Retirement is not the end of an investor’s financial life. It is the beginning of a new and different phase.
Until retirement, the focus is on accumulating wealth to fund the post-work period of life, but in the last few years leading up to it, the focus shifts to avoiding loss, preserving wealth, and making it last as long as it will be needed. Since no-one can accurately predict how long they will live or what the markets will do during their lifetime, this investing phase can create anxiety and uncertainty.
However, anxiety can be substantially lessened if you understand what your assets need to do for you now and how to choose investment vehicles to achieve these goals.
The New “Safe” in Investments for Retirees
One potential solution for creating a reliable income stream in retirement is withdrawing systematically from an equity portfolio and transferring into a fixed-income portfolio. However, in a low-rate environment like today, when income generation from a fixed-income portfolio is significantly less than it used to be, this strategy may be inadequate to provide the level of retirement income you want.
The answer can be to keep an equity portfolio as part of your strategy, but change its direction and composition to suit your new life stage. You probably think of your equity portfolio as the foundation of a wealth-building offense, but the right positions can make it equally useful as a defensive strategy.
The major risk that must be managed in a post-retirement stock strategy is market volatility. Volatility is a very serious risk for retirees, much more so than for other investors. Deep losses can permanently disrupt retirement plans as senior investors do not have time to wait for a bull market to recoup their losses. Even smaller losses can severely disrupt smart planning by putting a “drag” on compounded growth. A little less money means a little less for compounding to work on, and these small amounts add up over time.
Thus, in order to employ a post-retirement equity investment strategy effectively, it’s important to choose investments with the potential for steadier compounding.
The Downside Protection of High-Quality Equities
KAR has a disciplined philosophy for investing in quality that informs all our individual strategies. We focus on finding companies with strong fundamentals and compelling indicators of strong long-term performance.
Because equities are intrinsically volatile, we are vigilant in choosing profitable, high-quality companies which have typically kept us in good stead even during tough market times. This is important because in comparing two equity strategies with the same returns, the one with better downside protection during falling markets is better positioned to protect the benefits of compounding and help safely generate income in retirement.
We currently offer three different small-cap strategies specifically focused on outsmarting volatility in retirement:
To learn more about these strategies and how we can tailor a plan for your portfolio, contact us today.