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Multi-asset and retirement saving

2 years ago

At its heart, multi-asset is a solution that can deliver peace of mind by spreading investment risk across a variety of asset classes. It is this diversification that not only helps protect a portfolio on the downside but also makes an investor’s money work harder in the hunt for both income and growth opportunities.

The multi-asset sector is growing in importance. And it is important to highlight the benefits the multi asset solution can offer investors who are either on the road to retirement or already there.

The benefits of diversification

Almost any asset class by itself can be susceptible to volatility, which can have a marked impact on a client’s overall wealth. This is especially true should a period of volatility occur at the wrong time – for instance, when investors might be looking to flexibly access their money.

Having a range of different income sources by way of multi-asset should mean an investor is better protected if one source dries up – for example, because a company has been forced to cut its dividend. The impact of volatility can be especially pronounced once a client has moved into the decumulation phase of retirement as they will be unable to ‘top up’ their pension pot in the same way as they could during the accumulation phase. The diversification benefit of multi-asset is therefore especially important in this regard.

Changing demographics and inflation

One of the greatest risks for any retired person is their pension pot and the income it generates fail to last as long as they do. If an investor was to have all their money in bonds, for example, the chances are they will struggle to grow their income above inflation whereas, if they have it all in equities, they risk higher volatility.

Multi-asset can address this longevity risk, with equity exposure helping to grow an investor’s income while asset classes such as infrastructure can help with inflation protection. Given people’s increased life expectancy, inflation can have a greater impact on the value of their wealth. Even at 3%, inflation will have halved the spending power of a client’s pension pot in 23 years’ time – a not unrealistic time to be retired these days.

Research, ESG and the future

Our research has also found that many savers and investors are daunted and confused when it came to deciding about what to do with their retirement savings, leading to inertia in some cases. There is a fairly widespread entrenched mistrust of pensions and this causes investors to act in ways which can be contrary to the long-term best interests both of themselves as individuals and of society more generally.

With multi-asset, investors have the reassurance that comes with real diversification – of knowing not only that their money, and therefore the risk of losing it, is diversified across a broad spread of investments but also that it is well-placed to make the most of the income and growth opportunities on offer building up to and through this important stage in their life.

Read our full global ESG investor study here.

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