Surprise survey results

Retirement Pulse question:

If you had $100,000 to invest which of the following would best describe your approach to the money?

  • I would invest aggressively to achieve a high return, even if it involved a high level of risk. 5%
  • I would invest using a balanced approach, accepting up and down investment returns over the longer term. 49%
  • I would invest very conservatively and would be willing to accept low investment returns as a result.23%
  • I would not invest, but instead would put all my money in the bank. 15%
  • Other 8% with various responses including
    • get advice first
    • invest in a mix of conservative and balanced, 
    • buy blue chip shares, 
    • repay mortgage, 
    • make super contribution, 
    • take a holiday, 
    • buy a dream car.

So how might we interpret these responses in the most useful way?

Sometimes we find it easy to say we will do something, and then, in fact, do something quite different. For instance, research tells us that most retirees don’t necessarily invest in balanced funds, instead more often they seek the perceived safety of cash. Yet there is a clear majority of respondents to the Retirement Pulse survey who believe that a balanced option for the longer term made the most sense. It’s also worth bearing in mind that this question was possibly seen as referring to a windfall gain of $100,000 and therefore respondents were less risk averse.

Retirement Essentials Director, Jeremy Duffield, notes the risks that inflation and an overly conservative approach can present:

‘Everyone’s different in retirement. It’s important to find the solution that works best for you.  People have different willingness and ability to take on risk to (hopefully) earn higher returns.

It’s an area where many will want to get advice…because sometimes the biggest risk in retirement can be  being too conservative with your investments and not keeping up with inflation.’

The underlying question here, of course, is how do you choose the most suitable mix of investments for a retirement portfolio? As Jeremy confirms, there is no is one size fits all answer. And this begs a further question, whether investing in and for retirement is distinctly different from other life stages?

The avenues of investment are, of course, open to all investors, regardless of age. Some are riskier than others. We’ve all watched the meteoric rise and fall of crypto currencies over the past few years, which provides a high profile example of the more daring end of the scale. But the options of term deposits, local and international shares, property and indexed funds etc. can all form part of your investment mix – and probably already do if you have money in superannuation. 

The traditional view of investing is that when you are younger it’s more appropriate to choose a balanced or higher risk setting so that you earn at a faster rate. And then, if things go pear-shaped, you have many years in which to earn and replenish your funds. And if you are retired, you choose a low risk setting as it can be more difficult to recover from sudden market downturns (i.e. you have less time to do so).

This view is questionable, however, as increased longevity means that today’s retirees may have another 30 years of retirement to fund. Investing with low risk settings may barely keep pace with inflation and deny retirees earnings which could have been much higher over the long haul.

The point here is that all investment options carry pros and cons. Investment decisions involve careful consideration which take into account the following:

  • Your current financial situation
  • Your age and likely longevity
  • Your regular income needs
  • Your financial goals
  • Your risk profile (i.e. comfort level with risk settings)
  • Potential Age Pension or tax implications
  • Ability to access crisis funding if needed

So the work involved in choosing the right investment mix for you is two-fold. 

The first step is to carefully review each of the above seven factors and how they might influence the type of investments most appropriate to your situation.

The second is to understand how this sits with your risk appetite and how you can reconcile these two things to ensure that your current investment strategy is meeting your main needs.

Once you have reached this point, you can step back, satisfied you have the right plans in place. 

But not forever.

In today’s volatile financial environment, it’s important to review these settings at least annually. Things change, peoples’ needs changes and market returns change. Keeping your money management up to date is the most important aspect of a financially secure retirement.

Retirement Essentials can help with many key aspects of the above planning process. Our experienced advisers offer different tailored consultations so you can touch base to check your needs, understandings and plans for: