Asset classes to own for retirement
Independent financial advisers share their recipes for retirement in the current climate.
In the recent market turmoil, few (if any) asset classes seem to be able to provide peace of mind to investors. The traditional 60/40 split between equities and bonds is increasingly seen as insufficient and some asset allocators favor liquidity to protect capital from erosion and to be able to seize opportunities when they arise.
For people of retirement age, the current situation could mean different things depending on what stage of retirement they are in, as a recent Trustnet feature explains.
Developing this, Trustnet put itself in the shoes of those considering retirement today and asked four independent financial advisors which asset classes they would want to own if they retired today and why. .
Below are their positions in silver and gold, infrastructure and real estate.
With gilt yields rising, the obvious thing to do is buy an annuity.
Kim Barrett, Certified Financial Planner at Barretts Financial Solutions, explained how things worked out wonderfully using the Draw (the ability to access 25% tax-free money from your retirement pots and leave the rest invested) until the events of this year have changed everything. on his head.
“Unfortunately, all of our customer reviews this year are producing negative results of up to around 15%, although this is offset by last year’s results,” he said.
“If a client wishes to continue withdrawing, cash is an obvious place to put retirement assets to cover their income needs for, say, a two-year period. We are currently managing very high cash positions for many of our clients in any case, both as a defense asset class and to provide agility to reallocate funds if needed.”
But rising gilt yields also force you to think about things in a more creative way, including considering purchasing an annuity.
“Increasing yield means annuity rates also increase, so the obvious thing to do for a conservative character is to protect ongoing income streams by purchasing an annuity, possibly adding flexibility with a term annuity determined,” he said. “Other than that, there’s no magic panacea you can think of right now because all assets are falling right now.”
While some may turn to gold, an area covered by Darius McDermott yesterday, he argued that the physical asset is not flexible enough to meet ongoing income needs.
If investors were to go that route, Barrett said he would “much prefer to buy an exchange-traded index fund (ETF) because it can be divested in part to meet income needs,” but noted that the price of the asset is volatile and therefore not something he personally recommends.
Infrastructure has become an investable asset class for retail clients
Investment manager at EQ Investors, Andrew Rees, has changed the way he reduces risk for his clients as they approach retirement.
“Once a client retires and begins to dip into their investments, we typically move to a diversified portfolio of 50% global diversified stocks and 30% investment-grade bonds, a mix of states (inflation-linked and nominal), corporate and ABS (asset-backed securities).
“However, the last part has changed significantly since I started managing portfolios, as we have seen the alternatives part of the investment toolkit grow. Historically, the alternatives would be hedge funds, gold and commercial real estate, but we have now seen infrastructure become an investable asset class for retail clients.
“We now own between 10% and 15% of infrastructure for our customers, and this consists of renewable energy, social infrastructure, battery storage and finally digital infrastructure.”
Market downturns favor regular contributions and one-time lump sum payments
Certified Financial Planner Susan Hill of Susan Hill Financial Planning believes that getting the facts and understanding your goals is key to investing.
“Assuming someone needs positive returns relative to inflation and has more than 15 years to retire or needs to cut income, they should invest with the highest risk that they can manage to achieve that goal.Then it comes down to how much growth they need to achieve that income, where growth can come from growth in investments but also growth in contributions (invest more) .
“The market downturns we are currently experiencing help regular contributions and one-time lump sums because they buy funds at a market low, returns come later in the market cycle.”
Adele Forbes, managing director of West Yorkshire Money, said another area investors could consider is investing in property rather than stocks.
Rental landlords are under increasing pressure, but it’s still possible to retire with the income if properly invested.
She said an ideal scenario would be to pay off the mortgage on a primary residence “and own a few rental properties directly receiving a few thousand dollars a month.”
However, she noted that investors would ideally also need a “decent retirement pot of at least £3,000 a month until death” to supplement this, if the market falls or houses go vacant for a while. any period.