The 60/40 asset allocation rule is no longer adequate if Australians are to retire comfortably, with an 80/20 ratio of risky vs secure assets far more appropriate in the current market environment, according to HLB Mann Judd.
Traditionally, the 60% was put in riskier growth assets, like equities, while the 40% portion was put into the more conservative fixed income.
The traditional balanced investor profile, typically used as default by super funds, meant a fairly equal allocation between asset classes.
However, Jonathan Philpot, HLB Mann Judd Sydney wealth management partner, said with the ultra-low interest rate environment set to continue for some time yet, the secure part of the portfolio could only return about 2% over the next 10 years.
“With interest rates having been on a downhill run for the last 30 years, the balanced profile is now reflecting an allocation of about 70% risky investments and 30% secure investments.
“This is the default super option for many industry and retail superannuation funds.
“Worryingly, some super funds are classifying higher-risk corporate debt and property type investments as part of their secure or defensive part of the portfolio.
“This not only exposes investors to greater risk than they perhaps thought they were taking, but also shows the importance of comparing like-for-like funds on performance tables.”
Philpot also said one of the common goals clients had was to preserve their superannuation balance throughout their retirement years, as opposed to drawing down.
“Around two-thirds or three quarters of our client base have the objective of what they built up over their working life they wish to preserve through their retirements years,” Philpot said.
However, a larger super balance in excess of living needs meant retirees had to figure out how to best leave these assets behind.
“It becomes an issue for them – what do I do with this? Do I start handing it out now to children or do I have to start looking for someone else,” Philpot said.
“Sounds like a silly problem to have, but it does actually cause concern for older people with having something that was fairly stable and now having all this excess.”