How Do Retirees Work Out the Right Portfolio Mix? – Part 2

In “How Do Retirees Work Out the Right Portfolio Mix?” we looked at a number of methods put forward by different parties to tackle this curly question. All of them wrestle with the accepted fact that “Growth” assets like shares offer the best long term return prospects, but the highest short term volatility.

Not surprisingly, we liked our answer the best.

Then the other day another article appeared, in one of the popular investment newsletters that finds its way into the inbox. (here if you’re interested). It quoted none other than Benjamin Graham, author of the classic “The Intelligent Investor”, and mentor to Warren Buffett. As heavy hitters go in this industry, those guys make George Foreman look like one of the seven dwarfs.

Now I’m not here to shoot the Pope or anything, but Ben’s conclusion that an appropriate mix is 50% in “Growth” and 50% elsewhere, with anything between 25% and 75% based on the individual’s perception of value being acceptable, is just a tad vague and unhelpful.

Of course, we absolutely agree that the investor’s comfort with the decision is paramount. (See What’s the Best Thing We Do for Clients  and Dad’s portfolio for example). It’s also a bit of a “How long is a piece of string” question without some guidance.  I recall attending a fund manager’s briefing – a prominent shares expert was the guest speaker, and he gave the usual spiel on all the current positives and negatives for “the market”. At which point someone asked the intelligent-sounding question “So what do you think should be the correct exposure to shares at this time?” To which the fund manager replied “Me? 100%! I’m an equities junkie. Always 100%!”. Maybe not the answer for everyone.

The article’s conclusion is that you should invest in equities up to your “sleeping point”, being that level at which you are comfortable enough to be able to sleep at night. They do offer some suggestions as how to tell when you’re there, although again they are largely subjective and a bit hard to pin down.

What we like about our method is that it relies on a quantifiable set of principles and logic, which can be used to actually calculate and illustrate an optimal mix for the long term, identify risk alerts, and even demonstrate the impact of variations to this mix. Something you can hang your hat on. The more you can understand about the decision and what underpins it, the better for that good night’s sleep.

Don’t be shy, give it a try. Our contact details are here and you can find a brief description about how our integrated advice and investment management services work here.

We’d love to hear from you.

Alan Rimmer

Alan has had a lengthy career in financial planning and management roles with the COUNT group, Wilson Dilworth and Perpetual. He founded ARA in 2002 to provide personal financial services free of the shackles of corporate ownership. For more than 20 years ARA has specialised in retirement planning and currently assists some 700 families with their financial affairs. A devoted family man, he spends his spare time looking for rocket ship movies he hasn’t seen yet, and wondering where his hair went.