The traditional building blocks of retirement portfolios need to be re-examined if the income needs of retirees are to be met, says Legg Mason.
Speaking in Sydney yesterday, Reece Birtles, chief investment officer for Legg Mason-owned firm Martin Currie Australia, said retirement investment strategies need to consider dynamic asset allocation.
Mr Birtles argued that in a low-rate environment, retirees need to look beyond a single asset class to meet their retirement income needs.
Mr Birtles said a multi-asset strategy – that invests across equities, real assets and fixed income – is the only strategy that will ensure capital preservation, income generation and inflation protection.
“Many retirees considered term deposits and annuities a reliable option for protecting their capital, but these products have suffered significant reduction in income over the past seven years that dwarf any potential loss from investing in equities.”
Mr Birtles said that income risk rather than capital risk should be more of a concern to retirees.
“By using dynamic asset allocation across the three asset classes, retirees can receive income that preserves their capital by providing long-term growth in income and high yields relative to more traditional retiree asset classes such as term deposits,” he said.
Mr Birtles concluded that both retirees and the investment industry must focus on allocating to a mix of asset classes in order to create more sustainable retirement portfolios.
“What is required is a new way of thinking about the way we build investment products to suit retiree needs.
“A focus on generating sustainable income growth through a multi-asset approach will better meet the longevity risk challenge that all baby boomer retirees face,” said Mr Birtles.
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