The 3 principles of long-term investing over a financial life cycle
Are you striving to live a fruitful and prosperous life? Read about our three long-term investing principles.
We are living longer than ever before. A recent UN population report2 shows the number of persons aged 80 years or over globally could triple in 2050 from 2019. And for the first time in recorded history, persons aged 65 or above outnumbered children under the age of five in 2018.
Investors are increasingly aware that they need to plan for retirement amid such a demographic change. A J.P. Morgan Asset Management survey1 found many end-investors in Hong Kong, Singapore and Taiwan are amiable to discuss with professionals about retirement planning, even when they have other priorities.
With rising demand for retirement planning, our Asia Pacific Retirement Strategist Wina Appleton has given more than 100 talks across Asia over the past 30 months3. Here are some questions that are on the minds of investors, and Wina shares her insights.
A: Once in Malaysia, after I finished a presentation on retirement principles, a lady in her 60s walked over and chatted with me. She said, “Life is so different when you’re really in retirement. It’s a scary feeling because I don’t know how much money I should spend to not run out of money, and I don’t know how long I’m going to live.”
I remember this vividly, and this motivates me to help investors better plan for their retirement.
A: People in Asia are generally better savers than those in developed countries. But it’s important for Asians to understand that savings alone isn’t enough, they need to make their savings work harder for them.
Investors need to take the right level of risk, based on where they are on the retirement journey. When they are young, starting to invest early could be key to take advantage of the power of compounding. This is the time when they have risk capacity to allocate more of their portfolio to equities to participate in long-term market growth. When they are near retirement, they need to de-risk their portfolio to protect their capital, and in retirement, it is important to stay invested to keep pace with inflation.
A: For most people, the trickiest part is figuring out how much money they need to spend in retirement. Most people have no idea. It’s tricky because there are so many forces at play, such as how long will they live, how much will healthcare cost, etc.
As a result, most people also have no idea how much money they would need to save to maintain their lifestyle in retirement. So, at J.P. Morgan Asset Management, we have developed the eight principles for a successful retirement and a checkpoint table4, as shown, to help investors gauge how much they need to invest to maintain their lifestyle in retirement.
Check out how much savings you may require to maintain an equivalent lifestyle in retirement4
How to use this table:
A: Don’t let your money retire before you, and even after you retire, make sure your money continues to work hard for you until you don’t need it anymore.
A: Time is your friend. Start investing early, and use the power of compounding to help you reach your retirement goal.
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A: It’s about resisting instant gratification. Some people find it hard to control the impulse to spend today for rewards that are far into the future. However, delayed gratification could lead to a much bigger payoff in the future.
It’s also about habit, and a matter of choice. For example, if you are used to taking a taxi to work every day, it’s difficult to switch to bus or the subway. Once you get used to a certain lifestyle, it’s difficult to reverse. But you do have the choice, it is something you can control.
A: Women tend to live longer than men. In Hong Kong, the average expected lifespan5 at birth was 88 years for women and 82 years for men in 2017. So it is prudent for women to be involved early in financial planning and investment decisions for their family.
A longer lifespan also means that their retirement nest egg would need to be stretched over a longer retired life, exposing them to higher risk of outliving their savings. Ironically, women tend to invest more conservatively than men and are less willing to take risk to grow their portfolios.
We would recommend that women use the longer time horizon that they have to their advantage, and make their money work harder for them.