A diverse investment portfolio can assist you in growing your superannuation, as well as help protect your wealth in the longer term.
Super is an investment which has been designed to support us in our senior years. However, our increasing life expectancy may be a trigger to rethink our super investment strategy so that we have the resources to sustain us post-retirement.
A one in four chance of living to age 90
A recent report by ASFA/State Street Global Advisors (The future of retirement income, March 2015) found that a 65-year old women can now expect to live, on average, for another 22 years while a 65-year old man could have an average of another 19 years ahead of him.
The study also noted that among today’s 65-year olds, around 40 per cent of woman, and 26 per cent of men, will live to age 90.
A long life is worth celebrating, but it also calls for some planning in terms of making your retirement savings last the distance.
The investment choices you make may be influenced by a number of factors. These include your appetite for risk as well as your stage in life.
For example, if you are just starting out in the workforce you may be open to choosing higher risk, higher return investments – because you have time on your side when it comes to building your super. If you’re nearing the end of your working life, you may find it appropriate to invest a higher proportion to more conservative, lower risk investments.
Yet while people tend to focus their investments in traditionally conservative assets as they approach retirement, such as cash and term deposits, our increasing life expectancy means Australians may find it more desirable to hold a more diverse range of investments for longer.
Don’t switch to a conservative portfolio too soon
According to the aforementioned research by ASFA/State Street Global Advisors, retirees with a ‘defensive’ portfolio – in other words, where a good chunk (75%) of their money is invested in cash and fixed income assets, could expect their savings to last until about age 90.
However if the same retiree held a more diverse portfolio – with just 43% invested in cash/fixed income and the remainder spread across a variety of growth assets including shares, the same pool of wealth could stretch until age 98.
These are simply examples; nonetheless the key message is clear. One of the most effective ways of making your super last longer in retirement is by spreading your nest egg across a variety of investment options.
Playing it too safe by making an early switch to low return investments and overlooking growth assets could increase the risk of being left shortchanged later in retirement.
If you are thinking about diversifying your investments, consider asking your financial adviser to assist you in making the right choice.
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