Invest
‘Unacceptable risks’ affecting retiree investment strategies
Australians approaching retirement – or who have entered that stage of life – need to be much more considerate of their exposure to sequencing risk, according to an investment fund manager.
‘Unacceptable risks’ affecting retiree investment strategies
Australians approaching retirement – or who have entered that stage of life – need to be much more considerate of their exposure to sequencing risk, according to an investment fund manager.
A new whitepaper from investment management company Roger Montgomery has considered the question: ‘Is it time to rebalance your retirement portfolio?’
“As a tidal wave of the world’s population enters retirement, a similar-sized avalanche of investing mistakes might be occurring,” the group has warned.
“Just when retirees need their assets protected most, they are adopting unacceptable risks.”
At present, “investors are forgetting two basic tenets of investing”, the fund manager has warned – noting whenever these basics are rejected in the hope of better returns, the consequences are painful.
“The first tenet is: the higher the price you pay, the lower your return,” the whitepaper continued.
“The second is: when risk appears lowest, it is usually highest.”
For someone who is planning on retiring today – and receiving an annuity stream from investments, Roger Montgomery said, “The order of your returns will have a very significant bearing on your wealth.”
The fund manager has considered sequencing risk as “a major obstacle to a retiree realising a fully funded retirement”.
“And while almost all investors understand the impact of volatility on retirement savings, many underappreciate the greater concern called sequencing risk,” the white paper went on to warn.
Sequencing risk becomes an issue when investors start drawing down on their portfolio for the purpose of taking an income – a smaller amount of each year’s gain is retained and compounded because Australians are required to receive a minimum percentage pension payment each year from their portfolio.
“The result is that as the portfolio declines in value, a smaller payment is received,” the fund manager outlined.
While sequencing risk can create huge problems for investors, there are ways investors can mitigate such risk, with the group advocating the assistance of reputable financial planners in this instance.
This could include quarantining some funds in the early years to meet near-term lifestyle requirements, which would allow the bulk of the investment to ride through the volatility and recover.
Another option raised by Roger Montgomery is “having a fund manager that captures more of the upside than the downside” – especially for those most in danger from sequencing risk.
In conclusion, the fund manager indicated that markets can’t remain disengaged from earnings growth and the economy forever.
And with the spread between market prices and domestic fundamentals is “as wide as it has ever been”, Roger Montgomery said it is “an opportune time to reconsider an investor’s exposure to the market and consider rebalancing towards funds that might capture less of the downside”.
About the author
About the author
Stock market
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
The Olympic effect on property and equity investors; COVID-19 Disaster Payments and super
Listen now
Do lockdowns boost property prices? Are short-sellers levelling the playing field? Did you lodge your tax returns early?
Listen now
Will lockdowns halt the housing boom? Is the metaverse taking over? And the cons of lodging your tax returns early
Listen now
Are you being priced out of the market? Have you got the Tuesday blues? And are you ready for the upcoming super changes?
Listen now
Stock market
Could this bull market be losing steam?
There’s an old investment adage that bull markets never die of old age, with the current market showing signs of cracking just months after the recovery, an industry expert warns. ...Read more
Stock market
Super fund investors bid to acquire Sydney Airport
A group of super fund investors has lodged a non-binding takeover bid for Sydney Airport, valuing the company at over $22 billion. ...Read more
Stock market
10 most globally held stocks revealed
Australian investors remain bullish on electric vehicles and technology stocks, according to their long-term held positions, new research has shown. ...Read more
Stock market
How ‘gamer investors’ are pushing a new wave of social responsibility
A new generation of younger retail investors are pushing a new social movement, yielding a distributive impact on the markets, most notably through the GameStop saga, two researchers have revealed. ...Read more
Stock market
ASX tipped for record high despite inflation fears
The market is tipped to shake off fears of rising inflation, with the ASX 200 now tipped to close the year at a new record high, an economist has revealed. ...Read more
Stock market
‘Commission-free propaganda’: Warning issued for retail investors
The phrase “if you’re not paying for it, you’re the product” applies just as much to stock trading apps as it does to social media networks. ...Read more
Stock market
Is the tech sell-off creating opportunities for investors?
A tech sell-off sparked by inflation concerns has seen world markets crash. But is it creating an opportunity for investors to ‘buy the dip’? ...Read more
Stock market
Government opens arms to Wall Street
In its bid to maintain Australia’s global competitiveness, albeit its firmly shut borders, the Australian government has included a measure in its recent budget to allow foreign financial services p...Read more
More articles
Website Notifications
Get notifications in real-time for staying up to date with content that matters to you.
