I was wondering if I can tap in on your common sense approach to retirement planning for global citizen (read UK/US). I know this may be outside areas you wish to comment on - but thought I would try. Given the amount of noise and exaggerated return assumptions (which is only possible for active portfolio traders/managers), I felt some common sense feedback will be helpful to help me (and some of my colleagues) think through this.
Question - Given the Potential for a Japan like situation in Western world (low I admit): e.g i) a) low rate of returns in Fixed income, b) potential sideways equity market c) propensity for looser money policies by Central banks (leading to inflation in asset classes that squeeze traditional middle class assets, public services etc.) & d) Jobless growth I ) What would be a) a sensible portfolio return to expect for retirees planning retirement for next ten years (if one is not an active stock picker and trader) b) What asset allocation would you suggest. c) what inflation should one plan for ? II) Any sensible websites or material you could direct me to research this ? Many Thanks
Thank you for this question which I’m sure will be of interest to the Collective of subscribers who may also have additional input.
Generally speaking the last 10-years of one’s working life are devoted to building assets for retirement once mortgages and college education for one’s offspring have been paid off. This goal is achieved in the main by investing more of one’s income in what is hopefully a low risk / reasonable reward spread of asset classes. More often than not the low risk portion has been made up of bonds and the higher return by equities. Unfortunately, this model is less likely to be successful in future for some of the reasons you highlight above.
While municipals, Treasuries and Gilts are tax advantaged the fact remains that yields are abnormally low and a competitive total return is reliant on capital appreciation. If one sets aside the headonics of economic statistics, the return on fixed income is just not alluring at these levels. The yield to maturity calculation one has to use with a 10-year timeframe and eventual rising interest rate environment suggests that bonds are unlikely to represent the same low risk option as they have previously.
At FullerTreacyMoney we see the rise of the global middle class, the revolution in unconventional oil and gas and the accelerating pace of technological innovation as representing powerfully bullish themes capable of fuelling a major bull market in equities. It is for this reason we have focused so heavily on the Autonomies; subject to valuations and price action. Truly international companies with solid records of increasing dividends and/or earnings and the ability to tailor their offering and business models to the developing global economic landscape continue to represent some of the best broad spectrum, risk-adjusted instruments for benefitting from these medium-term themes.
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