What older Australians can do in a low-interest environment

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January 23 2020
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Older Australians looking to preserve their wealth will struggle in a falling interest rate environment, as members reposition their drawdown rates, a wealth manager has suggested.

During the HLB Mann Judd lunch, wealth manager Jonathan Philpot is predicting that non-risky assets will return 3 per cent over the long term, while shares will grow at 7-8 per cent.

“When you put that together for the balanced investor, they are likely looking at returns of between 5.5 and 6.5 per cent for the next five years – significantly less than previous years,” Mr Philpot said.

The wealth manager believes many people are invested in the balanced superannuation option, meaning they have 70 per cent in risky investments such as equities and 30 per cent in secure assets such as bonds.

While highlighting the benefit of this strategy in the past, Mr Philpot questioned whether this will continue to work in a low-yielding environment.

For retirees, if they are drawing out the minimum pension and drawing out 5 per cent and want their earnings to match their drawdown rate, lower returns are fine.

However, investors looking to preserve what they have in super are going to “struggle” in this environment, the wealth manager said.

“The choice is either cut back on what they are drawing down or seek higher return, and really the only way to achieve a higher return is to decrease that secure part of the portfolio,” Mr Philpot said.

“One solution to increase the investment returns is to increase the allocation to the risky part of the portfolio.

“An extra 10 per cent allocation is likely to produce a 0.5 per cent higher return to the portfolio, which doesn’t sound like a lot, but in a low-return environment, that per cent is important,” Mr Philphot concluded.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

About the author

Cameron is a journalist for Momentum Media's nestegg and Smart Property Investment. He enjoys giving Aussies practical financial tips and tricks to help grow their wealth and achieve financial independence. As a self-confessed finance nerd, Cameron enjoys chatting with industry experts and commentators to leverage their insights to grow your portfolio.

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