JO MCCREERY
FINANCIAL ADVISER AT MAJELLA
WEALTH
I
nvestinginretirementis a trickybusiness.
You’renowdependantonyourretirement
savingsforincomefortherestofyourlife,
butyoudon’treallyknowhowlongyouneedto
makeyourmoneylast.
If youareretiringtodayat65,yoursavings
probablyneedto la stat lea st 20 yea rs,a ndpossibly
30.Mostpeoplew i l lneedto i ncludeg row t ha ssets
in theirinvestmentmixto maketheirsavingslast
thedistanceorat leasttokeepupwithinflation.
However,theactofdrawingdownyourcap-
italoveryourretirementmakesyourportfolio
a lotmoresensitivetonegativereturns.A very
aggressivelyinvestedpensionportfoliomaynever
recoverfroma sharemarketcrashlikewehadin
2008-09.Soyoudohavetobecarefulwithhow
muchandhowyouinvestintogrowthassets.
Tomanagerisk,diversificationis key.Australian
sharesaregreatforincomegivenourhighdivi-
dendratesandfrankingcredits,butAustraliais
a smallpartoftheglobalsharemarketandlacks
depthinmanysectors(suchasIT).TheAus-
traliansharemarketis alsoveryconcentratedin
financialsandresources.Includingglobalshares
inyourportfoliois importantfordiversification.
Otherassetssuchasinfrastructureandproperty
canalsoimprovediversification.
Howyouinvestingrowthassetsis important
toconsider.Youcould:- Investinindexedfundsorexchangetraded
funds(ETFs).Thisis a wayto investcheaply.For
example,youcanpayaslittleas0.04%patoget
ex posu reto a f u ndt hatrepl icatest heUSS& P 50 0
(ASX:IVV).Youneedtobeaware,though,that
youareinvestingintoa portfoliowitha historically
high price to earnings ratio (PE) of 21. Investing
into the market at a high PE increases your chance
of earning low long-term returns. - Invest in “smart beta” ETFs. These are funds
t hat use r u les to i nvest rat her t ha n si mply ma rket
capitalisation like traditional indexed funds. The
rules are typically designed to select stocks that
should deliver a better outcome than the overall
market over the long term. For instance, if you
wa nted to i nvest i n US stock s but were concer ned
about the US market’s overall PE, you could invest
i n t heBeta Sha resF TSER A F IUS10 0 0ET F(QUS).
Thisfundinvestsinthetop 1000 UScompanies,
weightedin a waythatreflectstheeconomicsize
ratherthanthemarketcapitalisation.ThePEon
thisportfoliois currently13.6.- Selectstocksyourself.Youcouldtrytopick
thestocksyouthinkwilldelivergoodreturns.
Thisrequiresa lotoftimeandskill. - Investinactivelymanagedfunds.Youpaya
fundmanagertodothestockselectionforyou.
A goodmanagerwillbeworththefees– usually
noteveryyear,butcertainlyoverthelongterm. - Investin fundsthattryto limitlossesin times
of marketstress.Fora retiree,investingin a fund
wherelimitingshort-termnegativereturnsis a
jointprioritywithgoodlong-termreturnscanbe
a comfort.Somefundmanagers,suchasMagellan
andPlatinum,willactivelydefendportfoliosfrom
perceivedshort-termrisks.Otherfundsoffer
a moreautomatedcapitalprotectionstrategy.
Forinstance,BetaSharesManagedRiskGlobal
Share Fund (WRLD) is an indexed ETF that uses
a quantitative process to reduce exposure to the
global sharemarket when volatility rises.
Including growth assets in your retirement
portfolio is very important, as is accepting some
short-term negative returns. Equally important is
protecting it against large losses. When you are
drawing on capital, as most retires would expect to
do, it can be difficult to recover from large losses,
particularly if the recovery is lengthy. Choose
your growth investments carefully.▲JO McCREERY^ RETIREMENT
WHERE I WOULD
INVEST $10kThis should be an easy question
to answer for a financial adviser.
I spend my days advising people
where to invest their money.
When a client calls to say they
got an extra $10,000 as a bonus
this year, I can easily advise
them what to do with it.
It all comes back to knowing
your financial goals and priori-
ties. If you have goals, they
are much more likely to be
achieved than if you haven't
identified them.
If your current priority is pay-
ing down your home loan, then
that’s where most or maybe all
of this money should go. If your
home loan and other short-
term savings goals are under
control, then look to your
longer-term goals, such
as building your super.
If you are working and have
the capacity within the $25,000
concessional contribution cap
this year, then think about mak-
ing a personal tax-deductible
contribution to your super
(remember to notify your super
fund that you intend to claim
it as a tax deduction).
It’s also worth remembering
that you should enjoy life now as
well as planning for the future.
So maybe take your partner or
best friend out for dinner, too!
I ’ m r e t i r e d b u t s t i l l w a n t
to see my money grow.
Where do I invest?
EXPERT PICKS • WHERE TO INVEST $10k