While the predominant fear of retirees is running out of money, the findings that most older retirees still had 80% of their pre-retirement savings after 17 to 18 years of retirement suggest that longevity risk may not be as menacing as many think.
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After over a decade of near-zero interest rates, today’s relatively high yields have sparked an investor rush into safe, short-term debt investments, like money market funds. This 18% rise in money market holdings in just one year illustrates the enthusiasm of investors for higher yields, as bonds have suddenly become an alternative to stocks. But it begs an important question … are investors pouring too much into cash?
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Physicians monitor the health of their patients by measuring a range of vital signs to help detect signs of potentially deteriorating medical conditions in individuals. Similarly, financial professionals must also monitor the vital signs of a retiree’s retirement income plan due to the special challenges of sustaining retirement income over 25 or more years.
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The asset allocation recommendations of the vast majority of investment advice providers include some meaningful exposure to international stocks. Yet, given the fact that U.S. stocks have outperformed international stocks for eight out of the last 10 years and the correlations between these markets have narrowed it’s not unreasonable to question the value of investing overseas.
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Though the Fed has left open the possibility of two more rate hikes before the end of the year, investors “looking over the horizon” can see the potential for declining interest rates beginning sometime in 2024. Investors may want to get a head-start on considering some of the beneficiaries of falling interest rates since, because the markets are anticipatory by nature, much of the opportunity may be gone by the time interest rates begin their actual decline.
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