3 tips to manage investment risk during retirement

by David Olsen, Senior Marketing Manager — Content/SEO, Sharesight | Dec 12th 2019
Disclaimer: The below article is for informational purposes only and does not constitute a product recommendation, or taxation or financial advice and should not be relied upon as such. Always check with your financial adviser or accountant to obtain the correct advice for your situation.

When you are a young and eager investor you may choose to take risks when it comes to your portfolio because you feel you have the time to make back any losses. As you get older you start to think longer term and this may mean limiting or removing any risky investments from your portfolio.

Then you start to think about how your portfolio will fit into and help support your life in retirement. This will get you looking at how to manage the risks involved in investing so as to have enough cash flow to live off later in life.

Your portfolio may form part of or all of your SMSF or RRSP/RSP or it may just be something you use to boost your retirement savings. Whichever camp you fall into, you will want to limit your risk whilst still making a profit.

Another consideration will be the stable but still weak global economy which will impact the investment choices you make and the performance of those investments. With economic uncertainty on the horizon you may be considering how you can best limit your risk without lowering your return.

Here are a few ways to help maintain a healthy return whilst limiting the risk of your overall investment portfolio.

3 tips to manage investment risk during retirement


You’ve no doubt heard the old saying ‘don’t put all your eggs in one basket’. This is a basic description of diversification. By keeping your portfolio diversified you limit your exposure if there is a single event that affects a particular investment or asset class.

Diversification won’t guarantee you will avoid risk completely, in fact you may choose to add in some high risk investments within your portfolio, but by keeping your portfolio diversified you limit the impact of risky investments. This can get you the higher returns from the riskier investments whilst maintaining a stable return overall from the steadier or safer choices.

The main goal of investments that form part or all of your retirement portfolio is to create funds for you to live off during retirement. Keep this in mind when picking investments to make sure your mix is suitable for your personal circumstances.

You can monitor the diversity of your portfolio as well as its performance using Sharesight’s Diversity Report. It gives you a breakdown of how diverse your portfolio is as well as allowing you to create custom groupings to monitor particular asset groupings.

Defensive asset allocation

When building or managing your investment portfolio with the goal of funding, either fully or partially, your retirement you may choose to opt for a defensive investment strategy. A defensive investment strategy means you lower your risk but it also often lowers the return.

Broadly speaking all investments fall into two asset classes, growth and defensive. A growth asset is built to give you high return whereas assets classed as defensive tend to be lower risk which in turn often means a lower return.

Defensive assets include things such as cash in long term investment accounts or securities and bonds which you can access through Exchange Traded Funds (ETFs). These assets are typically low growth and tend to only be affected by changing interest rates whereas growth assets such as shares can be affected by a multitude of other economic issues.

The best way to manage multiple asset types and allow for thorough monitoring of how your defensive assets are performing is to do in depth and comprehensive reporting. Sharesight’s asset allocation reporting allows you to group your assets by class as well as creating custom groups to manage them independent of what may be a typical grouping.

Be mindful of longevity risk

Longevity risk is the risk that you could outlive your retirement savings, either through an unexpected collapse in your portfolio value, or being fortunate enough to live longer than you expect (hopefully in good health!).

To mitigate this risk, some investors turn to products such as annuities that offer regular payments for either a set period, or set payments over your lifetime.

Some may prefer to adopt the "dynamic-spending rule" approach discussed by investment fund manager Vanguard. With a dynamic spending rule approach, investors set a minimum and maximum percentage they are willing to draw down their portfolio each year, and should the portfolio perform poorly, adjust down their budget for spending that year to potentially overdraw the portfolio -- leaving less for later years.

The key to succeeding with the dynamic-spending rule approach is having the full picture of your investment portfolio and checking on its performance regularly, that’s where a portfolio tracking tool like Sharesight is critical.

Take control of your retirement with Sharesight

If you’re actively managing your retirement investments, Sharesight’s diversity and asset allocation reports are key to helping you see the full picture and ensure your portfolio is working as hard as it can for you in your retirement.

Plus, with Sharesight you can:

Sign up today and try Sharesight for free. We’re confident that you’ll agree that it’s the best portfolio tracker for investors looking to take control of their retirement.


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