Retirement Portfolio Resilience Perspective
Primary Pillar: Retirement Portfolio Construction
Supporting Pillars: Risk Pricing Discipline • Sequencing Risk Awareness
This article examines how financial innovation can improve retirement portfolio construction through disciplined risk management and embedded downside protection.
While the article reflects a period when low interest rates focused attention on retirement income, its enduring contribution is the application of innovative portfolio construction techniques that complement long-term growth assets by helping address sequencing risk and reducing dependence on favourable market conditions. Viewed through today's Retirement Portfolio Resilience Framework, the article reflects Gyrostat's long-standing philosophy of helping investors remain financially and emotionally invested throughout their retirement journey, regardless of the path markets take. Attractive equity income remains an important outcome, while Retirement Portfolio Resilience is the primary portfolio construction objective.
This article forms part of a broader body of research, educational articles and practical insights organised through the Retirement Portfolio Resilience Framework.
The two key global investment issues today are:
- Achieving a regular and stable income stream in a low interest rate environment with capital security.
- Elevated risk of major market corrections in a ‘late cycle’ environment of stock market volatility impacting capital returns.
Our solution is to buy equities, always protected to a defined ‘hard’ risk tolerance. The underlying asset and ‘hard’ risk tolerance is varied depending upon the need being addressed.
- Conservative assets: Buy higher yielding ‘blue chip’ stocks/index to a ‘hard’ risk parameter of no capital losses to exceed 2% in a quarter.
- Track record: 8 years of delivering our investment objectives- returns increase with volatility levels.
- Includes a 'tail hedge' buying additional protection for large gains on large market falls
- Growth assets: Buy highly liquid ETF/stocks to a ‘hard’ risk parameter no capital losses to exceed 5% monthly or 10% per quarter.
This innovative Australian approach is highly scalable, highly liquid, transparent in pricing, and the counter party is the relevant stock exchange (addressing credit quality issues).
- The only requirement is highly liquid exchange traded options.
- Addresses a global issue: Can be rolled out across other countries and equity assets.
