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Financial Planning

From Saving to Spending: The Two Phases of Wealth

From Saving to Spending: The Two Phases of Wealth

“Capital is that part of wealth which is devoted to obtaining further wealth” — Alfred Marshall

3 min read

From Saving to Spending: The Two Phases of Wealth

“Capital is that part of wealth which is devoted to obtaining further wealth” — Alfred Marshall

3 min read

Listen to this article

For most of your life, your financial strategy has a clear direction: earn, save, grow. Progress is measured by how much you accumulate and how effectively your investments compound over time.

At some point, however, the objective changes. The focus shifts from building wealth to using it. What was once a long-term growth engine must now support your lifestyle, often for decades.

Navigating that shift, known as moving from the ‘accumulation phase’ to the ‘decumulation phase’, is one of the most important and least understood aspects of financial planning. Income from employment reduces or stops, and attention turns towards managing existing wealth to generate a sustainable level of income throughout retirement.

The Accumulation Phase

The accumulation phase typically spans the years in which you are earning, saving, and investing. It is about building your capital base to support you in later years. 

During this period: 

  • Regular income allows for consistent contributions 
  • Investment time horizons are longer 
  • Market volatility is generally more tolerable 
  • The primary objective is risk-adjusted capital growth 

With time on your side, investment strategies during accumulation are often geared towards higher growth assets. Short-term market movements, while uncomfortable at times, are less likely to materially affect long-term outcomes.

In simple terms, you could think of this as the growth target being “as much as sensibly possible”.

The Decumulation Phase 

Decumulation begins when your portfolio moves from being a source of growth to a source of income.

At this point: 

  • Regular employment income is reduced or no longer present 
  • Withdrawals become necessary to support lifestyle 
  • The investment horizon shortens for most of the portfolio 

This introduces a different set of considerations. The objective is no longer solely to grow assets, but to convert them into a sustainable income stream.

That shift has two key implications: 

  1. Capital preservation becomes more relevant 
  2. Volatility has a more direct impact on outcomes

While this does not automatically mean you should remove investment risk in its entirety, especially as retirement can last several decades, the focus becomes more on maintaining purchasing power, than significant exposure to growth assets.

In simple terms, you could think of this as the growth target becoming “inflation+”.

Creating a Withdrawal-Ready Portfolio 

A key adjustment in planning during the decumulation phase is recognising that not all invested capital serves the same purpose. 

Portfolios are often structured to reflect different time horizons: 

  • Short-term capital
    • Capital required over the next few years may be held in lower-volatility assets to provide stability and accessibility, supporting day-to-day living expenses.
  • Medium-term capital
    • Investments may retain some growth exposure while aiming to limit downside risk.
  • Long-term capital
    • A portion of the portfolio may remain invested in growth assets to support later years and offset inflation.

This approach helps reduce the need to draw from volatile assets during periods of market weakness.

It is less about avoiding risk entirely and more about managing when that risk is taken.

Structuring for Each Stage 

Whether you are building wealth, approaching retirement, or beginning to draw from your investments, structuring your portfolio appropriately is essential. A well-structured financial plan recognises that your investment strategy should evolve alongside your circumstances.

During each stage of life, your finances require different considerations, different levels of risk, and different portfolio structures.

At Patterson Mills, we work with clients to ensure their financial plan and investment portfolios are aligned not only to where they are today, but to how their needs may evolve over time.

If you would like to review how your current investments are positioned for the transition from accumulation to decumulation, get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

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Investments

How Geopolitical Events Impact Global Markets

How Geopolitical Events Impact Global Markets

“Wars are not paid for in wartime, the bill comes later” — Benjamin Franklin 

3 min read

How Geopolitical Events Impact Global Markets

“Wars are not paid for in wartime, the bill comes later” — Benjamin Franklin 

3 min read

Geopolitical tensions have become an increasingly persistent feature of the global news cycle. Wars, sanctions, elections, trade disputes, and countless other escalations can make it feel as though markets are standing on unstable ground.

While this does not diminish the human impact of such events, stepping back from the immediacy and examining the historical record through an investment lens often reveals a more balanced picture than headlines suggest.

Over modern financial history, markets have navigated world wars, oil shocks, terrorist acts, financial crises, political upheavals, and shifting global power structures. While geopolitical events often create short-term volatility, the long-term behaviour of diversified equity markets has been remarkably resilient.

Recognising the distinction between short-term reaction and long-term outcome is therefore central to navigating periods of heightened geopolitical tension.  

Immediate shock versus longer-term outcomes 

History shows that major geopolitical events typically trigger an initial market reaction.

Equity markets often fall in the days or weeks following a significant escalation. Risk assets decline, volatility rises, and investors seek perceived safety in more traditionally defensive assets such as gold.

However, analysis of multiple historical episodes since the mid-twentieth century shows that the average short-term downturn following a geopolitical shock has been limited in its magnitude.

Markets frequently reached their low within weeks rather than months, with losses often recovered within a comparatively short period.

Importantly, when equity returns were assessed 6 to 12 months after major geopolitical events, broad, large-capitalisation markets often largely stabilised and resumed their prevailing trend.

Read to the end of this article to view the data behind these figures.

This does not mean that geopolitical events are irrelevant to markets or their broader implications. Rather, it reflects the market’s tendency to reprice risk rapidly, absorb new information, and then refocus on earnings, interest rates, and underlying economic fundamentals.

From a long-term investor’s perspective, the initial shock has historically been more visible than lasting.

Geopolitics is not without risk 

As with most historical market patterns, exceptions inevitably arise.

The oil embargo of the 1970s is one such example. Energy shortages were prolonged, inflation accelerated, productivity declined, and the global economy entered a period of stagflation. Equity markets faced sustained pressure not solely because of the geopolitical event, but because it fundamentally altered the macroeconomic environment in the years following.

By contrast, more recent energy shocks have tended to be far shorter lived. Global production dynamics, alternative supply sources, and more flexible energy markets have limited the duration of disruption.

The distinction lies not in the geopolitical trigger itself, but in the economy’s ability to adapt. Where disruption is severe and sustained, permanently constraining productive capacity, the impact can be prolonged. Where supply chains, technology and capital flows are able to adjust, the shock is more likely to be absorbed over time.

Global markets versus local markets

Global equity markets, by their nature, are diversified across regions, sectors and currencies. Exposure is not concentrated in any single economy or political system, which can in turn lessen the impact of country-specific disruptions.

Local markets, however, tell a different story.

Where geopolitical events directly affect trade routes, energy access, supply chains, or regulatory frameworks, regional asset prices may respond more drastically.

Such pressures can emerge through several channels: 

  • Operational disruption, including higher costs, supply chain dislocation, and security concerns for locally exposed businesses. 
  • Earnings concentration risk, where companies reliant on domestic revenues experience greater volatility than globally diversified peers. 
  • Currency weakness, as capital reallocates internationally, increasing funding costs and financial pressure. 

In these situations, while global markets may experience spill over effects through trade, supply chains, or investor sentiment, the most acute pressure is typically concentrated locally.

The impact of regional disruption reinforces the role global diversification has historically played in absorbing localised shocks and improving portfolio resilience.

What this means for you

Periods of geopolitical tension are inherently unsettling. Human consequences are often grave, and market reactions can heighten uncertainty, particularly while events are still unfolding.

However, history suggests several consistent patterns:

  • Broad, diversified equity markets have generally absorbed geopolitical shocks without permanent damage. 
  • Local markets and concentrated exposures can experience prolonged effects. 
  • Volatility tends to spike in the short-term but has historically normalised over time.

While this does not eliminate investment risk, it reinforces the importance of maintaining a disciplined approach.

Portfolios that are globally diversified and aligned with long-term objectives have historically proven more resilient than concentrated exposures, as markets over decades have demonstrated an ability to adjust, adapt, and continue functioning through periods of significant geopolitical change.

Do you need a helping hand?

Whether you are reviewing your exposure to global markets, reassessing your capacity for risk, or considering how geopolitical uncertainty may affect your portfolio, get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

To see the raw data mentioned in this article, we provide the table below.

Data Source: LPL Research, Bloomberg, Factset, S&P Dow Jones Indexes, CFRA, Strategas 2024

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

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Financial Planning

The UK Tax Year End: What to Review Before 5th April

The UK Tax Year End: What to Review Before 5th April

“In this world, nothing can be said to be certain except death and taxes” – Benjamin Franklin

4 min read

The UK Tax Year End: What to Review Before 5th April

“In this world, nothing can be said to be certain except death and taxes” – Benjamin Franklin

4 min read

Even with a full year to plan, it is common for tax planning decisions to be left until the final days of the tax year. Pension top ups, ISA contributions, and gifting can become reactive rather than deliberate, driven by deadlines rather than strategy.

If that sounds familiar, not to worry, there is still time to act. The weeks leading up to the 5th April provide the opportunity to get on top of your finances before allowances are reset and reliefs are lost for the year.

This article sets out the key areas to review before the end of the UK tax year and the steps you can take to make the most of the available allowances.

ISA allowances

ISAs remain one of the most effective and flexible tax planning tools available in the UK.

For the 2025-26 tax year:

  • The adult ISA allowance is £20,000 per person 
  • The Junior ISA allowance is £9,000 per child

Unused ISA allowances cannot be carried forward. If they are not used by the 5th April each year, they are lost permanently.

With capital gains and dividend allowances now significantly reduced, holding investments inside ISAs has become increasingly valuable. Income and gains generated within an ISA do not count toward personal tax allowances and do not need to be reported to HMRC.

ISAs can usually be retained if you move abroad, subject to your provider, although new contributions are generally restricted once non-UK resident.

Pension contributions

The annual pension allowance for 2025-26 is £60,000, subject to:

  • The level of relevant earnings 
  • Possible tapering for higher earners

Where available, unused allowance from the previous three tax years may be carried forward, allowing for contributions well in excess of £60,000 in a single year. This can be particularly valuable following business sales, bonuses, or previous years of lower contributions.

Although the lifetime allowance has been abolished, limits remain on the amount that can be taken as tax free cash upon retirement. Pension contributions and withdrawal planning therefore still require careful consideration.

For those living abroad, tax relief on UK pension contributions is limited and depends on whether you remain eligible under UK rules, which can change over time and may be affected by factors such as how long you have been outside the UK, whether you have relevant UK earnings, and your ongoing connection to the UK tax system.

While it may still be possible to pay into a UK pension as a non-UK resident, the availability of tax relief is often restricted and should be reviewed carefully in the context of both UK rules and the tax treatment in your country of residence.

Capital gains and dividends

For the 2025-26 tax year:

  • The capital gains tax allowance is £3,000 
  • The dividend allowance is £500

These allowances have been reduced substantially over recent years.

Where appropriate, crystallising gains within the allowance and reinvesting proceeds into tax efficient structures such as ISAs or pensions may be considered as part of an approach to managing long term tax exposure. Transfers between spouses or civil partners can also affect the availability of allowances.

Even for those living abroad, UK capital gains rules may continue to apply to certain UK assets, such as UK property.

Inheritance tax planning and gifting

Inheritance tax (IHT) in the UK remains a key factor in tax planning, with a standard rate of 40% applied to the value of an estate exceeding the available tax-free thresholds.

Due to frozen thresholds and upcoming changes to reliefs and pension treatments, lifetime planning has become increasingly important to mitigate potential tax liabilities.

Each tax year, individuals may:

  • Gift £3,000 as the annual exemption
  • Carry forward one unused annual exemption from the previous year

Gifts above these amounts may still fall outside the estate if the individual survives seven years, though this requires careful planning.

It is also important to be aware that from April 2027, unused pension funds are expected to fall within the scope of inheritance tax. Hence, it is important to review existing pension and estate planning strategies well in advance.

For UK citizens living abroad, UK inheritance tax exposure may still apply, particularly where domicile or deemed domicile rules are relevant, or if UK assets are involved.

Supporting children and grandchildren

Tax year end can also be a practical time to review how the younger generations maximise their taxes and longer-term finances.

Junior ISAs allow up to £9,000 per year per child, with funds becoming accessible at age 18. Growth and income remain tax free.

Junior pensions offer another option, allowing contributions of up to £2,880 per year, grossed up to £3,600 with tax relief. These funds are locked away until age 55 (rising to 57 in 2028), making them suitable only where long-term retirement provision is the goal.

State pension and National Insurance

Eligibility for the full new UK State Pension usually requires 35 qualifying National Insurance years, although some people may need more depending on their record. 

Before the tax year ends, it is worth reviewing your NI record to identify any gaps. Voluntary contributions can usually be made to fill gaps from the previous six tax years, although transitional rules may extend this window in some cases.  

This is particularly relevant for individuals who have spent time working overseas, as gaps can arise without being obvious.

Final checks before the 5th April 

Before the tax year closes, it is worth confirming:

  • ISA and pension allowances have been reviewed
  • Capital gains and dividend exposure is understood
  • Gifting allowances have been considered
  • National Insurance records have been checked
  • UK assets held while living abroad are being treated correctly

Once the tax year ends, many of the available opportunities disappear.

If you would like a structured review of your tax, pension, and investment position before the 5th April, including where UK assets interact with overseas residency, get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

Risk Tolerance Versus Capacity for Risk: Understanding the Difference

Risk Protection

Risk Tolerance Versus Capacity for Risk: Understanding the Difference

“All of life is the management of risk, not its elimination” – Walter Wriston

3 min read

Risk Protection

Risk Tolerance Versus Capacity for Risk: Understanding the Difference

“All of life is the management of risk, not its elimination” – Walter Wriston

3 min read

When markets are continuously on upward trends and hitting their latest ‘all time highs’ every other month, it is easy to think that such trends will either continue as the norm, or that any periods of volatility will be short-lived and inconsequential to long-term outcomes. Such attitudes can unfortunately lead to complacency as ‘things are all doing well’.

However, risk is an inherent and unavoidable part of investing whether the market is high, or not.

Many investors are comfortable with this in principle. They recognise that markets can be volatile and that higher risk investments often offer greater potential for long-term returns.

The challenge arises when market movements conflict with your real financial needs. This is where the distinction between risk tolerance and capacity for risk becomes critical.

What is your ‘risk tolerance’?

Sometimes known as the ‘how well can you sleep at night if the market falls’ measurement, your risk tolerance describes how comfortable you feel with investment volatility. It is largely emotional and behavioural, reflecting how you react to market movements rather than the financial impact of those movements.

Someone with a higher risk tolerance may:

  • Feel comfortable allocating a significant portion of their wealth to equities or other volatile assets
  • Accept short-term losses without reacting emotionally
  • Understand that markets fluctuate and can recover over time

Risk tolerance is often assessed through questionnaires and can be a useful starting point. However, it only tells part of the story.

Being comfortable with risk does not automatically mean you can afford it.

What is your ‘capacity for risk’?

Sometimes known as the ‘can you continue to eat if the market falls’ measurement, and also known as your ‘capacity for loss’, this is the objective and practical side of risk, shaped by your financial circumstances rather than your mindset.

It considers questions such as:

  • How much capital could you afford to lose, even temporarily, without compromising your plans?
  • When will you need access to this money?
  • What would happen if markets fell materially just before those funds were required?

Your capacity for risk / loss is influenced by several factors including: 

  • When you wish to retire
  • Reliance on investments to fund future income
  • Planned property purchases (or other large expenses)
  • Education, lifestyle, or family related costs

Even where risk tolerance is high, a lower capacity for risk can significantly limit the level of volatility that is appropriate for you to take with your investment portfolio. This factor is unfortunately missed by many investors.

Risk misalignment

A common investment planning oversight arises when investors focus solely on tolerance and overlook their capacity. It is not so much that individuals are deliberately overlooking their capacity for loss, but rather that they can occasionally not be aware of the concept.

This is often seen where significant sums are allocated to market trackers (by way of example, an all S&P 500 or Nasdaq allocation) as investors are attracted by strong historical performance without full consideration of how these investments align with personal timeframes and future spending needs.

While such assets can deliver strong returns over the long-term, a sharp market fall can be problematic if funds are required within a relatively short period, typically three to five years. In these circumstances, there may be insufficient time for markets to recover before capital is needed and very little you are able to do about it.

Whether markets will recover is a smaller part of the equation, as history suggests they often do, but whether your personal timeline allows you to wait for that recovery to occur is the key.

Reviewing your investments

Effective financial planning balances risk tolerance with capacity for risk, rather than prioritising one over the other. 

In practice, this can involve:

  • Segmenting assets based on time horizon
  • Aligning lower risk investments with short- to medium-term needs
  • Allowing higher risk assets to support longer-term objectives
  • Reviewing risk exposure as personal and financial circumstances change

In addition, your investment portfolio should change as your circumstances change, even if your personal tolerance to risk remains unchanged.

Balancing tolerance and capacity

The overarching question is not simply whether you are comfortable with the level of risk you are taking. It is whether you have the time, flexibility, and financial resilience to absorb potential losses during market downturns.

Ensuring that investments are aligned with both risk tolerance and capacity for risk helps reduce the likelihood of forced decisions at the wrong time and supports more resilient long-term outcomes. 

If you would like to review how your current investments align with your personal capacity for risk, particularly in the context of upcoming life events or retirement planning, get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

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Financial Planning Opinion

Your 2026 Financial Checklist

2026 Financial Checklist

Your 2026 Financial Checklist

“Tomorrow, is the first blank page of a 365 page book. Write a good one” – Brad Paisley

5 min read

2026 Financial Checklist

Your 2026 Financial Checklist

“Tomorrow, is the first blank page of a 365 page book. Write a good one” – Brad Paisley

5 min read

Financial positions rarely drift out of shape because of one major mistake. More often, it is the accumulation of small oversights such as unused allowances, outdated structures, or assumptions that no longer hold true.

As such, a structured review at the end of 2025 allows any issues to be identified. What better time to review than when you likely have more time off work over the Christmas period!

This checklist is here to help you focus on the practical areas that can benefit from your regular attention before we enter 2026. You will also find specific points for those in Switzerland, the UK, and Australia, so read on to find out! 

Core financial checks 
Cashflow and liquidity 

A clear view of fixed and discretionary spending helps identify pressure points, assess sustainability, and determine whether savings or investment contributions remain realistic and whether sufficient liquidity is available to manage unexpected costs without needing to sell longer-term investments.

Some key questions to help you get started could include:

  1. Have you kept to your budget this year?
  2. Which months did you over or underspend?
  3. Have your cash reserves increased or decreased, and what is the total value now?
Investment structure and asset allocation 

Market movements during 2025 generally alter portfolio weightings over time for many investors. Reviewing asset allocation and rebalancing where necessary helps keep risk aligned with your objectives and time horizon.

Protection and legal documentation 

Life cover, disability insurance, and income protection should reflect current income levels and liabilities. Wills, powers of attorney, and beneficiary nominations may also require review, particularly where family circumstances or residency status have changed. 

United Kingdom Residents

The UK tax year runs from 6 April to 5 April each year, though planning and reviews should begin well ahead of the financial year end.

For the 2025 to 26 tax year, the standard annual pension allowance remains the lower of £60,000 or 100% of qualifying earnings. Unused allowance from the previous three tax years may be carried forward, provided you were a member of a UK registered pension scheme during those years.

Although the lifetime allowance has been abolished, limits remain on the amount of tax-free cash that can be taken from pensions. This makes planning around pension crystallisation and withdrawal sequencing increasingly important.

With the abolition of the lifetime allowance came the introduction of the Lump Sum and Death Benefit Allowance (LSDBA). This sets the maximum amount of tax-free lump sums and certain death benefits that can be paid from pensions, including benefits paid on death before age 75. The standard LSDBA is £1,073,100, mirroring the former lifetime allowance.

For those living outside the UK, UK pensions and UK property often retain UK tax exposure. Double taxation agreements help manage this, though they do not remove the need for coordinated planning between jurisdictions.

In addition, in April 2027, pensions are set to come under a deceased persons estate for inheritance tax purposes, so careful planning may be needed here.

Residents of Switzerland

Switzerland operates on a calendar year tax basis, meaning 31 December is the end of the tax year and 1 January is the beginning. Most planning opportunities and allowances not used by 31 December are lost for that year.

For 2025 and 2026, the maximum Pillar 3a contribution is CHF 7’258 for employed individuals with a second pillar pension scheme, and the lower of up to CHF 36’288 or 20% of net earned income for self-employed individuals without a pension fund. Contributions must be credited before year end to be deductible. 

Pillar 2 buy-ins / buy-backs should also be reviewed, particularly where income has increased, employment circumstances have changed, or there are plans for early retirement. These can provide meaningful tax relief when used appropriately. 

Swiss residents are required to declare worldwide assets and income for wealth and income tax purposes. This includes foreign pensions, investment accounts, property, and bank balances. Where assets are held abroad, valuations and income reporting should be documented to avoid future complications with cantonal authorities. 

Residents of Australia 

Australia’s financial year runs from 1 July to 30 June, meaning the latter half of 2025 falls within the 2025 to 2026 year. 

The concessional superannuation contribution cap for 2025-26 is AUD 30,000, covering employer contributions, salary sacrifice arrangements, and personal contributions for which a tax deduction is claimed. Where available, unused concessional caps from the previous five years may be carried forward, subject to total superannuation balance limits. 

The non-concessional contributions cap for 2025-26 is AUD 120,000, with the ability to bring forward up to three years’ worth of contributions in certain circumstances, again subject to total super balance thresholds.

The Transfer Balance Cap (TBC) limits how much superannuation can be moved into the tax-free retirement (pension) phase. It is worth considering whether you may exceed this, and plan contributions accordingly.

  • The current general TBC is AUD 2.0 million (up from AUD 1.9 million in the previous financial year).

  • It applies per individual, not per account.

  • It is a lifetime cap on transfers into retirement phase, not a cap on total superannuation.

For Australians living overseas, superannuation remains subject to Australian rules, though the tax treatment of contributions, growth, and withdrawals may differ depending on your country of residence.

Final technical checks 

In the end, make sure you tick off the below and you will be well-prepared for 2026 and beyond!

  • Check all relevant allowances for 2025 have been used, where appropriate  
  • Monitor investment portfolios to ensure they remain aligned with your risk tolerance, objectives etc.
  • Maximise pension and retirement contributions, where suitable 
  • Make sure your overseas / foreign assets are correctly reported 
  • Confirm your legal and protection arrangements reflect your current circumstances 

Addressing these areas systematically reduces the risk of avoidable tax leakage, compliance issues, and structural inefficiencies over time, and it is rarely a bad idea to keep your records up-to-date.

If you would like assistance reviewing your investment position, pensions, tax-efficient planning and more, including cross-border considerations get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Financial Planning

Employee Share Schemes in Detail

Employee Share Schemes in Detail

Employee Share Schemes in Detail

“One is unable to notice something because it is always before one’s eyes” – Ludwig Wittgenstein

4 min read

Employee Share Schemes in Detail

Employee Share Schemes in Detail

“One is unable to notice something because it is always before one’s eyes” – Ludwig Wittgenstein

4 min read

Employee share schemes, sometimes known as Company share schemes or employer share schemes, have become an increasingly common part of remuneration packages.

They give employees the opportunity to own part of the company by which they are employed, often through discounted share purchases, stock options, or restricted stock units (RSUs). 

In some cases, there can even be tax benefits for participating in these schemes. In the UK, for example, certain approved plans offer favourable treatment if the shares are held for several years prior to selling.  

Useful to a point

Employee share plans can be a valuable addition to your overall financial plan, but like any investment, they come with both potential rewards and limitations. However, they are typically only useful to a certain point, as the advantages below will tell you, and it is likely that you should consider disposing of your employer shares where possible. You should talk to Patterson Mills before making any decisions here.

Advantages  
  • Potential to receive/buy discounted shares. 
  • Can compensate for lower salaries. 
  • A valuable way to share in the potential success of the company. 
  • Potential for significant capital growth beyond a traditional bonus. 
  • Encourages interest in personal investing and broader wealth building. 
Disadvantages
  • Vesting periods can limit flexibility, tying employees to the company until shares become available.
  • Share values can fluctuate significantly, creating uncertainty over the eventual benefit received.
  • Overexposure to one company stock is incredibly high risk.
  • A falling share price can undermine morale, motivation, and long-term engagement with the company.
The risk of concentration risk

The concept of concentration risk should not be taken lightly. This risk occurs when a large portion of your total assets is allocated to a single investment, sector, or region. The more concentrated your holdings, the greater the impact that any single event or decline in value can have on your overall wealth, even if other markets remain stable. 

A common reason employees choose to retain company shares comes down to familiarity bias.

This is the tendency to feel more comfortable investing in something known and trusted. While this can feel reassuring, it often leads to a highly unbalanced portfolio with the employee taking on far more risk than they would were the risks explained at outset.

Even strong, well-managed companies can experience setbacks, and relying too heavily on employer shares can leave your overall financial position far more volatile and vulnerable to downturns. 

Managing rules and making decisions

Each company has its own rules on vesting, holding periods, and potential incentives for long-term ownership. In some cases, retaining shares for slightly more time may prove to be more beneficial, especially where additional tax benefits apply.

However, investment decisions should be made strategically rather than emotionally.

As an employee, your view of your employer’s company will naturally be influenced by your role and proximity to its operations, but that represents only one small part of a much broader global market.

Regularly reviewing how much of your portfolio is concentrated in employer shares and considering diversifying the funds once they vest / can be sold helps maintain balance and reduce overall risk.

Integrating employee shares into your financial plan

How you manage employee shares should at a minimum reflect your broader financial objectives, investment horizon, and expected time with the company.

It is also worth considering the tax implications of selling or retaining these shares, and how you can manage risk effectively while keeping your overall strategy focused on long-term goals. 

Patterson Mills work closely with a number of clients with employee share schemes and help to identify where their portfolios may be overexposed and where we can create strategies that strengthen long-term growth and stability. Our focus is on delivering clear, practical planning that helps you feel comfortable with the financial decisions you make.  

If you would like to review your employee share scheme or explore how to reduce risk while maintaining growth potential, get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.

Categories
Investments

How Asset Allocation Drives Investment Success

How Asset Allocation Drives Investment Success

“Asset allocation eliminates the need to predict the near-term future direction of the financial markets and eliminates the risk of being in the wrong market at the wrong time” – Richard A Ferri

4 min read

How Asset Allocation Drives Investment Success

“Asset allocation eliminates the need to predict the near-term future direction of the financial markets and eliminates the risk of being in the wrong market at the wrong time” – Richard A Ferri

4 min read

There is often debate about whether success in investing comes from choosing the right shares, spotting short-term opportunities, or sticking with a consistent style.  

Yet time and research both show that the single biggest influence on how your portfolio performs is your overall asset allocation. 

In other words, the mix of investments you hold across different asset classes, rather than any single stock, is usually what makes the greatest difference to long-term results. 

What is asset allocation? 

At its core, asset allocation is about balancing risk and reward by spreading investments across different categories, such as equities, bonds, property, and cash. 

Each of these assets behave differently and combining them can help smooth out the bumps along the way. 

Think of it like baking. Having the right proportions of flour, eggs, and sugar matters more than whether you bought them from the most expensive shop in town. The proportions are what determine whether the end result holds together. 

Why does it matter? 

When building an effective investment portfolio, studies have shown that overall market movements account for the majority of returns, often between 70% and 80%.  

That said, the ability to outperform the market depends on more than just riding those general trends. The real difference comes from the way your portfolio is allocated across asset classes, combined with the fund managers’ selection of individual securities. Together, these factors determine whether your actively managed portfolio is able to deliver returns above its benchmark, after accounting for costs.

Diversification in practice 

No single asset class performs well all the time. Equities may rally while bonds lag, or property could rise in value when shares struggle. By combining a range of investments, the ups and downs of each can offset one another, helping to reduce overall risk. 

Relying on one asset class alone is more akin to gambling. A well-diversified portfolio, on the other hand, is designed to endure different market conditions, both the good and the bad.

Factors that shape your allocation 

The right allocation is not the same for everyone. It depends on: 

  • Your goals
    • What are you investing for, and how much return do you need?
  • Your time horizon
    • Longer timelines often allow for greater exposure to riskier assets like equities.
  • Your tolerance for risk
    • Comfort levels differ, and allocations should reflect how much volatility you are prepared to accept.

These factors combine to form the framework that determines how your portfolio is structured and adjusted over time.

Active decisions and ongoing review 

It is not enough to simply set an allocation once and forget about it. Markets evolve, economies shift, and personal circumstances change. This makes regular review essential. 

Professional managers often use a blend of approaches: 

  • Strategic asset allocation (SAA) for long-term stability. 
  • Tactical asset allocation (TAA) to take advantage of short-term conditions. 
  • Passive elements to keep costs in check. 

This combination can provide both resilience and flexibility, ensuring your portfolio adapts while staying aligned with your objectives.

What this means for you 

Asset allocation may not sound as exciting as picking the next big stock, but it is the quiet engine driving your long-term outcomes.  

By setting the right balance, reviewing it consistently, and adjusting as circumstances change, you can significantly improve your chances of achieving your financial goals. 

At Patterson Mills, we use risk profiling tools and in-depth discussions with our clients to design allocations that are both appropriate and practical. The aim is not only to create a strategy, but also to ensure you feel comfortable with it at every stage of the journey.

If you would like to explore the right mix for your own portfolio, get in touch with us today and book your initial, no-cost and no-obligation meeting.

Send us an e-mail to contactus@pattersonmills.ch or call us direct at +41 21 801 36 84 and we shall be pleased to assist you.

Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.