How would you invest if you were 60 and had an investment portfolio of $5 million?

And let’s say you enjoyed a lifestyle that costed, say, $100,000 per year, and didn’t have any desire to spend more than this?

Would you:

  • Invest all of your portfolio into defensive assets, such as “high interest” savings accounts and term deposits? or
  • Invest a significant portion of your portfolio into growth-oriented investments, like shares and listed property funds (or managed funds that invest in these underlying assets)?

Of course, I’m creating a false dichotomy here, and it’d more accurate to treat these two options as ends of a spectrum. I’m also ignoring other ways you can invest your money.

But at the heart of the question is something important, and it illustrates how investing is personal to the person or people investing.

Investing is personal to you.

I’ve had several clients who are roughly in the position I’ve described above.

With some of these clients, their inclination was to invest primarily in defensive assets. This was appropriate for them. Their guiding philosophy is that they don’t need to take on any “risk”, so why take it?

(Of course, this was after a robust conversation about how all investing involves risk, and by focusing on the risk of short-term volatility, they’re exposiing themselves to the risk of being worse-off over the long-run compared to if they invested more aggressively. The point is, we all weigh these risks — and their potential impact on our lives — differently.)

With some other clients, on the other hand, their inclination was to invest primarily in growth-oriented assets. This was appropriate for them. Their philosophy was more down the lines of “if you can take the worst, you can take the risk”.

This blog is made possible by Fairhaven Wealth and its wonderful clients.

In fact, these clients didn’t really see short-term volatility as much of a risk — their portfolio could reduce by more than 50% and they’d still have more than enough to support a high quality of life for as long as they live. These people tend to be more focused on maximising the amount they leave for people and causes they care about.

It’s a weird feeling to tell people who are in their sixties that an investment portfolio with an orientation of 80% to 90% in growth assets is appropriate for them. Especially when there’s so much messaging out there telling people that as they head towards retirement, they should start investing very conservatively. But hand-on-heart, for these people, that’s the appropriate thing to do.

We all come to investing with very different backgrounds. Our circumstances differ. Our needs and our objectives differ. Our experience with, and relationship to, investing is different. Our tolerances for risk are different. We bring different experiences to the table. We have different levels of optimism and pessimism about the future.

One of the best, and hardest, things about being a financial adviser is providing advice that is tailored to the people I work with.

When it comes to investing, the question usually isn’t what’s “best”. The question is what’s best for you

 

Sonnie Bailey

In his spare time, Sonnie likes telling people that he’s a former Olympic power walker, a lion tamer, or that he is an orthodontist. He is none of those things. In reality, Sonnie is a financial planner based in Christchurch. Through his business, Fairhaven Wealth (www.fairhavenwealth.co.nz), he provides independent, advice-only, fixed-fee financial planning services. Sonnie is a “recovering lawyer”: he has specialised in trusts and personal client work. He has also worked as a financial services lawyer for many years.

FOR NOTIFICATIONS, SIGN UP