Why managing your investments is an ongoing process

By Vanguard

Investing strategy

 

The long-term returns of asset classes can be a valuable reference point

People with the highest confidence about their future retirement tend to take the most purposeful action to prepare.

That makes a lot of sense, especially on an investment level, because building up savings for retirement via superannuation, and outside of it through other investments, is typically a long-term process.

The preparation journey doesn’t necessarily end at the point of retirement either. That’s because the process of investing should continue during retirement to ensure accrued investments can keep compounding over time to support your lifestyle when you’re no longer receiving a salary.

Retiring from work shouldn’t necessarily equate to retiring from managing your investment portfolio.

Keeping on top of your investments, to ensure you have the best chance of protecting and growing your capital over time, is just as important in retirement as it is before you stop working.

The annual Vanguard Index Chart is a useful resource. It provides a good perspective in terms of long-term investment returns by tracking how a range of different asset classes have performed over 30 years.

 

A complex exercise

Asset allocation is often a complex exercise for investors, because it can be difficult to know how much to invest into different asset classes at different stages of life, including in retirement, to meet one’s income needs.

That mostly comes down to your investment risk profile (personal appetite for lower or higher-risk investments).

There is an easier way for people lacking the confidence or inclination to manage their retirement savings.

Many superannuation lifecycle products have now been designed to smoothly adjust asset allocations according to an investor’s age and provide a seamless solution.

This provides members age-appropriate asset allocation adjustments and the peace of mind of automatic de-risking of their portfolio leading up to and during retirement.

For example, Vanguard Super’s Lifecycle option adjusts 36 times over the course of a member’s life.

Lifecycle members aged 47 and under are invested in a diversified portfolio with a higher allocation to growth assets. From age 48, the Lifecycle investment undergoes a series of annual changes reducing the allocation to growth assets, while increasing the allocation to defensive assets.

From age 82 onwards, the asset allocation is designed to have a greater emphasis on reduced risk to shield retirement savings from the impacts of volatility.

 

Staying focused in retirement

Staying focused and not being distracted by short-term volatility across asset classes is just as important in retirement as it is at any other time.

What happens in the financial markets day to day typically has minimal impact over the long-term.

As such, it’s always important to focus on the things you can control.

This includes reviewing your spending regularly and making sure you’re invested in products that have low management costs. After all, the lower your investment costs the more money you get to keep.

And finally, diversify, diversify, diversify. The best approach to building an investment portfolio whether that that will help protect your retirement capital is to apportion funds across different asset types, such as shares, bonds, property and cash, as the diversification can help offset the risks of being too exposed to one asset class.

Don’t forget that this includes your superannuation portfolio and, if you’re a homeowner or own an investment property, your properties.