3 questions on fixed income for 3Q 2019
Our answers for three bond questions investors may ask.
The internet is full of viral videos showing novelty shortcuts for increasing productivity. There are so-called ‘life hacks’ for everything from household chores to academia.
What about life hacks for retirement planning? These are commonly overlooked, but they may be the most critical for your future.
The best way to get started is to focus on what you can control – how much you save and how you invest.
Hong Kong households tend to be good savers, however, their good savings behaviours are handicapped by the fact that a large portion of savings are in cash3, an asset class that has delivered negative real returns against Hong Kong’s Consumer Price Index over the past 15 years4. This could curb investors' chances of accumulating sufficient wealth to achieve their retirement goals, especially young investors with a long runway before retirement who can and should use time to their advantage to improve their savings growth potential.
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There are three retirement life hacks that can help:
To meet your retirement goals, it is important to invest in long-term growth assets to protect against the eroding effects of inflation.
When you are young and saving for retirement, investing in growth assets allows you to use the power of compounding to achieve your long-term retirement goals at a lower cost compared to cash savings.
As you shift into retirement, it is natural to prioritise income, but growth is equally important to keep up with inflation, especially healthcare inflation. Healthcare cost inflation in Hong Kong outpaces general inflation, making it a significant future expense. Mercer Marsh Benefits’ 2018 Medical Trends Around the World survey7 showed that Hong Kong’s medical costs grew by 9% in 2017, which was six times the location inflation rate of 1.5%.
In our June 2018 survey on investor retirement sentiment, 76% of participants indicated they are worried that health care expense will become their biggest retirement expense in retirement5.
So, even in retirement, you can’t just look for income and not consider growth investing. You will need a balanced approach that includes equities for growth to cover future healthcare expenses.
As market conditions change, you should be well-diversified to protect your wealth.
With the ever-changing market environment, there is not one single asset class that can consistently outperform every year. But investing in a diversified portfolio over the long term could help generate a more stable risk and return profile compared to holding only one asset class. A well-diversified long-term portfolio is better placed to protect against today’s market uncertainties while growing your wealth for future spending needs.
Most people have other priorities for their time that don’t include active investing. Using investments such as multi-asset funds1 to participate in the market, and thereby tapping into the stock-picking and asset allocation expertise of a professional for a small fee, could save the expense of your time and be a less complicated way of preparing for your future and saving towards retirement.
When it comes to investing, many Hongkongers generally seek to maximise current income, regardless of their age. One way to achieve this is by investing in multi-asset income strategies1. This flexible investment approach balances income and growth by seeking income opportunities globally, aiming to provide stable, risk-adjusted income and long-term growth potential.
While you may be tempted to chase the highest yield, it is important to not overreach as it can expose you to higher risks. Look for managers who focus on risk-adjusted returns in an effort to deliver strong income and growth potential in a balanced way – without overextending for it. At different points in life, you will have varying needs and face changing risks. Multi-asset income investing can play a role no matter where you are in your retirement journey.
When you are young, it is important to maximise growth. Reinvest your income, so that you can put more of your money to work towards your future. When you are in retirement, you may want a consistent income stream to cover your day-to-day expense, whilst at the same time growing your principal and protecting your wealth.
No matter how near or far you are from retirement, planning for your future should be a priority. Even if you haven’t focused on it, it’s never too late to begin speaking to a financial advisor to explore what investments options may be right for your retirement planning goals. The simple retirement life hacks here can help towards the goal to make your retirement all you hope it will be.