4 retiree to-dos in a turbulent market

Christine St Anne  |   02/09/2015 Text size  Decrease  Increase   |  
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 1. Check your liquidity


David Simon: Liquid reserves can be cash or even potentially fixed interest and it's always been a fundamental principle of investing, especially for retirees and even though the market volatility at the moment is certainly heightened, it's a discipline that should occur right throughout a retiree's investment strategy.

There are a few reasons why and they are strikingly clear. The first one would be ensuring they have enough income in cash for at least a couple of years. And the reason for that is that retirees don't want to be in a position where are selling shares or property or any other growth assets in a market which is falling and they don't want to be forced to do that. So, having at least a couple of years' worth of cash in reserve is really important to avoid them having to sell these assets whilst they are distressed. Potentially also having a further three years' worth of fixed assets would be completely ideal. That way an investor that's retired has at least five years' worth of liquid reserves to ensure they can ride out the volatility whilst the markets are going through their cycle.

The other reasons why investors should have a range of cash or liquid assets is also to take advantage of these opportunities. I mean, if they are fully invested then they are almost spectators in these environments and almost forced to sell assets whilst they're distressed. So, having an element of reserves and liquidity is also important to take advantage of opportunities and not just ensuring a provision of income.

Other advantages of having cash is ensuring they have a lump sum that they can access in the event of these unforeseen expenses which are traditionally and typically medically related or even related to their home. And obviously, cash and fixed interest, which are these liquid type assets, they always form a very important part, a defensive component of a well-constructed and diversified portfolio.

2. Revisit your asset allocation

Asset rebalancing and portfolio rebalancing is an ongoing discipline which should always take place regardless of the current market conditions. So, this type of asset classes or any asset classes are always going to be moving and some move higher than others and ensuring that investors continue to have a regular rebalance and regular discipline of making sure their assets stay in line with their risk profile and really importantly, in line with their investment needs. So, investors should certainly be doing it now, but they should be doing it as a regular activity right throughout their investment timeline. It's a very, very important and fundamental investment philosophy.

3. Assess your spending

Retirees are in arguably the most important time of their life. It's a time where they have worked really hard to get to where they are and now that they are somewhat financially independent to really enjoy their lifestyle. So, you'd hate for them to start curtailing their expenses because they hadn't been really well-prepared for retirement. So, I think it's an important time for them to relook at their budget and potentially defer some of those large one-off expenses if they just haven't adequately prepared for it.

But also, there are some other strategies they could embrace. I mean, potentially if their assets have fallen, they could potentially have fallen beneath the asset test for Centrelink purposes or even fallen below what the most recent test that Centrelink had done and that could potentially create further income by an increased age pension. But I think investors should be very careful about overreacting. Certainly, in my experience I've seen a lot of clients that feel particularly nervous, but then when we look at the planning, we actually look at the facts and figures, they are comfortably able to navigate through the current turmoil and still live well within their means and comfortably at the same time.

So, again, I think it's really important to strip the emotion out, sit with a professional advisor, look at the numbers, look at the makeup of the portfolio and really address it in that professional sense, you'll certainly find that investors that do take the time initially to do that they will feel much, much more confident and enjoy their retirement as they thoroughly deserve.

4. Remain vigilant

I think being vigilant is really important. I think making sure their asset allocation or the way their investments are invested is in line with their profile and their appetite to risk. You're going to find some investors that are really aggressive are actually going to look at this environment and be really positive about it and use this as an opportunity potentially to buy whilst it's cheap. You have some investors that are particularly patient and they are almost expecting it, so they are going to ride it through. But you're going to get some investors that are nervous and indeed some which are going to panic and I think it's the latter two which is really important that they quality advice and sit down and really follow the steps to ensure that they build their confidence, improve their education of what's happening and potentially take advantage of the current market.

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