|Sustaining retirement income in a low-yield environment|
Ian Kinder joined McLean Delmo Bentleys in March 2016 as Director, Growth and Strategic Planning in McLean Delmo Bentleys Financial Services Division. Louise Hutchings, Marketing Manager, speaks to Ian about his background and views on investing in a low yield environment.
Louise Hutchings (LH): Ian, you joined McLean Delmo Bentleys in March, can you tell us about your role at McLean Delmo Bentleys and your background?
Ian Kinder: Since 1991 I have owned and operated an accounting/tax practice and in 1993, I have also provided financial planning advice as an authorised representative. Since 2011, my financial planning firm Complete Financial Services Pty Ltd has operated under its own AFSL.
My experience is centred on taxation and the provision of financial planning advice to accumulation and pre and post retirement. Core services include wealth accumulation, advice on pre and post retirement planning, Centrelink, Personal Superannuation and Self- Managed Superannuation Funds.
In March 2016, my accounting and financial planning practices merged with McLean Delmo Bentleys. In my role as Director, Growth and Strategic Planning I have joint responsibility with Michael Lavery, to manage the Wealth Management Division. My role involves providing advice to our financial planning clients with an emphasis on the strategic growth and development of the wealth Management Division.
LH: How do investors maximise their retirement income?
Ian Kinder: Generating a high and sustainable income stream is challenging because we are operating in a low yield environment. Global economies are expected to produce only modest trend growth rates as Central Banks are constrained to set policy rates at levels well below rates before the global financial crisis.
Lower overall yields mean that traditional sources of income such as bank deposits and government bonds may no longer be sufficient to maintain the spending needs of our clients. Yet selecting high income return investments may leave investors vulnerable to risks as markets react to the shocks and surprises that occur regularly.
LH: What’s your recommended strategy for investing in a low yield environment?
Ian Kinder: There are three guiding principles that I would recommend investors follow in a low yield environment.
1. Ensure diversification in your portfolio
By having a diverse portfolio of asset classes investors can potentially gain superior income and return outcomes. Within fixed income, the recent focus has been has been on high yield sectors and emerging market debt, which may leave portfolio’s exposed to concentration risk. Diversifying into more defensive sectors (developed markets), may give investors downside risk protection over time.
Within equities, local investors have placed heavy reliance on yield generated by our domestic markets for many years, they may wish to consider diversifying into global opportunities (discussed further below).
2. Be flexible, allow for adjustments to selected asset classes
Investors need to apply flexibility and change the thinking from outperforming specific benchmarks. An income strategy should focus on achieving consistent yield, growth in the underlying income and some capital growth as a combination of factors within the investor/client’s agreed risk parameters.
Global investment opportunities can provide diversification to a portfolio and can develop rapidly, so a flexible approach is important to allow portfolio adjustments to selected asset classes to occur. Last year’s winning investments will most likely not be this year’s winners. Seeking professional advice should encourage portfolio flexibility – and strategic re-weighting on a regular basis.
3. Protect against inflation
The third key principal for income investing revolves around inflation hedging. It is well known that inflation will erode the purchasing power of our clients/investors. The negative effects of inflation are a significant risk to retirees who are primarily focused on income objectives.
Inflation is in general low at the moment; however global inflation is expected to gradually increase. It is important that retirees with income focused portfolios create exposure to a broad range of asset classes that will provide and assist with some inflation hedge or protection.
As always, please speak regularly with your Financial Advisor on the investment mix to suit your circumstances. Michael Lavery, Neva Varnik and myself are here to assist you.
Important: This is not advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly.
We therefore recommend that our formal advice be sought before acting in any of the areas. This document is issued as a helpful guide to clients and for their private information. Therefore it should be regarded as confidential and not be made available to any person without our prior approval.
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