Don't ignore Lifecycle Funds: MercerBY BEN COLLINS | TUESDAY, 13 NOV 2012 11:50AMThe benefits of Lifecycle Funds are not understood in the superannuation sector, and they should be considered as a default option under MySuper, said Mercer. |
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Hugh Killen
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AUSTRALIAN AGRICULTURAL COMPANY LIMITED
For Hugh Killen, several life lessons came from spending time on pastoral properties stretching across northern New South Wales and South-West Queensland.
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The "proven history" around the world should include the experience in the U.S. in 2008. The most conservative TDFs - those for individuals with an imminent retirement - lost between 9% and 41%. A Joint Congressional Hearing was held by the DOL and SEC to canvass the reasons for this failure in risk management. It turns out "nothing goes up in a falling market except for correlation". Diversification doesn't insulate against losses. Any adoption of TDFs should consider this, especially if we systematically rotate investors out of equities and into fixed income, at a point where yields are at intergenerational lows.
The thought of being moved into conservative assets just because I have ticked over age 65 seems irrational. With potentially 30 years ahead of me in retirement, where am I getting growth from to support my income needs? Hard to believe no one has 'come up and challenged him'.
Our members experience has been most positive in running an age based lifecycle default for the last 8 years and over a full economic cycle. This includes a loss of only 4% over the GFC for over 65's compared to the median Balanced loss of - 18% which was inflicted on most retirees. Whilst modeling of increased risk later in life may suggest higher investment returns the key is in matching member volatility tolerance with an acceptable level of investment risk. The end result is happy members with good consistent returns over the full economic cycle. Lifecycle investing works!