The world of retirement investing has changed significantly in the eight years since the introduction of pension freedoms.
But before we get into that, we can learn a lesson from the world of physics, in which Newton tells us an action has an equal and opposite reaction.
That phenomenon is often reflected in client portfolios too. For example, the shift in post-retirement investment strategies is causing (and will continue to cause) a reaction in the make-up of portfolios in the run up to retirement.
Turning down the allocation to equities and veering towards bonds on the approach to retirement systematically made some sense in the "old world", where investors were forced to buy an annuity.
Fundamentally, it came down to controlling risk on the final parts of the journey before clients were locked into their annuity product.
That moment of retirement pre-pensions freedoms was a very significant date from an investment perspective.
As that fateful day of purchase came closer, looming ever larger on the horizon, it made some sense to derisk the portfolio – shifting towards greater bond allocations in order to create more certainty in the value of a client’s investments.
Plus, annuity rates are linked to bond yields, so it was logical to gradually shift more of a client’s investments into bonds the closer they got to retirement to "match" their investments to the mandatory annuity purchase.
In theory, if bond yields fell just before retirement (meaning annuity rates fell and so annuities became more expensive) then at least the bonds in the investment portfolio also rose to offset this. And vice versa.
However, with pension freedoms, clients are no longer forced to buy an annuity at retirement – instead they can enter drawdown.
In fact, there is a multitude of options: they can elect not to buy an annuity, they can delay buying one or they can buy an annuity using only a portion of their savings.
Of course, this approaches the question from a purely investment risk perspective; there are also important client psychological factors, like attitude to risk, which financial advisers routinely incorporate into their expert advice (more on this later).
But the lack of a mandatory annuity significantly weakens the theoretical arguments for "lifestyling" as client investment time horizons potentially stretch well beyond their retirement date alongside the variety of options they now have.
And if clients do not elect to buy an annuity then they are likely to need a decent allocation to equities in their portfolios.
Equities are very good at generating growth over the long-term and so, if properly diversified, can reduce the risk of clients running out of money during their retirement.
