Protected Index Portfolio case study: Meet Joe
Joe invests £100,000 in PIP with the aim of providing income over a 20 year period. His strategy is to withdraw 5% of the initial units purchased as income each year.
The chart below compares how the Protected Index Portfolio would behave in various investment market conditions in comparison to an equivalent fund without protection.
This chart is for illustrative purposes only and assumes 1) the fund is exhausted after 20 years 2) it does not provide a guide to future or past performance of the fund and 3) does not take into account any additional fees or charges relating to the fund.
|Immediately, PIP ensures that the unit price can never fall below 80% of its highest level. Joe’s income is protected at a minimum of £4,000 (5% x £100,000 x 80%).|
|In this example, markets rise in the early years, therefore both PIP and the unprotected fund rise in value. The unprotected fund rises slightly higher due to PIP’s cost of protection and volatility control.|
|When PIP’s unit price increases, the level of protection on Joe’s income rises to just over £4,700. The higher level of protection is locked in forever, shown as the dotted line on the chart.|
|As the years go by, PIP’s volatility control mechanism ensures that Joe’s income fluctuates less markedly than the income from the unprotected fund.|
|What’s more, when markets fall sharply (the pronounced troughs in the black line), Joe’s income from PIP never drops below £4,700 due to the 80% protection. In the worst years, income from the unprotected fund would be £500 less.|
In this way, PIP protects clients wishing to draw a regular income from the extremes of stockmarket volatility, making it easier to plan with confidence, whilst still providing the opportunity for future growth.