Retiree Investment Strategy Recession Considerations
Thursday, August 10, 2023
In Australia, there has been increasing discussion about the potential of recession because of rising RBA interest rates and the subsequent economic impacts of these, such as reduced consumer spending and company production. There can be implications for retirees and their investment strategy.
Prior to the pandemic, Australia held the world record as a country, at 29 years (from June 1991) without a recession.
There are several markers of recession used by countries worldwide which usually involve a reduction in GDP for two consecutive economic quarters. GDP reflects the total market value of the goods and services produced by a country during a specific time period.
In Australia, there has been increasing discussion about the potential of recession because of rising RBA interest rates and the subsequent economic impacts of these, such as reduced consumer spending and company production. Because we have strong population growth in Australia, some economists look at what is called “per capita recession”. This is a different angle on GDP, where our economy may still be growing but at a lower rate than the population, so GDP per person actually goes backwards. This measure may more clearly reveal the reality of individual living standards. Economic data on GDP for the March quarter 2023 has shown a per capita contraction and economists have been talking about a per capita recession for Australia.
How could a Recession Impact your Retiree Investment Strategy
Many retirees will have their money invested in shares and receive a regular income stream from those investments.
When the share markets drop, either in global market crisis, bear market or recession, it can lead to nervousness about financial security. A recession places financial stress on both the country and its people but it is important to remember it is part of a greater economic cycle over time. Australia has experienced five recessions since 1960 and we have always come out the other side with strong growth. In fact, this cycle can be a time of important reflection on priorities and choices both as a country and as individuals. For example, what to spend your money on, how to manage any debt, and where to save and invest.
If you are intelligently invested, diversified and have cash in your portfolio available, you are most likely to come out the other end just fine, perhaps even in better shape if your money is being well looked after, and takes advantage of the many opportunities within a downturn.
The short-term risk of keeping shares and riding out the volatility we experience during times of uncertainty is termed the ‘price of admission’ to the share market. One of the biggest mistakes people make in a market downturn is to panic and sell their shares. Generally speaking, when the share market starts to recover it is often before people are comfortable to reinvest, resulting in them missing out on that recovery.
It is always best to have the end game in mind, holding a long-term view, and especially in the retirement phase as you are looking to fund the rest of your life. Be assured that Fund Managers will be stalking buying opportunities within a supressed marketplace looking for well positioned stocks offering either stability, or growth opportunity as the economy recovers. And recover it will. Ensuring there is enough money held in cash for your income also alleviates the need to sell shares while they are impacted by the downturn and allowing for their growth again during the recovery.
Contact our Retirement Investment Strategy Advisors
As always, it is best to seek advice from experienced financial advisors for retirees to work out a strategy that is best for your needs both in the, short, and long term during your retirement. Maher Digby Securities are Wide Bay and Sunshine Coast retiree investment strategy specialists. We offer a complimentary initial consultation to discuss your retirement investment plan, all you have to do is get in touch.
For more Information contact Mark Digby at Maher Digby Securities Pty Ltd - Financial Advisors – AFSL No. 230559. This document was prepared without taking into account any person’s particular objectives, financial situation or needs. It is not guaranteed as accurate or complete and should not be relied upon as such. Maher Digby Securities does not accept any responsibility for the opinions, comments, forward looking statements, and analysis contained in this document, all of which are intended to be of a general nature. Investors should, before acting on this information, consider the appropriateness of this information having regard to their personal objectives, financial situation or needs. We recommend consulting experienced financial advisors for retirees.