Risk tolerance, time horizon and asset allocation are factors you’ve dealt with for much of your life, but as retirement approaches they take on a more urgent role. Tactical asset allocation in particular can be vital to maximising your assets in the years just before you retire. (This is a general overview only – see the warning below and seek personalised advice.)
A different take on risk tolerance and time horizon
As your time horizon shrinks on the approach to retirement, your risk tolerance generally lowers with it. These two factors shape both your plans for each asset you own and your portfolio as a whole – so they’re the natural starting point for readdressing your portfolio when it’s time to tip the balance.
Leverage tactical asset allocation
The general idea is to gradually increase the share of income-generating assets and reduce reliance on growth assets as retirement nears. With, say, five years to go, you might reassess which growth investments are worth retaining beyond retirement and concentrate on your best ones, freeing space for more income-generating holdings. Going from strategic to tactical is a shift from long-term planning to shorter-term thinking – considering which economic or financial factors during your time horizon would affect which assets.
Gearing up for the tactical shift
Tactical asset allocation takes a more active, hands-on approach than a passive, strategic style – and that shift in mindset can be harder than expected. Even for successful professionals, the finality of retirement can be daunting, prompting second-guessing about whether you’ve done enough. The key point is that tactical allocation is a change of mindset and investing patterns rather than a wholesale change of style – and because these decisions carry real risk and depend heavily on your circumstances, they should always be made with personalised professional advice.
General advice warning: This information is general in nature and does not take into account your objectives, financial situation or needs. Investing carries risk and past performance is not a reliable indicator of future results. Seek personalised advice from a licensed financial adviser before making any investment decision.