In the ‘real-return’ world
Pouring your wealth into riskier assets such as equities can seem like a nobrainer when markets are riding high. But markets will eventually turn down, taking the value of these riskier assets down with them. “This presents a Catch 22 for conservative investors like retirees,” says Michael O’Dea, head of multi-asset at Perpetual Investments.
Either they invest in defensive assets, generating little income, or they allocate more toward equities, which are both volatile and expensive.
O’Dea, who manages the Perpetual Wholesale Conservative Growth Fund (third in Money magazine’s 2020 Best of the Best Multi-Sector Funds), says it is tempting for investors to increase their risk in an attempt to reach a return target, and more retirees are doing so.
But investing in riskier assets just before or during retirement exposes investors to drawdown and sequencing risks. Drawdown risk is the length of time an investment would take to recoup its losses after a fall in the market.
