The Bank of England’s February statement that interest rates were likely to remain low until the end of the decade could have a significant impact on retirees and others living off a fixed income, the group said.
“Tired of their cash holdings making them, in effect, poorer over time, I fully expect more and more retirees will turn traditional investment thinking on its head. An increasing number will, I believe, consider higher risk-higher return investment opportunities as part of a well-diversified portfolio in order to be able to fund the retirement they want to enjoy,” Nigel Green, CEO at the deVere Group, said.
He added: “Since Mr Carney’s unveiling of his forward guidance policy last summer, we have found there’s been a steady growth in the number of retired clients seeking to increase their holdings of higher risk-higher return investments, which could potentially enable them to maintain or enhance their spending power and lifestyles in retirement. This trend’s momentum is, I believe, likely to build following the BoE governor’s latest longer-term forecast on interest rates.”
Perception of risk
But whether or not retirees will turn to higher-risk holdings depends on their perception of risk, according to Adrian Lowcock, senior investment manager at Hargreaves Lansdown.
Perception of risk changes and can be different from actual risk.
Lowcock said after gilt yields plummeted in 2012, they were now at around 3% with a current inflation rate of around 2%. This was an example of how low-risk expectations change, he said. Guaranteed losses from fixed income and cash is not necessarily a bigger risk but also not a much better investment alternative.
Going forward, investors need to fully appreciate the investments they are dealing with and the associated bigger risk.
"It requires education and understanding to know how equities behave in the short-term,” Lowcock added.
