Investing For Retirement: Focus On Reliable Income

Emergency Funds, RetirementPhoto by stevepb (Pixabay)

Investing For Retirement: Focus On Reliable Income by Colin Moore, Global Chief Investment Officer – Columbia Threadneedle Investments

Retirement investors often try to maximize the income they can generate from their portfolio. Colin Moore explains why they should focus on reliability instead.

Investing For Retirement: Focus On Reliable Income – Transcript

In the above video, Global Chief Investment Officer Colin Moore discusses the challenges of generating a sustainable retirement income. Investments with growth potential (equities, for example) may help retirees keep up with inflation over time. But equities also bring volatility which can impact portfolios. Strategies that offer lower risk with a higher yield can help. Overall, investors need to take a different approach and shift their focus from maximization of income to reliability of income.

Retirees are in need of income, but they’re in need of reliable income.

I’m Colin Moore. I’m the global chief investment officer for Columbia Threadneedle Investments.

I think people need to focus on the reliability of the income they generate in their portfolio, rather than maximizing the income.

We’re all living longer, and that’s a great thing, but it means we need that income to be produced over a longer period of time. Even with modest inflation, the real value of that income can fall. Hence, you have to use some real assets or assets that link better to the real world, as opposed to just a financial coupon on a bond, but that would bring you back to equities. So then we found that people have quite a high exposure to equity, even in retirement, because they’re going to live a long time. It used to be after people retired, mortality would suggest, on average, that they needed a portfolio to last 12, 15 years. That might be 30 years now.

On the other hand, it is the equity that brings the volatility. Then we know, from people’s behaviors, that they will sell when volatility gets high and fail to buy back when it falls. Hence, the need to hedge some of that exposure. So it will require involvement in traditional asset classes, like equities. But, again, it’s going to need more thought. You’re going to need lower risk strategies with a higher yield, and there’s plenty of those available, generally in the dividend income category. But I do think we’re going to have to take a different approach and think about the reliability of income, not the maximization of income.

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About the Author

Columbia Threadneedle Investments
Columbia Threadneedle Investments is a leading global asset management group that provides a broad range of actively managed investment strategies and solutions for individual, institutional and corporate clients around the world. With more than 2000 people including over 450 investment professionals based in North America, Europe and Asia, we manage $506 billion of assets across developed and emerging market equities, fixed income, asset allocation solutions and alternatives.