Too many people put a little money aside each pay day towards their retirement savings without doing the number-crunching on whether this is enough, in addition to SG contributions and other savings, to finance their expected standard of living in retirement.
And many people who actually do a little number-crunching on how much is needed in retirement savings base their calculations on expectations that the high double-digit returns from the share market since March 2003 until recently would somehow always continue.
Well, reality has struck.
But a silver-lining from market disruptions in the fallout from the sub-prime mortgage crisis, the global credit crunch and higher interest rates should be a new-found realism among investors in regard to the adequacy of their retirement savings. There are plenty of valuable lessons for investors from what is taking place.
Don't rely on bull-market assumptions regarding expectations for future returns, seek quality advice early about whether your retirement savings/investment plans are adequate, and ensure your portfolio is adequately diversified to deal with adverse movements in different markets and is diversified in accordance with your personal circumstances - including your personal tolerance to risk.
Those are just a few straightforward principles of sound investment practice that once again have proven their worth with the recent intense volatility and downturns in the share market.
Finally, a key part of smart investment planning is, of course, to aim to ensure that your retirement savings last for the expected length of your retirement. This generally means that a proportion of an investment portfolio in retirement should remain in growth assets - again depending upon an individual's personal circumstances, including any professional advice received.
By Robin Bowerman
Smart Investing
17th March 2008
Principal & Head of Retail, Vanguard Investments Australia
26th-March-2008 |