InvestEngine, like most investment platforms, has tools for regularly adding money to accounts and investing that money. However, it doesn’t have tools for regularly withdrawing money from accounts. This is a shame, because people often save so they can retire or cut back on work comfortably, which generally requires a regular investment income. InvestEngine’s current lack of features in this regard is similar to other platforms I’m familiar with, and is therefore an opportunity for InvestEngine to further set itself apart from other platforms, and be the goto platform for unsophisticated retail investors, by creating a set of features for automated drawdowns.
Here are some features I envisage:
DIY drawdown (free) - basically regular investing in reverse. A user specifies an amount to withdraw, and a pot to withdraw from each month. Each month, InvestEngine sells assets from the pot (in a way that brings the pot more in line with the current target weightings) to meet the cash requirement, and transfers the cash to the user’s bank account.
Managed drawdown (part of managed service) - basically managed regular investing in reverse. InvestEngine invests in a set of assets of decreasing volatility (i.e. stocks, bonds, MMFs) for a user who requests a monthly drawdown amount. InvestEngine sells MMFs each month to cover the cash requirement, and transfers the cash to the user’s account. InvestEngine automatically tops up lower risk pots when the upstream assets offer good value, and waits when they don’t. In other words, you don’t sell stocks during a stock market crash.
Lifetime tax efficiency calculator - given 2 or more different wrappers to draw down from (GIA, ISA and SIPP), the amount an investor wants to draw down in total each month, and basic facts about a user’s other income, and knowledge of the tax system, the lifetime tax efficiency calculator would compute the most tax efficient way to draw down funds from the different wrappers over the long term, whilst maximizing the longevity of the funds. Perhaps this could be offered to managed accounts for free, and to DIY accounts for a fee, e.g. a higher initial one off fee, followed by a lower annual review fee.
What do other people think? Would you like to see such features? Can you suggest other features for automated drawdown?
I can see several problems with an automated drawdown. Automated investing is fine, because you get pound cost averaging - buying in when the market is low is fine as you make more money on the recovery. Selling when the market is low is not fine, as you are just crystallising your loss. Withdrawing from your portfolio needs careful consideration, to ensure that you are selling the right assets at the right time.
If you know what you’re doing, automated drawdown with plenty of rules set could work, but for the average investor, it’s probably a disaster waiting to happen, so not a feature IE would want to introduce.
Thanks for your perspective, @PhilWhitaker. However, I beg to differ - I believe this is a feature IE will want to implement, in part due to the very point you raise.
Automated drawdown is risky for those who don’t know what they’re doing, yes. But so is DIY investing in general. Buying the right assets for your risk appetite, timeline for needing the funds, and other considerations, is hard. Yet this is precisely what IE offer. If people are confident enough to invest by themselves, why should they not also be confident enough to divest by themselves?
Note that automated drawdown on a portfolio that has a mix of equity, bonds and MMFs will automatically sell fewer (or no, depending on the strategy) shares and more bonds when the stock market is down, plus savvy investors are perfectly capable of setting up low risk drawdown pots that they top up from time to time when the market is up.
For those who are not confident enough, that is precisely why the managed drawdown feature is desirable, and why IE would do well to implement it. Otherwise, they’re just taking lump sums out when they need it which, as you say, could lead to them selling assets that are undervalued.
Hi, thank you for your suggestion. I will forward it to our Development team, who will take it into consideration. Don’t hesitate to contact us if you have any other questions or feedbak
Yes, it’s a good idea. I am an experienced investor (Boglehead) but unlike other investors struggle to sell/switch my holdings, no matter how the market is doing. Having this automated would really take the mental gymnastics out of it - one can never time the market on the way up or down.
No particular hurry to get this feature though, I don’t see drawing down anytime soon.