Australian investors who change portfolio allocations away from growth assets in retirement could be at risk of running out of income, according to research from Legg Mason.
The asset manager said that more investors want income solutions from their advisers, but portfolio constructions still tend to be conservative when investors reach retirement.
“While people focus on the volatility of capital value in equities, the thing about cash investments is that it is actually volatility income stream which is more of a risk to a retiree than what you would see in more stable dividend streams,” Legg Mason Australian equities chief investment officer Reece Birtles said.
“So a move to conservative portfolios is going to hurt people over their 20 years of life expectancy, and then when you overlay the low interest rate structure that we have today, it’s also going to lock in very low income levels.”
“Our view is that investors, rather than changing their asset mix as they approach retirement, need to change the type of growth assets they are in.”
Mr Birtles said that retirees should move from global equities and index Australian stocks towards income focused equities that will benefit from franking credits.
In its global income survey, Legg Mason found that investors are looking for increasing income, with 85 per cent of investors wanting their adviser to bring them more income opportunities.
Sixty per cent of Australian investors put greater emphasis on income generation compared with five years ago.
“I think what this points to is the importance of professional advice,” Legg Mason global asset management head of global marketing Matt Schiffman said.
“In an increasingly retail dominated market around the globe, the professional advice givers – advisers specifically – play a very important role in helping investors realise or come closer to achieving the kinds of returns they’re looking for.”
