Every investment comes with some level of risk, but as clients retire, it’s wise for them to minimise risk as much as possible. After all, the time for making up for risky investments with extra income has passed, and their strategy now should be to hang on to as much of your super as they can, so it can serve them well for many years.
Australia’s superannuation system is still young, and the current generation of retirees are guinea pigs in some ways. Still, we’ve had time enough to learn a few valuable lessons about managing risk as part of retirement planning.
Avoid trial-and-error investing
People often think of risk only in terms of stock market volatility, but there’s another aspect to risk that clients should be aware of: trial-and-error investing. Few of us have time to learn as much as we need to in order to invest skilfully for our retirements. This is where the adviser’s role becomes critical.
Withdraw as little as possible during downturns
Stock prices ebb and flow, and we have to expect that markets will not remain constant during retirement. However, there are things clients can do to minimise losses due to downturns. For example, they can limit the amount you withdraw from your super during these times.
When one takes out money during a downturn, there’s less money left in super to participate in the market’s subsequent rebound. This is the same idea as “selling low.” Do all you can to avoid selling low, and you’ll lessen your risk.
Diversify investments
Diversification of investments is as important during retirement as it was while working and contributing to super. A balance of low and high-risk funds can help clients to avoid the ravages of inflation while still maintaining an overall lower risk portfolio.
Consider fees
Some investing fees are substantially higher than others, and fees can eat up savings in a hurry if clients aren’t careful. If clients have several different super accounts from several previous employers, they may want to consider consolidating them so they have fewer fees to pay.
With careful risk management during retirement, super can last longer and serve Australians better during their golden years.
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