In a challenging market environment, it’s important to focus on making the most of worst-case scenarios, said Ed Studd, solutions manager for U.S. portfolio solutions at Schroders Investment Management Ltd., speaking at Benefits Canada’s 2019 DC Plan Summit in Banff, Alta. in February.
While the definition of risk will change over the course of people’s retirement journeys, he noted, it’s important to take different approaches to managing risk at different stages.
One example is using explicit equity risk management techniques in the 10 years prior to retirement when moving from stocks to bonds. Defined contribution plan members can accomplish this shift slowly over time or use a risk-managed approach, adjusting the allocation of stocks to bonds daily depending on the current market, said Studd. This can help speed up transition in riskier times and delay transition when there’s an opportunity to capture growth, he added.
Studd also highlighted using diversification and dynamism in a growth portfolio, pointing out this can be used through the entire journey using an investment strategy geared towards delivering predictable income in the post-retirement phase.
“We’ve said that retirement saving is challenging even in the best of times, but this isn’t the best of times,” he said.
“It’s a particularly challenging market environment, with low interest rates and low future expected returns. And I think this just really brings to the forefront the idea that we should be looking at better ways to try and manage risk.”
Read more coverage from the 2019 DC Plan Summit.