Retirement Portfolio Resilience Perspective
Primary Pillar: Risk Pricing Discipline
Supporting Pillars: Retirement Portfolio Construction • Resilience Across Market Environments
This foundational educational paper explains the current market pricing of equity protection and demonstrates how investors can observe and evaluate the commercial cost of downside protection using publicly available market information.
Viewed through today's Retirement Portfolio Resilience Framework, the enduring contribution of this publication is its emphasis on understanding the market pricing of uncertainty before making portfolio construction decisions. Rather than encouraging prediction, it teaches investors to observe how markets continuously value risk and to incorporate that information into disciplined commercial capital allocation. While the market data reflects conditions in February 2016, the underlying philosophy of evidence-based decision making, resilient portfolio architecture and reducing dependence on favourable market conditions remains central to the evolution of Retirement Portfolio Resilience.
This publication forms part of Gyrostat's foundational educational archive documenting the origins of the Retirement Portfolio Resilience Framework.
The ASX offers investor education at their web-site for the “do it yourself” equity protection alternative.
“As you approach retirement it's prudent that you consider reducing your exposure to riskier assets like equities and increase exposure in safer assets like cash/bonds. However with current interest rates and the benefits franking credits provide via shares it is something that is seldom done.
Overweight holdings in shares expose your retirement savings to market corrections, a lesson learned the hard way for many during the GFC.
There is a valid alternative that allows you to continue to receive franking credits and benefit from share price appreciation but protects your portfolio from large market corrections.
Purchasing protection from the options market can help”
We have obtained live market prices with strike prices closest to 0%, 5% and 10% capital at risk. We have calculated the level of implied volatility and then extrapolated the option price to enable a comparison across the stocks and the index. These have been converted to an annualized cost based on holding the option position to expiry.
As at close of business Thursday 11thth February 2016 the current market conditions are contained in the PDF below
