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Active Retirees : Active Retirees Oct-Nov
Active RetireesTM | 39 R etirees have been on a wild stock market ride. At the start of August Australia’s share market slumped as much as 15 per cent in a week, taking losses from the start of April to almost 25 per cent. Then, just when things appeared at their worst, markets rebounded strongly, leaving investors dazed. Retirees seeking stability began to wonder why they owned stocks. Why subject themselves to such volatility? It’s an excellent question. The answer is that, while stocks can be painful in the short term, in the long term they can generate stronger growth and higher returns than other assets like cash and bonds. 20-year plan “People live a long time,” said Travis Morien, director of Australian Independent Financial Advisers, an independent fee-for -service financial planner. Along with longer lives come longer retirements. A 60-year -old man can expect to live another 23 years, and a 60-year-old woman another 26 years. “These days it’s quite common for people to be retired for 20 years or more. What you’re seeing now is dramatic for someone who has a very short-term horizon. But if you have a longer term horizon, bonds are not going to be the highest returning asset. There are very few periods where bonds have beaten stocks over the quite long term.” A necessary risk? The risk of the stock market compared to the relative safety of cash and bonds needs to be weighed against the risk of running out of savings. “Outliving your retirement savings is a very real risk for most Australian retirees,” said Andex Charts’ David Reid. “If a retiree can’t live off the interest they’d get from a term deposit or similar interest-bearing investment, they need to take on more risk in order to achieve a higher return.” As we have seen recently, the risk associated with stocks is real. According to the 2011 edition of Andex Charts Risk/Return Analysis, stocks posted losses in more than a quarter of the years from 1950 to 2010. The worst performance was a 41.7 per cent loss in the year to November 2008. “The very good chance that an investment in shares will produce a negative return over the short term spooks many,” Reid said. “But it is the long-term numbers that matter when you’re attempting to fund a long retirement.” The long view While stocks are risky in the short term, over longer periods they usually outperform cash and bonds. Over 20-year periods since 1950, stock markets have returned around 12.9 per cent a year, against 8.8 per cent for bonds and cash. In the worst 20- year period for stocks, they matched the returns of cash and bonds. Not only do stocks produce long-term » Active RetireesTM | 39 FINANCE Ride it out? There’s no question that the majority of investors have had a rough ride on the share market rollercoaster in recent months. Even so, experts are recommending retirees take a long-term view and stay aboard, writes Ben Power. There are very few periods where bonds have beaten stocks over the quite long term.
Active Retirees Aug-Sept
Active Retirees Dec-Jan 2012