Given increasing longevity, it's important that retirees not ignore strategies that can generate long-term capital growth. In short, retirees need to re-examine the role of equities in their portfolio.
When it comes to returns, it's true that there is no free lunch - for one person to win, another loses. But with risk, diversification offers "free drinks", albeit that the bar where these are served evolves over time because correlation is not static.
A growing body of research on the actual spending habits of retirees finds spending declines over time, implying retirees may not need to be saving as much to retire.
I wonder whether this post-Trump market rally and associated bullish economic and market narrative will come to be seen as one of the more prominent historical examples of poorly timed and lazy market groupthink.
Variable withdrawal strategies for retirement spending are receiving more attention. Optimal asset allocations for such strategies are quite different to rules of thumb based on fixed withdrawal strategies.
Perhaps the best way to manage sequence of return risk in the years leading up to retirement and thereafter is simply to build up and then use a reserve of bonds to weather the storm.
The gravest geopolitical challenge is not terrorism, or the Middle East, or Brexit, but a possible eruption between China and the US, the world's two largest economies and militaries. It is always when the most powerful countries clash that the world is altered fundamentally.
Predicting the future raises a significant number of issues when creating an investment plan. Monte Carlo simulations will illuminate the nature of that uncertainty, but only if those using them understand how it should be applied – and its limitations.
Conference 2016 featured a stellar lineup of international and local experts offering their best high conviction idea/thesis around the the friction between short-term and long-term investing imperatives - and the portfolio construction decisions that must be made.
Investing offshore requires currency exposure. Currency impacts can wash out over time, but its tidal forces are strong and independent of a client's retirement time frame. Currency is both a risk and an investment opportunity.
With most market participants distracted by short-term noise or focused on mean reversion of long-term valuations, the gap in the middle is an under-researched and fertile hunting ground.
For all the wisdom of four centuries of investing, not much has changed in financial markets. Boom and bust cycles still exist and speculation is higher than ever. But the Prudent Man Rule from 1830 can serve as a useful anchor for investors.
It seems sensible to make investment managers accountable by requiring them to perform relative to a benchmark. But this kind of motivation has a perverse effect.
The benefits of long-term investing extend beyond just being able to invest in illiquid assets. Patience can pay its own dividend. The challenge is holding at bay the relentless pressures to respond and deliver over the short term.
This panel debated the high conviction thesis that the key geopolitical risk of the times is tension between China, the US and South East Asian countries, as well as the impact of the US election on markets.
Geopolitical tensions between China, the US, and countries of South East Asia are growing. Most investors dismiss the region as a risk. But we are at a precipice of a left-tail risk event.
There has never been a more divisive US election season than the one we are witnessing right now. While the rhetoric and opinion polls are captivating on a weekly basis, the long game is what matters.
Markets are volatile and events are unprecedented – or at least that’s what we’re told and have been conditioned to believe. Times and markets are volatile, but they always have been and they always will be.
It is possible to generate high returns with low risk irrespective of where short-term cash rates or long-term government bond yields may be.
Listed and unlisted infrastructure investment are complimentary ways to access the same underlying cash flows. But varying investor time horizons impact the investment returns both targeted and achieved.
Increasing equity exposure for retirees does not have to be a daunting move. Breaking down the index shows that income and not capital has been doing the heavy lifting over the longer term.
As an investor, allowing yourself to be distracted by quick interpretation of market dynamics will lead to poor allocation decisions. Ultimately, fundamentals will win out for long-term investors.
Finance principles tell investors to buy good companies at attractive prices and they should perform over the long term. But what worked last century won't necessarily stand true this century.
Rapid technological innovation, affordable communication, and demographic shifts are reshaping the world. The traditional country/regional approach to asset allocation is not optimal for capturing these new opportunities.
Client solutions will require the use of both smarter passive and high conviction active strategies, allocated in a way to meet the needs of individuals.
Investing is supposed to be about the incremental replacement of human capital with financial capital over the long term. But today's environment and our behavioural biases conspire against such a pure case.
Rising liabilities and low expected returns are driving a greater focus on outcome-based strategies and factor investing.
Maintaining a solid level of income for the retiree must remain at the forefront of thinking and a move up the risk spectrum into equities provides a solution.
Managing the fundamental friction between short-term and long-term investing imperatives is a key challenge when building portfolios. This Backgrounder explores some of the key concepts and debates.
In portfolios with international exposure, there are times when currency returns dominate overall performance. This paper analyses the currency hedge decision from the perspective of an Australian investor with international exposure.
The world of investing and business has seen a great deal of change in the past 30 years. Investors face a slew of psychological challenges. Here are the 10 attributes I believe to be the hallmark of a great investor.
Research suggests that we have remarkably little insight into our future preferences. So a challenge of goals-based investing is that we save towards a goal that isn't what we want when the time comes.
Considering structural and cyclical drivers can help reveal investment opportunities, if an appropriate timeframe is defined. A two- to three-year period is an under researched view.
What are the investment implications of a potential Trump presidency? In the short term, we think it could be positive for equities and negative for bonds, but negative for US equities in the medium term.
The "best" retirement income strategy may be very different depending on whether you measure based on wealth, spending, probabilities of success, magnitudes of failure, or utility functions that weigh both the upside and downside risks.
The current investment environment is arguably one of the toughest ever in which to build portfolios that deliver return and are robust into the future. There are a range of approaches that can be taken.
Symposium facilitates featured a stellar line up of 20 international and local experts - including special guest keynote, Professor Niall Ferguson, PhD, internationally renowned economic and financial historian - offering their expert, high conviction ideas to help build better quality investor portfolios.
One of the most important decisions facing retirees is working out how much can be “safely” spent without the risk of exhausting capital. This session reviewed the different approaches to create a formal, written spending policy.
Presented in a format that incorporates a game, this workshop explored the risk factors that drive retirement portfolio outcomes.
India’s demographic dividend creates a significant market opportunity for corporates operating within the ecosystem. But size really does matter, leading to the potential for unparalleled revenue growth.
Central bankers successfully tamed inflation in the late 1980s and early 1990s. Persistently low inflation is the new problem. With markets complacent about the inflation outlook, signs of inflation could create a scare.
The currency exposure embedded in foreign equity portfolios exposes portfolios to a great deal of noise. Used productively, the opportunity it represents can be captured as the ultimate "alternative asset".
US private market home loans – income producing, low credit risk, low volatility assets that can generate a stable flow of monthly income - are one of many opportunities to consider for portfolios.
Each panelist outlined the high conviction idea they agreed with most from the prior day, and the portfolio construction implications. Then delegates worked in tables to determine the same.
While record low interest rates worldwide (negative in many countries) mean low returns on government bonds, it doesn't necessarily mean low returns across the board. This is not a time to be fearful.
The tepid recovery from 2008's GFC has surprised almost everyone. Investing in this low growth world requires a very selective stock picking approach, and suggests focusing on value and quality.
Quality is a critical factor in constructing portfolios. The use of a modified Piotroski indicator as an indicator or screen for equities can significantly add to investment performance in NZ and Australia.
If you see one cockroach, you haven't seen them all. That's a very important concept today for managing diversified portfolios. We see one cockroach – low interest rates, but what we don't see is the hidden consequences throughout portfolios.
Nearly every investor is confronting the challenge of how to invest in a low growth, low return environment. Investors must rethink portfolio construction.
The extreme thirst for yield has pushed the US high yield debt cycle into unchartered territory. It is approaching shakeout - with long/short opportunities amongst the beneficiaries of the current cycle.
Investors need to be wary that without much needed reform, structural weaknesses in many advanced and developing economies will be the ultimate determinant of longer-term returns.
Retirement income planning is a relatively new field that differs from traditional wealth accumulation. Eight key ideas serve as a manifesto for my approach to retirement income planning.
Retirees and their pensions are being sacrificed for what now passes as "the greater good." ZIRP has created a massive problem for retirement savers and pension fund managers. NIRP will make their problem worse.
farrelly's Investment Strategy provides subscription and consulting tools and services to enable a dynamic, forward-looking approach to asset allocation, a key driver of quality portfolio construction and quality results for investors...
One might argue that Australia's high dividend yield, currently lower PE Ratio and generally smaller companies means the Australian equity market behaves like a global small cap with a value style tilt. Is that true?
The conventional tactics of asking questions to gain trust during client meetings are based on faulty and outdated assumptions. Five conversational recipes are needed to achieve a trust trifecta.
Use clients' choices to recover both their true preferences and their financial sophistication and the impact of complexity on client decision-making.
State Street's 2015 Retirement Survey interviewed 1200 Australians, to understand the psychology of Australian retirees and the opportunity to engage and boost confidence.
It's a sad fact that not everyone adjusts well to retirement. It's estimated that about one third of retirees have problems adapting after leaving full time work. So why do some people fail to adapt? A Dynamic Resource Model provides a potential solution.
Research in finology, neurology and psychology consistently reveal that our decisions are disrupted by an array of biases and irrationalities. Merely being aware of these shortcomings doesn’t fix the problem. The real question is ‘how can we do better?’
The three motions put by our independent economists for Markets Summit 2016 were 1. Capitalism and globalisation will not survive the next GFC; 2. The markets are overreacting in particular to the outlook for China’s economy and currency, and the prospects for financials; 3. You should protect your positions this year by buying risk overlays.
It's true that the past few years have been challenging for emerging markets as a whole. But not all emerging economies are equal, and uneven prospects are driving compelling return differences. Investors should have them back on their radars.
Today, there are no clearly diversifying mainstream assets. All assets are expensive and what seems safe may hold the greatest risk. We need to set realistic expectations and invest only of the basis of genuine insight.
In a cyclical sector like commodity, deja-vu abounds for those with a long memory. As the outlook improves, equities usually rally before commodity prices, responding to improved demand forecasts.
The market continues to misprice the risk of large scale defaults and debt restructures. Now is the time to sell high yield and EM bonds exposure, while you still can.
We are at an inflection point where the global dependency ratio is becoming adverse. This will lead to profound changes to the composition of the population around the world, polarising investment opportunities.
The extreme thirst for yield has pushed the US high yield cycle into unchartered territory. In a clear case of déjà vu (replace "subprime" for "high yield"), the cycle has reached the shakeout phase.
It's possible to have your cake and eat it too. Global investment grade credit has not been this attractive in spread terms for the past six years.
Often in markets, you do get the feeling that somehow we've been here before. But things are never quite the same. Looking at some examples from the past, particularly Japan, we can see what can we learn and apply to our investment decisions going forward.
China's Black Monday renewed investor concerns about a hard landing. It is critical to assess the macroeconomic and market scenarios of a China hard landing and the impact on investors' portfolios.
Debt levels are too high (deja-vu!). Until now, QE has softened the impact. With consensus perceiving the Fed to return to normal (?), markets are entering unchartered waters - 2016 is set to be a volatile year.
For all its ups and down, 2015 ended up being a year to forget for Australian investors, with little variation in the performance of major asset classes. The coming year will be a rerun of this theme. Dynamic allocation within portfolios and additional levels of diversification will be critical for 2016 to avoid the feeling of deja-vu.
The Fed has begun its interest rate tightening, and deja-vu - there continues to be a great disagreement about the quantum of the rises. Rates will go higher than most expect and QT will impact on financial asset volatility.
A 50-year era of inflation is ending and we are left no inflation, little growth and too much debt. China's slowdown and the current oil glut are early signs that this debt bubble may end badly.
Does it feel like we've been here before? The more things change, the more they seem to stay the same! Does that mean that, going forward, markets and asset classes will behave as in the past? Is it deja-vu (all over again)?
For all its ups and down, 2015 ended up being a year to forget for Australian investors, with little variation in the performance of major asset classes. Dynamic allocation within portfolios and additional levels of diversification will be critical for 2016 to avoid the feeling of deja-vu.
Core assets - Australian equities, global equities, and fixed income - are going to generate pretty lacklustre returns this year. Having as efficient a portfolio as possible is going to be really key to your return success.