Getting the balance right between a safe spending rate and having enough income to enjoy retirement takes some careful planning. Investing for a reasonable return is one approach to helping your savings go the distance.
What is your risk appetite?
There’s a rule of thumb when thinking about investment risk. Typically, the higher the expected return, the higher the risk involved. But taking on investments with the least possible risk can make it difficult to earn investment returns that keep up with inflation and any rises in living costs.
On the other hand, taking on too much risk could lead to steep falls in the value of your investments. This can have an even bigger impact when you’re retired because you can’t expect to replace these losses from your salary or other types of income.
Understanding the investments available to you, and their risks will be crucial to looking forward with
confidence in your retirement.
What is an asset class?
An asset class is a group of investments with similar characteristics and laws. They’re typically grouped into two broad categories, defensive and growth.
Defensive assets offer less opportunity for growth, and generally provide you with income stability and security for your original investment and income. Growth assets carry more risk and generally provide you with more potential to grow your investment over time.
Defensive assets include investments like cash, term deposits, fixed interest securities, and annuities.
Growth assets include investments like property, shares and equities.
Investment strategies for retirement
Everyone has different investment goals. However, a common objective for many of our clients investing for their retirement is striking a balance between maximising available cash flow and protecting the remaining savings. Your risk appetite will determine which investment strategy is right for you, and according to the Government website MoneySmart  may fall into one of the following four types:
Cash: Invests 100% in deposits with Australian deposit-taking institutions or in a ‘capital guaranteed’ life insurance policy. This option aims to guarantee your capital and accumulated earnings cannot be reduced by losses on investments.
Conservative: Invests around 30% in shares and property with the majority in fixed interest and cash. Aims to reduce the risk of loss and therefore accepts a lower return over the long term. There is less chance of having a bad year than in the balanced or growth options below.
Balanced: Invests around 70% in shares or property, and the rest in fixed interest and cash. Aims for reasonable returns, but less than growth funds to reduce the risk of losses in bad years. Those losses usually occur less frequently than in the growth option. You may also be able to invest in a ‘moderate’ option with around 50% in shares and property.
Growth: Invests around 85% in shares or property. Aims for higher average returns over the long term. This also means higher losses in bad years than those you would experience with lower-risk options. You may also be able to invest in a ‘high growth’ option with 100% in shares and property.
The importance of diversification
Diversification is a golden rule of investing. Spreading investments across different asset classes can strike a balance between security (defensive assets), and higher investment returns (growth assets). This can reduce your overall investment risk and the impact of significant market downturns, or poor returns from a particular business or sector.
Phillips Wealth Partners Pty Ltd ABN 74624858420, a Corporate Authorised representative of an Australian Financial Services Licence (AFSL No238433). Craig Phillips is an authorised representative of Ausure Financial Services. The content of this email contains general information only and is not intended to provide you with advice or take into account your objectives, financial situation or needs. When we provide you with advice this will be set out and recorded in an eligible advice document. The views expressed in this email and our website are the opinions of the authors at the time of writing and do not constitute a recommendation to act. All information referenced are believed to be accurate at the time of compilation and is provided by Phillips Wealth Partners Pty Ltd in good faith. Phillips Wealth Partners Pty Ltd has no liability (including liability in negligence) to any person for any loss or damage consequential or otherwise suffered or incurred by that person resulting directly or indirectly from either the use of, or reliance on, the information contained herein. Phillips Wealth Partners Pty Ltd does not guarantee the performance of any fund, stock or the return of an investor's capital. Past performance is not a reliable indicator of future performance.
1 MoneySmart expected returns based on actuarial advice received in May 2018. Actual results can vary significantly.