Recently referred clients, Sally and Doug had decided that they would like to be able to retire in ten years and they came to see us for advice on how to make their dream a reality. They are passionate adventurers and have a bucket list of challenges they want to tick off, including a trek in the Yellowstone National Park. Sally and Doug were conscious that to do this, a younger retirement would be beneficial, so they had set a goal of retiring at 55.
With that in mind, we did a comprehensive review of their situation and it became apparent that their approach to date had been too conservative. If they were to reach their goal, they were going to have to take on a little more risk. With the return on cash, sitting as low as it is at the moment (0.1%), and for the foreseeable future, we are helping many of our clients to re-arrange their investment portfolios.
We explained that taking on more risk did not mean they had to invest in speculative investments. It just meant that there was scope for Sally and Doug to choose a greater percentage of growth assets in their portfolio. Provided they took a long-term and diverse approach, this strategy would give them a better opportunity to meet their retirement goals. Defensive assets come with lower risk but also lower returns. They include cash deposits and government bonds. Growth assets generally come with higher risk and higher returns and include Australian and international shares, property, and alternatives such as gold and hedge funds.
At the time of our first meeting, Sally and Doug’s moderately conservative super portfolio included 60% defensive assets and 40% growth assets. This was not going to get them to their goal of retiring at 55. With a clear picture of how they wanted their retirement to look, we were able to do some projections on what sort of income they could expect to be earning under different investment scenarios. By re-arranging their portfolio to compose of more balanced investments of 60% growth and 40% defensive assets the numbers were now looking much more in their favour.
Sally and Doug’s particular circumstances allowed us to provide them with a strategy that included slightly more risk to help them achieve their goals, but every situation is different. When clients come to us, we will always get a feel for what their risk tolerance is. This can change over time and is affected by your goals, age, and stage of life. Timeframes are a big consideration. If you are wanting to access your money in 12 months, taking on risk is not a prudent thing to do. There are times when a conservative approach is certainly the way to go. As we always say to our clients, ‘does this meet the sleep test?’ If you are having sleepless nights, then you have probably overstepped your risk tolerance.
This story highlights just how important it is to continually review your financial plan. By adjusting our clients’ portfolios in line with their goal and the current investment climate their retirement dreams are well on track. Yellowstone here we come - surely the pandemic will be over by then!
General Advice Warning
The information provided in this article is general in nature and does not take into account your particular investment objectives, financial situation or insurance needs; we therefore recommend you seek advice tailored to your individual circumstances before making any specific decisions.
Dobbrick Financial Services (Gympie) Pty Ltd ABN 48 931 205 109 and DFS (Ipswich) Pty Ltd ABN 86 100 184 521 & DFS Oakland ABN 64 340 527 395 and their advisers are authorised representatives of Fortnum Private Wealth Ltd ABN 54 139 889 535 AFSL 357306.
