How to Master Portfolio Diversification in Retirement

Would a defensive investor be better placed mixing government bonds, private equity, property, hedge funds and commodities? Not necessarily

Dan Kemp 3 July, 2017 | 4:01PM

Investing in retirement is especially challenging as you are typically operating within an uncertain timeframe and battling the return drag caused by regular withdrawals. While such challenges require all of the tools at the disposal of the investment manager, for the majority of mums and dads saving for retirement, the use of fixed income is the most important consideration, as these assets typically provide greater certainty in the short term together with a useful income stream.

Traditionally, a simple retirement proposition may have comprised fixed income and equities to achieve a ‘safe withdrawal rate’ as an income stream. However, as the investment universe has expanded and interest rates pushed lower, this ‘safe withdrawal rate’ has seemingly declined. In a modern context, the portfolios used in retirement typically now include property, infrastructure, commodity-related assets, currency exposures and other ‘alternatives’.

So, how do these assets complement fixed income? While this causes a significant amount of confusion for everyday investors, it is worthwhile stepping through the benefits of smart diversification and the ways one can think about improving total portfolio outcomes.

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The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

About Author

Dan Kemp

Dan Kemp  is Chief Investment Officer, Morningstar Investment Management EMEA

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