The golden rule of investing is to start as early as possible and stay invested for as long as possible. While this is great advice if you’re in your 20s or 30s and still have time on your side, what do you do if you’re already well into your retirement years? Should you still be focusing on your investments?
The short answer is, yes. People
today are living longer than ever before. According to a World Bank report, the
life expectancy of the average South African in 1960 was just over 49 years; by
2016 this number had increased to over 62 years. What this means is that your
retirement savings may need to last you far longer than you initially planned.
Make sure your
money lasts as long as you do
When it comes to retirement planning there’s a single
rule: make sure that at the very least your money lasts as long as you do. If
you outlive your savings, you’ll be left to rely on others (probably your
children or extended family) to support you, and it’s likely that the latter
years of your life probably won’t be as comfortable as you may have hoped for.
It’s understandable, then, that many retirees tend
to err on the side of caution by sticking with conservative investments that are
less likely to lose money (and have low volatility). While this makes sense
given that they can’t afford to risk many losses, there is a fine balance
between protecting your investment and allowing it to grow enough so that you
don’t run out of money further down the line.
How much growth do
you actually need?
A good starting point is to consider
the amount of income that you plan to draw from your investment. If your draw-down
rate is higher than your growth rate, it means that you’re taking out money faster
than your investment is growing. As a result, there’s a good chance that you’ll
eventually run out of money. To extend the longevity of your capital, you’ll
need to either increase your investment returns to offset the income that you draw,
or draw a lower income.
Another factor that you’ll need to
consider is the impact that inflation has on the purchasing power of your
money. Inflation is essentially the rate at which the cost of goods increases
over time. If your investment grows at a rate that is lower than inflation, the
‘real’ value of your investment (or purchasing power) is actually decreasing
One way to beat inflation is to invest in a well-diversified multi-asset fund that contains a mix of growth assets (like equities and listed property) and fixed income assets (like cash and bonds). Equities will enhance your portfolio’s growth potential, while cash and bonds will lower its volatility and cushion the downside. At Prudential, we have a range of multi-asset funds for you to choose from depending on your investment objectives and tolerance for risk. These include the Prudential Balanced Fund (which has a higher proportion of growth assets) and the Prudential Inflation Plus Fund (which has a higher proportion of fixed-income assets).
In summary, age shouldn’t be a
deterrent when it comes to investing. In fact, the older you get the more
attention you should be paying to your investments. Make sure you have the
right mix of assets to increase the probability of having your money last the
distance, consider investing in multi-asset funds… and of course… speak to your
financial adviser before making any big decisions.
To find out more, contact your financial adviser, our Client Services Team on 0860 105 775 or email us at email@example.com.