A recently conducted survey into the sentiments of SMSF trustee and retirees has identified the current challenging economic climate as the central issue causing most concern for individuals in these two cohorts.
The study was conducted by exchange traded fund (ETF) manager BetaShares in conjunction with YourLifeChoices to extract attitudes regarding financial attitudes in retirement.
One commonly asked question was the general outlook for investment markets for the remainder of the year. In response BetaShares chief economist David Bassenese said the conditions will continue to be challenging for equity markets mainly due to increasing inflation levels.
“My concern is that earnings growth expectations need to be cut further and equity valuations have moved back to elevated levels. The major upside risk, however, is a quick decline in inflation perhaps due to an expansion in global oil supplies and lower energy prices,” Bassanese shared.
Retirees were also worried about what an appropriate portfolio structure would be given capital protection is now a priority of theirs.
“Arguably the single best strategy is for investors to have a mix of growth and defensive assets. This will help to provide an overall level of expected return and short-run volatility,” Bassanese advised.
“That said, the good news for retirees looking to preserve capital is that central bank interest rate increases over the past year have improved the prospective returns from usually low volatility fixed-income markets. Government bonds are currently offering healthier positive yields compared to near-zero yields only a year ago” he noted.
With regard to fixed income assets Bassanese confirmed they still have a valuable role to play in an investment portfolio and is optimistic about the outlook for bonds in the immediate future.
“Over time, returns on most types of bonds have tended to be less volatile than equity returns and usually – but not always – are negatively correlated with equity returns,” he said.
“Going forward, and as economic growth slows over the coming year, we may see weaker returns from equities but stronger returns from bonds. This means bonds could return to exhibiting the negative correlation with equity returns.”
In reference to equity investments Bassanese predicted defensive stocks will be the best performers over the next 12 to 18 months.
“As economic growth slows over the coming year, we may see weaker returns from equities but stronger returns from bonds. This means bonds could return to exhibiting the negative correlation with equity returns,” he concluded.
The survey analysed responses from over 5000 Australians.
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