The Pros and Cons of Lifetime Annuities

The Pros and Cons of Lifetime AnnuitiesLifetime Annuities and the quest for certainty

Lifetime annuities offer you the opportunity to outsource a large slice of the uncertainty associated with managing your retirement capital. You get to exchange your capital for an annuity that will offer you a guaranteed income stream for life. And, for an additional cost, this income stream can be indexed with inflation.

The growing demand for greater certainty since the Global Financial Crisis has brought lifetime annuities back to the forefront as a retirement solution. In this article, we ask whether they are a suitable alternative to the self managed solution that most retirees select by default?

The Uncertainties of Managing Retirement Capital

There are a number of risks to consider when managing retirement capital, including:

Click Here To Read More

Is a 100% defensive portfolio low risk?

Is a 100% defensive portfolio low risk?
The real risk is running out of money

In turbulent and generally downbeat financial markets, like we have experienced since the end of 2007, there is natural tendency to become more cautious. To spend less, save more, pay-off debt and, particularly for those close to or in retirement, hold more investment wealth in defensive assets i.e. cash and fixed interest.

We may get a sense of comfort from knowing that the value of our investments cannot fall further and believe we have adopted a sensible, low risk investment strategy. And this is certainly true, if you think that investment risk is measured solely by the volatility of investment returns, pre inflation and tax.

But if the risk you are more concerned about is that you won’t be able to live the lifestyle you want or that your money might run out before you do, then high levels of defensiveness may be very risky.

Click Here To Read More

Understanding asset allocation

Understanding asset allocationAsset allocation: a measure of your investment risk

Our objective is to help clients become financially well organised and make smart financial choices so they have the best chance of enjoying the financial future they want. A key to achieving this objective is agreeing an appropriate investment risk exposure with each client and carefully managing that exposure over time. For us, this risk exposure is most appropriately measured by the client’s asset allocation.

This is the first in a series of four articles that explain our approach to asset allocation. Most people think they have a pretty good idea of what asset allocation is all about. Our experience suggests they don’t. While we start off pretty basically, we hope that by the final article you will agree that by viewing asset allocation in the lifelong context we advocate some conventional financial planning views are challenged and some smarter ways of thinking about personal finance issues emerge.
Click Here To Read More

Living with investment market uncertainty

Living with investment market uncertaintyUncertainty is the only certainty there is

Whether we like it or not, the real world rarely behaves in ways we expect. Our progress towards a goal is unlikely to occur in a nice linear path. Inevitably, we encounter detours and short cuts along the way, and we may experience feelings of devastation and euphoria depending on our progress relative to our expectations.

Investing is an example of the ongoing dilemma faced when reconciling our outcomes with our expectations. Given the inevitable need to invest our savings, how do we cope with the volatility and unpredictability of markets? Click Here To Read More

Wealth Management: a risky business

Share and property investments are risky …Wealth Management: a risky business

Most people understand that the returns of growth investments (i.e. shares and property) fluctuate considerably. If they didn’t prior to the Global Financial Crisis, they most certainly have a better grasp of that now.

But most don’t really have a good understanding of the potential range of variation of returns, without anything particularly unusual happening. And nor do they appreciate how dramatically the pattern of returns can affect long term wealth outcomes.

We use the Australian share market experience of the 25 years to December 2009 to shed some light.
Click Here To Read More

Residential property is not a “fail safe” investment

The arguments in favour of residential property investment appear overwhelming

Housing prices remained reasonably firm through the worst of the “Global Financial Crisis” and have risen steadily over recent months. Many do-it-yourself investors, badly bruised by the battering taken by domestic and international sharemarkets, are seeing investment in residential property as a “safe” investment alternative.

The arguments in favour of residential property investment appear overwhelming and include:
Click Here To Read More

Investment Return Volatility – A Potential Wealth Hazard

Volatility: a wealth hazardInvestment return volatility is poorly understood

Most investors understand that in order to increase their expected future return, they have to accept a higher level of volatility (or variability) in the value of their investment portfolios. But beyond that, they do not understand just how damaging volatility can be to their wealth aspirations.

The amount of volatility you expose yourself to affects your probability of achieving a desired wealth outcome. In this sense, it is a forward looking concept. And, as such, it is an extremely important factor to take into account when designing and managing any investment strategy.

But this article reveals some poorly understood aspects of volatility, by looking backwards. That even when you know actual returns and actual volatility, wealth outcomes may vary dramatically.
Click Here To Read More

Fortune favours the brave!

fortuna-150x150If you’re feeling pretty uncomfortable about the current state of financial markets you can be reassured that you’re not alone. Almost all investors are experiencing some discomfort from the recent falls in asset values, yet some handle it better than others.

How you manage your emotions in relation to the market’s volatility can have a big influence on your investment outcome over the long term.

In this article we explore the influence of our emotions on financial decisions and look at what we can do in times like these.
Click Here To Read More

Is there value in trying to time your entry & exit from the market?

This article aims to address the pros and cons of the investment strategy known as ‘market timing’.

Market timing is the strategy of making buy or sell decisions of financial assets by attempting to predict future market price movements. The prediction may be based on an outlook of market or economic conditions and the strategy is based on the outlook for the market as a whole, rather than for a particular financial asset.

The aim of the market timing strategy is essentially to switch between growth assets and defensive assets in order to generate a better risk adjusted return than that from holding a strategic combination of both asset types. When the future looks bleak, the market timer reduces their exposure to growth assets and increases their exposure to defensive assets. When the future begins to look rosier, they will begin to increase their exposure to growth assets at the expense of defensive assets.

Click Here To Read More