Retirement Portfolio Resilience Perspective
Primary Pillar: Sequencing Risk Awareness
Supporting Pillars: Retirement Portfolio Construction • Behavioural Survivability
This article examines one of the most significant challenges facing retirees: sequencing risk. It explains how the order of investment returns, particularly during the early years of retirement, can have a profound and lasting impact on retirement outcomes.
The article demonstrates why retirement portfolio construction should differ from accumulation portfolio construction by considering the effects of major market declines, ongoing income withdrawals and capital preservation. Viewed through today's Retirement Portfolio Resilience Framework, it reflects Gyrostat's enduring philosophy that retirement portfolios should be deliberately constructed to help investors remain financially and emotionally invested throughout their retirement journey, regardless of the path markets take.
This article forms part of a broader body of research, educational articles and practical insights organised through the Retirement Portfolio Resilience Framework.
Executive summary:
- Many clients, particularly retirees are worried about the consequences of another significant market correction.
- The consensus view is that markets are now ‘late cycle’. Most major corrections occur within 8 years, we are now at year 12, the longest on record is 13 years.
- The Financial System Inquiry outlined desirable product features to specifically address sequencing risk – to combine protection, returns and regular income through all stages of the investment cycle (including large market falls.)
- The protection element is reflected in the Funds maximum NAV capital draw-down. In the case of the Gyrostat Absolute Return Income Equity Fund this has been limited to – 2.2% in any circumstances since our inception in December 2010.
- Pro-active investors and their advisors can address sequencing risk by an asset allocation from unprotected growth assets to the Gyrostat Absolute Return Income Equity Fund (a conservative asset – alternative defensive and generate higher returns in more volatile ‘late cycle’ market conditions.)
