Retirement Portfolio Discussions
Managing Volatility in Retirement
Explore various strategies for managing volatility in retirement portfolios: diversification, alternatives, and the need to address both immediate and long-term needs.
Withdrawing assets during volatile markets early in retirement can ravage a portfolio
- Don't assume steady annual returns when planning withdrawals. A combination of market losses and fund redemptions early in retirement can deplete assets sooner than expected.
- Retirement plans should account for "sequence of return" risk - the risk of tapping into investment early in retirement during negative markets.
- One possible solution to consider is to enter retirement with a broadly diversified portfolio that seeks to avoid large losses in down years.
A more diversified portfolio offered the best of both worlds - higher returns with lower risk
- An optimal portfolio captures returns from many different markets while limiting risk from any one.
- Retirees tend to be less diversified, with underexposure to equities and alternatives and overexposure to bonds and cash.
- Well-rounded retirement portfolios can include a broad mix of traditional asset classes, along with addtitional strategies such as high yield and exposure to emerging markets.
Diversification has historically delivered a smoother ride across volatile markets
- In this example, a balanced portfolio was never among the bottom three performers, helping investors avoid large losses and reduce "sequence of return" risks.
- Diversification may also allow clients to tap into better-performing funds for retirement expenses, instead of selling underperformers at a loss.
- Alternative assets have acted as "shock absorbers" during down stock markets, often earning gains to offset losses
Check on other Retirement Discussions
Guide to Retirement
In each section of the Guide to Retirement, we discuss common client misconceptions and retirement challenges and provide the tools to address them.