Understanding Risk Tolerance in Retirement

As clients approach and enter retirement, their investment strategy typically shifts towards a more conservative approach. These clients are looking to take on a lower level of risk compared to those still in the workforce, who are often focussed on growing their investments and generating income from employment. 

Although the situation can vary from client to client, risk tolerance generally decreases as the focus shifts to preserving wealth and generating income from existing investments. For this reason, it’s incredibly important to get appropriate investment advice tailored specifically to your circumstances.

As risk profiles become more conservative, the asset allocation tends to shift towards lower-risk, less volatile defensive assets such as bonds, term deposits, and cash. These assets are favoured for their income generation potential and the benefits of franking credits. Because of this, the weighting towards higher-risk growth assets such as equities, property, infrastructure, and more volatile alternative investments decreases, as these are typically geared more towards capital appreciation.

At The Wealth Designers, we conduct detailed modelling to determine the optimal mix of investments to achieve the desired risk and return objectives for each investment profile. This modelling considers the appropriate time horizon, which tends to be shorter for more conservative risk profiles.

Your adviser will collaborate with you to understand your current situation, risk tolerance, and lifestyle goals, ensuring that your investments are well-aligned with your specific needs. This personalised approach ensures that your investment strategy is both appropriate and effective, helping you to achieve your financial goals in retirement.