Retirement Portfolio Resilience Perspective
Primary Pillar: Risk Pricing Discipline
Supporting Pillars: Retirement Portfolio Construction • Resilience Across Market Environments
This educational article explains how investors can assess the commercial cost of equity protection and demonstrates the economic principles underlying resilient portfolio construction.
Viewed through today's Retirement Portfolio Resilience Framework, the enduring contribution of this publication is its focus on understanding the pricing of protection before considering implementation. Rather than presenting protection as a fixed feature, the article explains that the cost and value of resilience change over time and should be evaluated using disciplined commercial investment criteria. While the examples reflect prevailing market conditions in 2016, the underlying philosophy of pricing risk, designing portfolio architecture and reducing dependence on favourable market conditions remains central to the evolution of Retirement Portfolio Resilience.
This educational article forms part of Gyrostat's historical research archive documenting the evolution of the Retirement Portfolio Resilience Framework.
- Many investors seek income from dividends, but are concerned about capital losses. It is possible to protect your portfolio. This report will show you the current market costs.
- Investors can implement “do it yourself” equity protection for effective risk management. The ASX offers investor education at their web-site.
- We calculate the annualized cost for ‘blue chip’ higher yielding stocks based upon current market conditions, varying the duration of protection and capital at risk. Market conditions are constantly changing.
“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”
