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
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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.