One size does not fit all
Whenever you invest, there is a trade-off between risk and return, and this is undoubtedly true.
But, when it comes to measuring risk, things are not always what they seem.
The problem arises with the way in which analysts measure this risk.
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Retirement: you’ve made it! And one of the rewards for all your hard work is that you can now access your superannuation. Suddenly a world of opportunities opens up – a Caribbean cruise, major home renovations or maybe helping your kids reduce some of their debt.
Of course you deserve to celebrate your retirement, but bear in mind that your super might need to support you for the next 30 years or more. Eat too far into your nest egg in the early days and you significantly reduce the time that your super will last. This is particularly the case in a low interest rate environment.
Take Ron and Val. They retire with a combined super balance of $800,000. At an interest rate of 4% pa this nest egg will fund annual living expenses of $60,000 for 19.4 years[1]. If they spend $100,000 on travel and home renovations and give a further $100,000 to their children, the reduced nest egg will now only last 13 years.
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The twin elements of investment are risk, and return. We are constantly told that you cannot get a better return, without taking on more risk (but the reverse doesn’t apparently apply. If you invest in higher risk investments, it doesn’t follow that higher returns will necessarily eventuate. And, here the argument becomes fairly circular – more risk means more risk, which may mean no return, or total loss - if you get my drift).
The current way of measuring risk, is to look at the average volatility of returns over an extended period (in practice it is a bit more technical, but this is the essence of it). The more volatile the returns, the riskier the investment, and vice versa.
This way of measuring risk has been around since the 1950’s, and it was certainly a big improvement on what went before.
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'Securing Your Future' was the most viewed material on The West Australian’s website yesterday. It’s the online version of The West’s financial planning supplement.
The West Australian newspaper published a financial planning supplement yesterday 'Securing Your Future' (Monday 22 August 2016). I contributed an article to the supplement and participated in a video for The West's website. You might like to read the articles online - there is some useful material.
Click on this link to view my article and video about different investment returns in various decades: https://au.news.yahoo.com/thewest/a/32389394/sequencing-and-retirement-income/#page1
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What you need to know on Sequencing and Retirement Income - John Cameron - The West Australian on August 21, 2016, 6:00 am. Video Presentation & Article: Different decades, different investment returns.
https://au.news.yahoo.com/thewest/a/32389394/sequencing-and-retirement-income/#page1
Securing Your Future' was the most viewed material on The West Australian’s website yesterday. It’s the online version of The West’s financial planning supplement. Read more here: http://us3.campaign-archive1.com/?u=1e6f34af574ca6cbaf30d3e8a&id=4d4b85dde5
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