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Home News & Insights Investing too conservatively

Investing too conservatively

legalsuper 12 Nov 2020
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There’s a common view that as you approach retirement you should tilt your investment portfolio towards more conservative investments to reduce risk. This means favouring things like cash, fixed interest and term deposits, while reducing exposure to more volatile assets such as shares and property.

The thinking is that preservation of capital is key, as without earning income it is hard to recover from any downturns in the share or property markets.

However, even 10 years is a long-term investment horizon, let alone 20 or 30. Cutting too far back on growth assets early may see savings dwindle too quickly during retirement.

In the days of high interest rates this might have been a good strategy, but when interest rates are low and life expectancies long, being too conservative with investment can see savings running out sooner than expected.

If you’re on the path to or in retirement, you will want to make your money go the distance.

Case Study

Peter plans to retire on his upcoming birthday. He'll be 63 and has $600,000 in super. Peter wants this to provide him with an income of $50,000 per year. If his net return is 3% pa, Peter’s nest egg will last for just over 15 years[1]. If Peter lives into his late 80s or even 90s, to give his savings a chance of lasting until he is 90 (27 years), Peter will need to target a net return of 7% pa.

Risk vs Return

Investing for higher returns does involve taking on greater risk. The great moderator of investment risk is time; considering how long your funds will be invested for is crucial. Over a 10-year period it’s more likely that a ‘growth’ portfolio will meet Peter’s needs rather than a more conservative one.

Every super investment option has a target return objective, to help you choose an option which will suit your needs. You can view legalsuper’s investment options and their objectives here.

Drawdown strategies

Investing your retirement savings in an account-based pension (or Transition to Retirement account) can offer effective drawdown strategies, such as drawing an income from cash investments while a portion of your balance remains in a higher growth option.

Don't set and forget

Our needs and risk appetites change as we do. It’s important to schedule check-ins every few years, or when things change to make sure your investment is still working towards your objective.

We’re here to help

Just because you stop working doesn’t mean your money should too. To ensure your nest egg keeps working to reach your goals through your retirement, make an appointment speak to one legalsuper’s Client Service Managers.

Send us a message

[1] Does not take account of any age pension entitlement

This information is general information only and does not take into account your individual objectives, financial situation or needs. Accordingly, before taking any action, you should consider whether it is appropriate to you, having regard to your objectives, financial situation and needs. You should obtain a copy of legalsuper’s Product Disclosure Statement (PDS) which is available by contacting legalsuper or via its website at legalsuper.com.au before making a decision. Past performance is not a guide to future performance.

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Being too conservative with investment can see savings running out sooner than expected.

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