Using traditional asset allocations to manage risk may no longer be appropriate for income-oriented investors, or those who are approaching retirement according to an Australian fund manager. BetaShares highlighted these findings, among others in their whitepaper, ‘The Case for Managed Risk Investments’.
BetaShares chief economist, David Bassanese, said managed risk equity investments were especially important to those investors who faced the prospect of running down their investment capital to fund living expenses.
He found this had become a growing reality for Australians, due to rising life expectancies and lower returns.
“Cash, bonds and other defensive assets are delivering low returns. This is giving rise to ‘longevity risk’ or the risk of outliving your retirement nest-egg,” Bassanese said.
Traditional asset allocations were limited in two ways, he said.
Firstly, if you maintained a relatively fixed asset allocation, regardless of the downside portfolio protection, when markets declined, the upside was forgone when equity markets rebounded. Secondly, they did not factor in the potential downside risk of bond returns over the coming years.
That was why he said, “new challenges required new approaches”.
