Should investors lump their retirement investments with other savings into an investment vehicle?

 No. Why?

a.)   Differentiation between Saving (Capital Preservation) & Investing (Capital Appreciation)

  • Short Term a/c (Mostly for emergency fund & life style expenditure),
  • Medium Term a/c (Other personal financial goals) &
  • Long Term a/c (Education fund, Retirement & long term medical care).

b.)   The Risks & Limitations

  • FD – low risk (short term) & very high risk over long term due to inflation rate.

The risks & Limitation - Retirement Investing - Fixed Deposit

  • Unit Trust/Investment – High risk (short term) & lower risk (long term)

Unit Trust - Retirement Investing

c.)    Diversification

  • Potentially lowering your overall risk
  • Every investment sector has its own cycle.

DIversification - Retirement Planning      

Source: Steele & US Global Investors Research

Example A.  One RM 25,000 Investment – 15-year Period

Alternative Investment Invested Amount (RM) Compounded Annual Return Ending Value (RM) Total Profit
 A RM 25K 6% 59,913.50 34,913.50

Example B.  Five RM 5,000 Investment – 15-year Period

Alternative Investment Invested Amount (RM) Compounded Annual Return Ending Value (RM) Total Profit
 A RM 5K -7% 2.5K (2.5K)
B RM 5K 0% 5K 0
C RM 5K 6% 11,982.70 6,982.70
D RM 5K 10% 20,886.20 15,886.20
E RM 5K 15% 40,685.20 35,685.20
Total RM 25K 78,554.10 56,054.10

An additional profit of RM 21,140.60

A better overall return than the single investment

What should the investors do with the returns from the retirement investment?

  • Reinvest to accumulate more fund value into retirement investment account. In the case of UT investment, reinvest the dividend declared would directly allow you to buy in at bid price & increase your total number of investment units held. Dividend declared by any fund management company is based total number of investment units held, but not the total fund value.
  • Or, locked in the profit gained & transfer into an annuity saving account that would provide capital preservation benefit & guarantee certain amount of annual income upon retirement age.

Why do you think so?

·       To benefit from the impact of compounding interest in wealth accumulation process.

·       It also one of the strategies to further to reduce your investment risk exposes in your existing portfolio PDA strategies.

How does risk appetite comes into picture for retirement investing? For instance, should a person who is aggressive and nearing to retirement, skewed towards less risky assets because he is suppose to be less risk tolerant on his retirement investment?

Generally speaking is correct…

The asset-allocation decision is also dependent upon a person’s attitude about risk. There are some 60-year-olds who prefer to concentrate their holdings in stocks because they have a large portfolio, few financial responsibilities, and don’t mind the volatility. On the other hand, there are some 40-year-olds who are not comfortable with the ups and downs of the stock market. Attitude toward risk is a very personal decision.

But how does the investor go about assessing his risk appetite?

  • If an investor can afford to lose significant amount of money on his principal before it can generate a return, then his risk appetite is high.
  • Risk is the amount of money that the investor can afford to lose, in the interim, in his quest for a certain return on his investment.
  • If an investor can afford to lose only a moderate amount of money, then his risk appetite is on the lower side.

 …Read more on Retirement Planning

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>