Portfolio Chart: A menu of options as bond yields reset higher
With yields hovering close to decade highs across many fixed income sectors, investors are presented with a “menu of options”. Still, selectivity matters as recession risks loom.
To achieve your desired retirement, it is important to anticipate the possible challenges that retirees could face and be better prepared financially.
Retirement planning doesn’t have to be complicated - it’s more important to just get started. There are factors in a retirement plan that you have no control over, such as policy changes and market returns. But there are also factors you have some control over, such as lifestyle and career choices. As illustrated below, you can also shift the focus towards factors that you have full control over, such as asset allocation and spending habits.
Make the most of what you can control
Achieving retirement goals takes disciplined saving and investing - all of which can feel overwhelming, especially as the retirement landscape continues to change1.
The reality is that we are living longer and this could mean more time spent in retirement. Inflation also erodes the real value of money, hence relying on cash holdings in your retirement account alone may not be enough as these savings are utilised not just for retirement but also home purchase and healthcare.
To explain the macro trends, cash, as illustrated by the Bloomberg Short-term Treasury Total Return Index in the chart below, has underperformed compared with other asset classes over the long term. Even at times when the equity market is struggling, the bond market can present opportunities for relatively attractive returns.
Long-term returns of asset classes
Here are some key retirement planning principles3 to help you make informed decisions1 and take positive steps towards a successful retirement.
Optimise the benefits of compounding by starting early and investing in a well-diversified portfolio.
Inflation can erode the real value of cash over time. Based on your objectives, growing your assets by investing in equities and bonds could help lessen the impact of inflation over the long run.
Dividends and compounding can work for you. The compounding effect can help increase investment returns if the dividends paid out over time are reinvested.
History suggests investors are better placed to manage downside or volatility in the markets when investments are held over the long run.
The wild swings in global markets can be unsettling. But volatility is normal as investing can involve significant drawdowns from time to time.
Time and diversification can facilitate a smoother investor experience. A diversified portfolio of stocks, bonds and other uncorrelated asset classes can provide opportunities.
In addition to Central Provident Fund (CPF) savings, individuals can grow their retirement nest egg by investing. When building a successful retirement portfolio, investors can consider their unique needs, life stages and appropriate level of risk.
Based on their investment objectives, investors can, by harnessing a combination of income and growth investing solutions, build resilient retirement portfolios that can withstand a range of market conditions.
For example, income investing can help some investors tap into opportunities for consistent cash flows from asset classes such as bonds and dividend-paying stocks, while seeking to manage volatility.
Meanwhile, growth investing presents an avenue to seek opportunities for excess returns over longer time horizons, although it may also entail accepting some degree of volatility.
A diversified portfolio allocated across different asset classes and investment styles can help manage risk while seeking to generate returns over the long term. When required, seek professional advice.