What Is With Profits & Should You Be In It?

In this video, I explain With Profits funds, a type of investment often used within pension plans, and discuss reasons you might choose to stay invested in them or switch out.
With Profits funds are designed to provide steady returns over the long term by smoothing out market volatility. They achieve this by holding back some of the returns in good years to bolster returns in less favourable years. This approach can be beneficial for investors seeking more stable growth and a degree of protection against market fluctuations.
However, it's essential to understand both the advantages and potential drawbacks of With Profits funds. Staying in a With Profits fund can be advantageous if you value the relative stability and the potential for bonus additions.
These funds often come with guarantees, offering peace of mind, especially as you approach retirement. Additionally, if the fund performs well over time, you might benefit from final (or terminal) bonuses, enhancing your overall returns.
On the other hand, there are reasons you might consider switching out of a With Profits fund. One significant factor is the lack of transparency. With Profits funds can be complex, and understanding how bonuses are calculated and applied can be challenging. This might be a concern if you prefer more control and clarity over your investments.
Additionally, some With Profits funds come with market value reductions (MVRs) or penalties if you withdraw early, potentially impacting your returns if you need to access your funds sooner than anticipated.
Performance can also be an issue. If your With Profits fund consistently underperforms compared to other investment options, it might be time to reassess your strategy. Switching to a more actively managed fund or one with a clearer investment strategy might align better with your retirement goals.
Ultimately, the decision to stay in or switch out of a With Profits fund depends on your individual circumstances, risk tolerance, and retirement objectives. It's crucial to review your options regularly and consider seeking professional advice to ensure your investment strategy remains aligned with your goals.
For more information about how I help my clients plan their retirement visit www.neliganfinancial.co.uk.
The contents of this video do not constitute advice. Neligan Financial is authorised and regulated by the Financial Conduct Authority.
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