Portfolio Construction

Retirement Portfolios

Conclusion

The new retiree portfolios

Like many developed world populations, Australia has an aging demographic. This is resulting in an increasing number of Australians entering the retirement phase of their investment lifecycle.

Traditional methods of building model portfolios based solely on risk profiles determined by risk profile questionnaires may not address retiree goals and risks adequately. Therefore, the traditional approach to constructing portfolios for retirees needs to be enhanced to incorporate factors that are relevant to retirees such as generating an income stream, reducing the risk of capital drawdown and mitigating inflation and longevity risk.

Ultimately, retiree portfolios should be guided by specific objectives, rather than a simplistic risk tolerance model. This point of difference is demonstrated below.

Traditional vs new retirement model

Traditional Portfolios:

  • Capital stable
  • Balanced
  • Growth
  • High growth

New Retirement Solutions Approach:

  • Yield objective
  • Growth objective
  • Capital preservation objective
  • Blended objectives

Conclusion

Lonsec believes that an objectives-based approach to portfolio construction can assist investors in constructing portfolios that better reflect their goals, while at the same time addressing risks that are relevant to retirees.

Ultimately, this approach should assist in reducing any expectations gap between retirement goals and outcomes achieved via investments.

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