Managing investment risk
To some extent, managing investment risk within income streams is more complex than investing retirement savings in superannuation for your retirement decades away. This is because of the mixed timeframes involved.
Ideally, investments will be organised to defend the value of money you plan to access and spend in the next couple of months or years, as well as looking to grow your investments for later in your retirement, which may still be decades away. Our fact sheet Structuring Income Streams in Retirement looks in detail at approaches to the mix of timeframes for retirees.
Your attitude to investment risk will depend on many factors including your investment objectives, your investment timeframe, your age, and other personal circumstances. Achieving investments with corresponding levels of risk, volatility and potential returns may require more careful attention than deciding a mix of asset classes. Diversification and regular rebalancing are important aspects of managing investment risks within income streams.
For those members who have their income stream spread across multiple investment options and are taking their regular income payments from the cash option, short term fluctuations in different asset classes are factored into the long term investment strategy. This reduces the risk of regularly switching options based on emotion or opinion.
For those who do not use this system, short term fluctuations can be detrimental to the long term performance of their income stream.
Investors often make the mistake of investing in the previous year’s best performing asset class. Historically, the previous year’s best performing investment option can often be the worst performing asset class in the following year. This is why it is important to diversify investments and have a spread across multiple asset classes.
All asset classes will move through different cycles so having a good spread and ensuring that your regular income stream drawdowns are made from a stable option makes a lot of sense.
Ask about our annual financial check program. It is a great way to keep your income stream on track.
Call our member services team on 1300 128 751 to make your appointment for personalised advice.