Managed Income Service

Managed Income Service

Introduction

The Managed Income Service is designed to improve a portfolio’s ability to deliver a long term income, by mitigating some of the risks in the crucial early stages of investment.

How does this service work?

Initially, the investment is split between lower risk assets to provide income (wealth preservation portfolio), and a higher risk model portfolio for long term growth (wealth accumulation portfolio). The portfolio is migrated over time until it is fully invested in the model portfolio.

If the portfolio was fully invested in the model from the start, a sharp market fall would severely reduce the value of the whole investment. Withdrawing income would then shrink the pot still further, potentially making it too small to generate either income or growth in future – even if markets subsequently recovered later on. Sheltering some of the portfolio in lower risk investments gives the remainder of the portfolio time to grow in rising markets or to recover from short term market falls. Growth is further encouraged by removing the requirement for this portion of the portfolio to deliver the income stream until it has grown enough to withstand the withdrawals.

Features

  • Aims to improve the likelihood of reliable income over the long term by mitigating portfolio risks in the short term
  • Invests in a dynamic blend of lower risk assets (for income) and a model portfolio of higher risk assets (for growth)
  • Income is paid only from the lower risk portfolio to start with
  • Growth assets are not sold to provide income initially, allowing them to grow in rising markets and to avoid being sold at a loss in falling markets
  • In rising markets, the rebalancing process recycles profits from equities into the wealth preservation portfolio
  • Conversely, in falling markets, the income portfolio tops up the growth portfolio with assets made cheaper by the market fall
  • This rebalancing continues until the portfolio is fully invested in the appropriate model portfolio
  • Model portfolios offer a diversified collection of investments, often designed to target a specific level of risk and reward
  • A specialist typically manages the portfolio, to ensure it stays in line with its investment mandate
  • Investors can hold model portfolios in tax ‘wrappers’, such as ISAs and SIPPs, benefiting from their tax efficiency
  • The past performance of an investment is not a guide to the future. The value of your investment and any income from it may fall as well as rise, and you may get back less than you invested
  • Movements in currency exchange rates can affect the value of an investment

Download our Managed Income Service brochure to find out about the benefits and risks or contact your nearest Thesis office.