How to master portfolio diversification in retirement

Would a defensive investor be better placed mixing government bonds, private equity, property, hedge funds and commodities? Not necessarily.

Dan Kemp 21 July, 2017 | 5:00PM

Investing in retirement is especially challenging, as you are typically operating within an uncertain timeframe and battling the return drag caused by regular withdrawals. While such challenges require all of the tools at the disposal of the investment manager, for the majority of investors saving for retirement, the use of fixed income is the most important consideration, as these assets typically provide greater certainty in the short term together with a useful income stream.

Traditionally, a simple retirement proposition may have comprised fixed income and equities to achieve a safe withdrawal rate as an income stream. However, as the investment universe has expanded and interest rates pushed lower, this "safe withdrawal rate" has seemingly declined. In a modern context, the portfolios used in retirement typically now include property, infrastructure, commodity-related assets, currency exposures and other alternatives.

So, how do these assets complement fixed income? While this causes a significant amount of confusion for everyday investors, it is worthwhile stepping through the benefits of smart diversification and the ways one can think about improving total portfolio outcomes.

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Dan Kemp

Dan Kemp  Dan Kemp is Chief Investment Officer, Morningstar Investment Management EMEA.

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