There’s a common view that as you approach retirement you should tilt your investment portfolio towards more conservative investments.
This means favouring things like term deposits, annuities and cash management trusts while reducing exposure to more volatile assets such as shares and property. The thinking is that preservation of capital is key, as without an earned income it is hard to recover from any downturns in the share or property markets.
In the days of high interest rates this might have been a good strategy, but when interest rates are low and life expectancies long, being too conservative with investment can see the money running out way too soon.
John & Nancy plan to retire on their upcoming 65th birthdays. They have $600,000 in super and want this to provide them with an income of $50,000 per year. If their net return is 3% pa, John & Nancy’s nest egg will last for just over 15 years[1].
The problem is there’s a good chance both John & Nancy will live into their late 80s or even 90s. To give their savings a chance of lasting until they are 90 (27 years), John & Nancy will need to target a net return of 7% pa.
Chasing higher returns does involve taking on more risk. However, for a well-designed portfolio the great moderator of investment risk is time. Even over just a 10-year period it’s much more likely that a ‘growth’ portfolio will meet both John & Nancy’s needs rather than a more conservative one.
Just because you stop working doesn’t mean your money should too. To ensure your nest egg keeps working hard through your retirement talk to one of our Advisers here at Intrinsic.
Sources:
Deaths in Australia: https://www.aihw.gov.au/reports/life-expectancy-death/deaths-in-australia/contents/life-expectancy
[1] Does not take account of any age pension entitlement
Intrinsic Private Wealth specialise in providing financial advice to Australian investors. With over 20 years of experience in the finance & investment industry.
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