retirement risk can be reduced by bringing in more bonds

Written by The ReReport

BETH Buchanan reckons Aussies like to gamble, and are continuing this higher-risk approach to money in retirement.Australian retirees prefer shares over lower-risk bond investments, a strategy that’s now under strain with our sharemarket down 11 per cent since September.“At my age — I’m going to be 75 next year — I feel it would be financially irresponsible to invest in the stock market,” said Mrs Buchanan, who holds mainly bonds.A bond is is essentially a loan to a government or company and investors receive interest payments.INVESTING: Why I’ve sold all of my sharesESTATE PLANNING: Unexpected inheritances can hurtMrs Buchanan, an American who has lived in Australia for 12 years, follows the US approach to bonds, where people hold a proportion of fixed interest investments reflecting their age. “If I’m 75 I would like to be 75 per cent in bonds and 25 per cent in riskier assets, which I have in real estate,” she said.media_cameraBeth Buchanan, 74, from Tweed Heads, invests in bonds and avoids shares. Photo:Tim Marsden/The Photo PitchResearch has found retirees have 34 per cent of their money in shares and 27 per cent in bonds.“I find Australians are more comfortable with risk-taking. They like gambling, and maybe bonds are just too slow and steady an investment for them,” Mrs Buchanan said.People can buy government and corporate bonds through managed funds, exchange traded funds or directly.FIIG Securities head of education and research Elizabeth Moran said Australia’s corporate bond market was becoming more accessible just as investors were seeing a need to diversify their assets.“When you are in retirement, you need to take some risk off the table as you won’t necessarily have the time or the income to recover from a GFC-like correction,” she said.“Understand your risk appetite — There is a large range of bonds, with a range of risk and return, and current yields range from between 2 and 10 per cent per annum.”“Defensive assets should not be focused solely on cash … bonds provide slightly higher returns at a slightly higher risk.”Fixed income manager Western Asset’s head of investment management and Australian operations, Anthony Kirkham, said Australian investors were typically “underweight” in their exposure to bonds.“However, with equity market volatility increasing, as well as broader concerns around global growth and political outcomes, the defensive qualities of a well-constructed bond fund can add much needed diversification and protection to an overall portfolio,” he said.@keanemoneyOriginally published as Risky investments sting retirees

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