Investors with insufficient growth assets in their retirement portfolios may find themselves desperately vulnerable later in retirement. In an article by Coronation, they discuss the important considerations that investors with income and growth needs should take into account to ensure that their retirement planning is appropriately prudent. For your convenience, we have summarised this article below. To view the full article, see fund managers’ comments.
Investor advice – The income and growth challenge
Most investors do not have enough exposure to growth assets, partly as a result of this recent exceptional period of superior performance. Growth assets are the most reliable means of protecting one’s capital against the eroding effects of inflation.
- Plan for higher inflation – older individuals have a higher personal inflation compared to the ‘average’ South African as quoted in the headline inflation.
- Plan for lower returns – the last decade is not a good basis for expected return forecasts. Expect interest rates to remain lower for longer.
- Plan to live longer – life expectancy is increasing thanks to advances in technology and nutrition.
What are the implications for retirement planning? Expect relatively high inflation and expect returns to be more subdued than over the past 10 years. The prudent planner will respond by moderating income drawdown rates and ensuring their portfolios are exposed to growth assets.