My wife and I are self funded retirees and we derive our income from our AustralianSuper Choice Income Pension Accounts. In 2016, the Fund’s Financial Advisor advised us to each invest 50/50 in their Conservative Balanced and Diversified Fixed Interest options. As conservative investors, would we be better served reviewing the current strategy when conditions improve and spread our account balances across an investment mix that offers a balance of both security and modest income growth. We’re also considering utilising AustralianSuper’s Bucket strategy if we proceed with any change recommended.
John and Mary from Berry, NSW
Top answer provided by:
Si Shepherd
Hi John and Mary.
According to the guidelines issued by Morningstar (one of the major global research houses), a Conservative investor would be targeting around 15% in Growth assets (shares, listed property & infrastructure etc.) and around 85% in Defensive assets (cash and bonds).
Based on the current asset allocations reported by AustralianSuper for the two options you are in, you look to have roughly double the amount of recommended exposure to Growth assets overall (i.e. ~30%). This means at times you will be likely to experience more volatility in the value of your account than you might be comfortable with, in which case, a review of the current strategy would be prudent. Perhaps think about why you set it up that way to begin with and whether your circumstances have changed since then?
The bucket strategy may help to potentially address different objectives you would typically have and separate the different sources of return (and therefore volatility). For example, cash for near term expenses and emergencies, bonds for medium term, and shares for longer term growth and inflation projection - in both income and capital, all being well. You might like to start by considering how much you need for yearly living expenses plus an emergency buffer?
Having the highest returning assets (i.e. shares) in a stand alone bucket may make it easier to ride out the volatility because you've effectively isolated the (majority of) volatility to one part of your portfolio. This is a kind of "positive mental accounting" because emotionally it may be more acceptable to see two stable parts of your portfolio and one less stable (but giving you the best results, over the longer term) and therefore make it more likely you will stick to your long term plan.
Whatever you decide, it's best to have a plan in place in advance of any market turbulence so that you are making measured decisions in a calm, stable environment. A well thought out and suitably diversified investment plan (as part of a broader financial plan) is a strong defence against whatever life and markets might throw at us!
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