Equities help retirees beat inflation


Investing in equities has been found to help a retiree's potential for a higher sustainable withdrawal rate by gaining more flexibility in accounting for inflation, according to a report by Milliman Financial Risk Management.
The report released today found since 1930 the growth rate of the S&P 500 dividend kept up with inflation, and outpaced it by more than one per cent per year.
"Over the course of 10 years the dividend has doubled to $41.31 [per share]. Based on the level of the S&P 500 in April 2005 (1157), $41.31 per share equates to a yield of 3.5 per cent," the report said.
"A level far superior to the two per cent yield on the 10-year Treasury bond in April 2015."
The report noted the reason for the ability to keep up and outpace inflation is because businesses are able to pass along price increases to consumers.
"History bears witness to the ability (and arguably tendency) of stocks' earnings, dividends, and share prices to inflate with the economic price inflation," the report said.
"For this reason we believe investors should have a significant allocation to stocks, both when approaching and during retirement."
Recommended for you
Lonsec and SQM Research have highlighted manager selection as a crucial risk for financial advisers when it comes to private market investments, particularly due to the clear performance dispersion.
Macquarie Asset Management has indicated its desire to commit the fast-growing wealth business in Australia by divesting part of its public investment business to Japanese investment bank Nomura.
Australia’s “sophisticated” financial services industry is a magnet for offshore fund managers, according to a global firm.
The latest Morningstar asset manager survey believes ETF providers are likely to retain the market share they have gained from active managers.