How does asset allocation affect duration?
Table 2 on the previous post shows the outcomes for effective earning rates ranging from 1% – 10%. The higher the earnings rate, the longer your money could potentially last, so asset allocation can have an important impact on the duration of your retirement savings.
Picking an appropriate asset allocation is the next important step and requires consideration of your tolerance for risk as well as your need to generate a desired rate of return. For example, if you aim to generate returns of 5% – 6% per annum you need to choose an allocation that has the potential to produce this return and may need to take on some investment risk.
In theory, asset allocation should be a straight forward process, choose a level of risk vs. return you feel comfortable with and allocate your investments accordingly. However in practice this is always much more difficult, for starters, people usually want the highest rate of return but also want to have the lowest level of risk.
Choosing the right level of risk while maximising the rate of return is a difficult thing to do and its usually best done with the help of someone with experience. Should you wish to have a chat about your retirement income needs or if your investments are suitable for your retirement, please feel free to get in contact with us.
This information is, of course, general in nature and it is important to seek specific retirement planning advice to comprehensively address issues of risk, return and volatility.