At all times, we employ a 'go to cash mandate' across our investment portfolios
Managing Investment Risk
Some say that volatility is not a risk as long as you stay invested ‘for the long term’. This is simply not true in the case of any portfolio that has volatility and cash flows. Portfolios with cash flows are exposed to a subset of market risk, called sequencing risk.
It becomes more difficult to respond to sequencing risk in retirement, but the good news is that there are ways to protect against it.
Sequencing risk is the risk that the order and timing of your investment returns is unfavourable, resulting in less money for retirement. Investment returns, good and bad, have more impact at some points in your superannuation lifecycle than at others. Negative investment returns early in retirement can be particularly damaging.
Sequencing risk peaks at retirement
Sequencing risk is typically greatest at the point of retirement, when you switch from building up your nest egg to drawing down from it. This is because usually there is more money at risk if markets drop around the time of retirement. This is the concept of the retirement risk zone. The zone actually starts a few years before retirement as your nest egg has been largely built. It continues post retirement until you have spent a reasonable chunk of your retirement savings.
Don’t let sequencing risk spoil your retirement plan
The consequences of sequencing risk are potentially strongest around the point of retirement. If you have a run of poor market results close to retirement, it can ruin your retirement plan. The good news is that Affinity Wealth Services and their financial advisers are strongly skilled in protecting investment portfolios against the effects of sequencing risk.