Whether you’re nearing retirement or the retirement phase is a little way off, it’s never too early (or late) to make your savings work harder with ETFs, explains Mark Wills, Head of Asset Allocation, State Street Global Advisors Asia Pacific.
In today’s low interest rate environment, where nominal returns on low-risk assets are low, any investor needs to evaluate how hard their savings are working for their future.
Regardless of your stage of life – the conventional theorem of putting your retirement savings to work in low-risk investments is unlikely to generate enough income for the retirement phase. On top of this, we’re also living longer than ever before and so have a much longer retirement period to fund.
It’s becoming more apparent that in order to avoid a drop in living standards when you leave the workforce, you need to invest in a higher risk portfolio with greater exposure to asset classes such as equities. However, there are tools available that can mitigate unnecessary risk and protect you from the inherent equity risk while also maximising the value of your lump sum.
Up until recently, the search for income within Australia has been a prosperous one. But as assets in self-managed superannuation funds continue to climb, investors are starting to look beyond Australia’s borders to tap into larger and more varied opportunities found overseas. International markets offer opportunities for growth and income from industries that are simply unavailable in Australia.
Yield opportunities remain highly concentrated in a small number of sectors dominated by a few large companies, which has made it difficult for Australian investors to create a truly diversified, yield-orientated equity portfolio within the confines of the local market.
In the past, investors would decrease their exposure to equities as they got closer to retirement, but there is a mounting case for increasing the asset allocation to equity investments in retirement.
While Australian shares have traditionally offered higher yields than overseas equities, it is possible for investors at all stages of retirement to access significant income opportunities in markets across the globe.
The answer can come from diversifying offshore with ASX listed exchange traded funds (ETFs). Locally listed ETFs can provide Australian investors with access to hundreds of overseas companies within a single trade.
One of the biggest challenges to building international exposure is complexity. ETFs address this as they are simple to use, yet can provide effective diversification by widening the economic exposures in a portfolio.
One particular feature of ETFs that appeals to investors of all experience levels is their transparency. At any point in time (and in real time) an investor can see which shares they have invested in, which provides peace of mind, particularly in today’s ever-changing environment.
As we look forward, there are a number of concerns facing investors thinking about retirement (both long and short term) in the Australian economy; the slowing demand for resources, record low interest rates and inflated house prices, among others. But considerations like these suggest that accessing new income opportunities by diversifying through ETFs is within reach of our growing self-managed sector.
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Mark is a Managing Director of State Street Global Advisors and Head of the Investment Solutions Group, Asia Pacific. Previously Mark worked at Goldman Sachs JBWere in Australia, where he held a number of roles, most recently as an Executive Director in Transition Management. Prior to that role he worked in Equity Derivatives. Mark has earned a Bachelor of Economics from Macquarie University and a Masters of Business in Applied Finance from the University of Technology. |
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