Instead of focusing only on retirement, a defined contribution pension plan should aim for smooth consumption throughout a member’s lifetime, BlackRock Inc.’s Matthew O’Hara told participants at the 2016 DC Investment Forum.
“A glide path should consider how much you should be saving at any given point in time and it must have an allocation that contemplates longevity risk, market risk and inflation risk,” said O’Hara, global head of investment research in BlackRock’s lifetime asset allocation group. “Stitch all those things together to figure out the best way to save and invest.”
The glide-path theory, which considers whether someone should invest conservatively or more aggressively, helps determine what combination of assets would be suitable for a plan member, at various stages, leading up to and through retirement, he added.
“Take a lot of risk early on in life and then reduce it along the way and, at the point of retirement, balance things out,” said O’Hara.
Generating retirement income, he added, is an important consideration in determining investment selection. In addition to traditional asset classes, O’Hara suggested incorporating alternative asset classes for greater diversification.
“Canadian investors could have a mix of Canadian large-cap stocks, U.S. large and small cap, international equities and bonds,” he said. “On the alternative side, commodities, [real estate investment trusts] and global infrastructure are effective ways of diversifying your exposure and getting the best risk-return trade-off.”
Read more articles from the 2016 DC Investment Forum