Focus on avoiding losses
Let’s look at two different illustrative investment strategies (A and B) over a 10-year period, each with £100,000 invested. For those saving for retirement, Strategy B would be expected to be most alluring as it gives a better outcome in most market scenarios. However, when we impose a requirement to achieve at least £100,000 at the end of the period, Strategy A will likely be most appealing as Strategy B can't be relied upon to deliver that amount. While Strategy B delivers higher returns in other scenarios, Strategy A is still delivering outcomes well more than the minimum needed.
Source: BNY Mellon Investment Management. For illustrative purposes only.
Of course, this is a stylised example, and retirement investors are more likely to think about ongoing income sustainability rather than aiming for a particular minimum amount. But the point remains that retirement income clients are likely to be more concerned about falling below their income needs than trying to make further gains.
Achieving a long-lasting, robust money pot in retirement – which, let’s face it, is probably the aim for most people – will likely require a shift in mindset from both the adviser and the client. One that moves away from maximising wealth and much more towards balancing risk and return.
Important information
For Professional Clients only.
Any views and opinions are those of the author, unless otherwise noted. This is not investment research or a research recommendation for regulatory purposes.
For more information about investing for retirement click here
