has further sustained the demand for completed housing. Most recently, the Government identified the property sector as key to the UK’s economic resilience and recovery from COVID-19, with other measures such as the stamp duty holiday contributing to average annual house prices rising by 7.1%2 in April and up from 5.7% in March 2021.

Conservative secured lending model

Despite these positive forces, there are risks with investing in the property market, so a conservative strategy is key to protecting investors. Rather than taking an equity or ownership position in a single housebuilder, developer or physical property, a portfolio-based, secured lending model offers a number of risk-mitigating benefits. By lending to a range of developers, carefully selected on a project-by-project basis, and earning a fixed rate of interest, there is inherently lower volatility. Protection is enhanced by taking a senior debt position on each development. Clear loan terms also mean that regular interest is paid, and the repayments of the loan begin as soon as discrete units of a development are sold, creating liquidity for the portfolio and maintaining diversification benefits for investors. By contrast, equity or ownership investments and their valuations can fluctuate over time as the asset price changes and ultimately, any drop in value is immediately felt by the investor. In the lending model, this isn’t the case, and any loss in value is initially felt by the developer, not the lender.

How can your clients benefit across later life

While this strategy has been proven to deliver steady investment growth over time for investors in the post-retirement stages of their lives, they often have an additional objective to consider. How can they pass on maximum wealth to their loved ones when they die? There are two contributory parts to this objective. First, which we have already covered, is the need to grow their wealth to combat the effects of inflation and drawdowns. Second, is the wish to mitigate the impact of Inheritance Tax, which can reduce one’s legacy by 40% upon death. Business Relief services are a popular way for investors to select an investment that meets both their growth target and the objective to optimise wealth transfer. They also retain full access to their savings in case their circumstances change, or an emergency arises. This level of flexibility and security should ease the concerns of investors who are paralysed by caution in these uncertain times and allow them to confidently plan for their future goals today.


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