Pension Investor: Confidence Measure
I recently read some details of Franklin Templeton’s Retirement Income Strategies and Expectations (R.I.S.E) survey. One of the survey’s key findings was an extraordinary one; namely that 88% of people said “stock market investing has a limited or no role to play in accumulating pension savings”.
In an era of low or negative real bond yields and increasing longevity, the key question for investors is not whether they invest in the stock market, but how much of their pension pots should be invested in it. That such a high proportion is against stock market investing is a worrying finding indeed.
Advisers might point their clients towards a 1994 paper by William P. Bengen titled: Determining Withdrawal Rates Using Historical Data. The paper relates to the US experience but its findings are just as relevant to the UK.
Bengen’s approach is empirical rather than theoretical, looking at the performance of differently weighted equity-bond portfolios in combination with different withdrawal rates. His main finding is that investing 75% of your pension pot in equities – both prior to and during retirement – is even more optimal than 50%.
I suspect, given where real bond yields are currently, that an even higher weighting might be appropriate today.
The challenge for advisers is a big one. But then, so is the opportunity…
The views expressed are those of Peter Elston at the time of writing and are subject to change without notice. They are not necessarily the views of Seneca Investment Managers and do not constitute investment advice. Whilst Seneca Investment Managers has used all reasonable efforts to ensure the accuracy of the information contained in this communication, we cannot guarantee the reliability, completeness or accuracy of the content.
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