Home » Business, Financial Market, Lifestyle, Personal Finance » ‘Low Volatility Anomaly’ Is Cause of Concern with Retirement Saving
The low volatility anomaly currently seen contradicts basic investing principles. Safer investments and calmer markets should theoretically equal lower returns than their higher-risk counterparts, but it isn’t the case, and it’s wreaking havoc with retirement plans.
Here’s why.

LOUISVILLE, KY – 31 Oct, 2016 – World events and faster communication are combining to drive stock market volatility. For investors with more higher tolerance, it should be an ideal time, one that features shocks and dips that provide for opportunistic buying and selling, if that’s what they desire—but there’s a problem.

Dampened returns mean they’re not getting paid for the risk they’re taking, and it could be a larger sign of things to come. Put simply, overvalued stocks and an end to a three-decade long bond bull market means solid sources of yield are increasingly scarce, even for conservative investors that are focused squarely on retirement.

Known as the Low Volatility Anomaly, it contradicts basic investing principals; market fundamentals dictate that the more risk a person is willing to withstand, the more they will be rewarded when (and if) things go right. That was before the “New Normal,” high-profile bond manager Bill Gross’ term for lower investment returns for the foreseeable future due to aggressive government fiscal policy across the globe.

“From 1985 to 2014, real returns for [U.S.] equities averaged 7.9 percent, compared with the 100-year averages of 6.5 percent,” research and consulting giant McKinsey & Company recently wrote. “Similarly, bond returns over the period averaged 5 percent in the United States, compared with 100-year averages of 1.7 percent.”

It sounds great, except that “We believe this golden age is now over and that investors need to brace for an era of substantially lower investment returns,” McKinsey ominously added.

Those approaching, or who recently entered retirement should be especially concerned. Normally a time to dial back the amount of risk included in a portfolio in favor of income and protection, retirees nonetheless need sources of yield to avoid eating into their principal. Bonds, traditionally, acted as that safe haven, providing stable, predictable dividends and/or returns with minimal amounts of risk, ensuring pre-retirees entered their senior years for the most part free of fiscal angst.

“Bond investors are taking bigger risks than ever before,” Bloomberg reported last spring. “Yields on $7.8 trillion of government bonds have been driven below zero by worries over global growth, meaning money managers looking for income are pouring into debt with maturities of as long as 100 years.”

Central banks’ policy is exacerbating matters, it continued, as “the unprecedented debt purchases to spur their economies have soaked up supply and left would-be buyers with few options.”

For the average investor, getting the necessary retirement income typically requires a combination of investment and insurance-based products, and the help of a professional financial advisor specifically focused on retirement distribution, rather than asset accumulation.

“Income is the outcome in retirement,” says Joe Casey, who along with his wife Candice, are co-owners of Louisville, Kentucky-based Casey Wealth Consultants. “Over the past 15 years, equity markets have returned, on average, between 5.65 percent and 5.67 percent annually. This would mean investors who began with a $1 million nest-egg would have $1.8 million today.”

However, if $50,000 in income were taken from the portfolio each year for living expenses, it would lose almost two-thirds of its value due to inflation and the exiting assets that are no longer available to generate returns. It’s an unsustainable situation for individuals and couples who are increasingly living 30-plus years in retirement. Known as sequence-of-return risk, it’s increasingly an issue in retirement planning.

“Unfortunately, retirees need to grow assets, protect principal and take income,” adds Casey, who provides a free report from a firm with whom he partners, “Your Retirement income Planning Checklist”. “It’s usually done through a combination of index annuities, separately managed accounts and exchange traded funds. Whatever is used, they’re investing for the rest of their lives, so it had better be done right.”

Thankfully, financial advisors who specialize in income distribution strategies, longevity issues and who also understand the Low Volatility Anomaly are here to help.

For more information, please visit http://www.caseywealthconsultants.com

Media Contact
Company Name: Casey Wealth Consultants
Contact Person: Joe Casey, Chief Financial Consultant
Email: info@askthecaseys.com
Phone: 888-CWC-1105
Country: United States
Website: http://www.caseywealthconsultants.com

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