Wealth Planner:
How to stretch that retirement cheque

          Most major financial goals come with an easily determined price tag. Retirement is not so simple. In fact, one reason that retirement planning can seem so daunting is because it is very difficult to gauge just how much we will need to retire on. In fact working out how much your retirement will cost is not one problem, it's three interrelated problems:

•  Figuring out the cost of living for a year in retirement

•  The length of your retirement

•  Inflation

          The first problem is quite straightforward. The financial planning rule of thumb is that typical individuals can maintain their pre-retirement standard of living on roughly 60 to 80% of their pre-retirement gross income. The second problem deals with life expectancy. Although, this will vary from one person to another but it is not unusual for any of us to spend upwards of 20 to 25 years in retirement. For example, if you retire at 60, you should allow your retirement nest eggs to last until you are 85 years of age or longer. As for the last problem, the cumulative effect of even low rates of inflation can have a tremendous impact on your retirement savings. For example the price of the 1 st issue of the Bangkok Post was Baht 1 sixty years ago. Now the price has gone up to Baht 25, an increase of 2,400% or 40% per year. Get the picture?

          Now that you've more or less figure out the answers to the above three questions, it is time to bring the components together and figure out how long your retirement cheque will last. Let's suppose that you've just retired with Baht 10 million savings to play with and you figure that you will need Baht 1 million a year to live on. Therefore, you will be withdrawing about 10% a year from your retirement savings and let's suppose further that you invest the rest of the money at a rate of return of 5% per year. According to the table below you will run out of money in 14 years time. But on the other hand if you can achieve an investment return of 9% pa. your retirement savings will last 26 years. Therefore, how long your retirement cheque will last really depends on your withdrawal rate and most important of all how you invest your money even in retirement. Just because you are retired, it does not necessarily mean that your money should retire as well. For post-retirement investment services, please contact our investment planners and learn more about how to stretch that retirement cheque!  

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Investment Ideas: Diversification is not a compromise

          The choppiness in global equity markets that started in May continued through early July, as investors reacted to monetary-policy announcements and geopolitical surprises. Since June 2, the average movement in the MSCI All Country World Index over a rolling 10-week period has been 15% to 20%, a range not seen since the first half of 2003 during the US invasion of Iraq . It is tempting to see the world as an increasing set of negatives such as rising interest rates and global inflation, calculated terrorism and persistently high energy prices to name a few. But this is the time when the toughs get going when the going gets tough.

          Many investors will no doubt move into safer assets and out of riskier equity markets or out of equities altogether as their tolerance for risk reaches its limit. However, there is a better way to ride out the current challenges. A review of the performance of various asset class indices during the past three decades (1979 through 2005), suggests that a diversified portfolio consisting of a mixture of large cap stocks, small cap stocks, international stocks, and Real Estate Investment Trusts, REITs (40%, 20%, 30% and 10% respectively) would provide superior risk-adjusted returns to most single asset class portfolios. The returns shown below are based on the returns of indices representing each asset class.

          The lesson to be learnt here is that diversification is not a compromise but a smart way to invest. In this way you get to enjoy the best of both worlds i.e. higher investment return with far less volatility. As for local investors, the benefits of a globally diversified portfolio will be even more apparent than a portfolio with only Thai assets because securities in each region of the world are likely to be less correlated to each other. A good place to start diversifying your portfolio is to look at our Global Allocation Fund (GAF), which invests in more than six hundred securities in sixty countries. For more information on how to diversify your portfolio, please call our investment planners on Tel. 0-2352-4000.