Retirement portfolios need a new playbook: Real Asset Management

The traditional 60/40 portfolio may no longer provide the protection retirees need, with advisers urged to rethink portfolio construction as market volatility, inflation and longevity risks reshape retirement planning.

Speaking at the Advisers Big Day Out in Wollongong, Real Asset Management distribution director Rhys Leitch said the investment environment had changed materially, requiring advisers to move beyond the long-standing mix of equities and bonds.

Leitch said retirees now faced a very different risk profile to previous generations, with persistent inflation, higher interest rates and more frequent market dislocations challenging traditional portfolio assumptions.

"The traditional 60/40 portfolio served investors well for decades, but the dynamic that underpinned its success have shifted," he said.

"Advisers need to think differently about building resilient retirement portfolios."

He said one of the biggest challenges was that defensive assets were no longer providing the same level of diversification they once had, with bonds increasingly moving in tandem with equity markets during periods of stress.

As a result, Leitch argued portfolios should incorporate alternative income-generating assets capable of delivering more stable returns while reducing reliance on listed market performance.

Private credit, he said, has merged as an increasingly important component of modern retirement portfolios.

"Private credit offers the opportunity to generate attractive income streams with lower correlation to traditional listed assets," Leitch said.

"That can play an important role in helping retirees manage sequencing risk while maintaining reliable income."

Leitch said the focus for advisers should not simply be maximising returns but building portfolios that could sustain clients throughout retirement despite unpredictable market conditions.

"The objective in retirement is different," he said.

"It's about creating confidence that clients can continue funding their lifestyle regardless of what markets are doing."

He added diversification should extend beyond simply owning more asset classes, instead combining investments that respond differently across economic cycles.

Leitch said advisers who embrace a broader portfolio toolkit would be better positioned to manage the growing complexity of retirement income strategies as Australia's aging population continued to expand.

"The next generation of retirement portfolios will be built around resilience, income and flexibility," he said.

"That's where we believe the conversation is heading."