Solving the retirement equation with multi-asset thinking
If you’re investing for retirement, the goal is clear: achieve income and growth while minimising risk. Yet balancing the fear of market losses with the need to outpace inflation can make that goal seem out of reach.
That’s because in investing, there's always a trade-off between risk and return. To achieve your long-term financial objectives, you will need to accept a certain level of risk. You can’t eliminate risk, but what you can do is diversify.
Multi-asset funds offer a balance of different assets, each with a specific role. Equities, for example, are typically more volatile but tend to perform better over the long term. Fixed-income assets, meanwhile, offer a steadier, but lower, long-term return. When you’re building an investment portfolio, you need to be dynamic in how you allocate to those building blocks. That’s what multi-asset managers do, constantly adjusting that mix based on the investment objective, the macroeconomic environment, and where we are in the market cycle.
How multi-asset investing supports retirement planning
Multi-asset investing suits retirement planning because it prioritises investor goals over benchmarks. Instead of aiming to beat a single index, multi-asset portfolios focus on achieving financial goals. Assets are managed dynamically and diversified according to the context. This approach changes how portfolios are managed daily.
But no matter how well a portfolio is built or managed, one of the key factors that determines investment outcomes is investor behaviour. This is especially prevalent in equity investing. There are scenarios – and we’ve all seen it happen – where markets fall, investors panic, and they sell at an inopportune time. This prevents them from benefiting from the subsequent market recovery.
In multi-asset funds, the mix of assets and active risk management helps dampen drawdowns during periods of market stress. That means that investors are more likely to stay invested and benefit from long-term compounding.
What makes multi-asset investing different
Of course, multi-asset funds aren’t the only investment option available to people who are investing towards retirement. Let’s consider a few other products available to investors.
Index funds, for example, offer exceptional cost effectiveness and broad market exposure. If you believe in long-run equity market returns and you have the temperament and time horizon to endure market volatility along the way, a low-cost index fund is difficult to outperform on a net-of-fees basis. But for investors, the limitation is that index funds don’t have shock absorbers. If the market falls, the index fund falls with it. There’s no active risk management, no allocation to defensive assets, and no income strategy. That’s usually acceptable for young investors, but it becomes more risky the closer you are to retirement.
Thematic investing is another option, but again investors should exercise caution. Although thematic ETFs offer compelling long-term growth stories through exposure to themes like clean energy and AI, you are nevertheless taking a bet on a specific theme. While this can have high potential upside, it can also be volatile. These themes often take time to unfold, increasing the risk of mistimed entry.
Structured investment products, meanwhile, can be very useful ingredients in a portfolio, but they shouldn't be the sole basis of an investment strategy.
Multi-asset funds are actively managed and offer flexibility and global diversification. They can be tailored to meet a specific goal, target return, or investment horizon.
Success starts with a clear goal. For retirement savings using multi-asset investing, the key lies in defining a target date and amount. To get the best outcome out of multi-asset fund investing, investors need to understand their needs, their objectives, and the time horizon over which they need to achieve those objectives. Without a clear destination, it’s impossible to plan the journey.
