Planning for retirement: a long term process

Fixed income and equity assets have had a remarkable run over recent months, with bond yields (sovereign and corporate, investment grade and high yield) at record lows and (most) equity indices trading at record highs (or perhaps slightly off their highs at the time of going to print).

Despite this, I can jot down a number of arguments why, at least in the short-to-medium term, it still makes complete sense to continue building up on (or at least maintaining) current exposures as I feel that there still is a decent amount of money to be made, across both asset classes.

However, there will come a time when the cyclicality of markets will take its course: bond yields will start to rise and equity valuations decline.

Seeing the price of an investment going down requires a strong stomach

I have read a number of research reports and it is difficult to come up with a consensus as to when markets will reverse; some argue that the point of inflexion could be imminent; others believe that a bear market (a market where equity prices are falling) is miles away. What is sure is that the time will come, and in those times, investors must find it cumbersome, or rather, find it difficult to justify investing money in a falling market.

They can be worried perhaps about investing in that company they have closely monitored for so long, and seeing the price of an investment going down requires a strong stomach.

The issue is threefold; either you cut your losses; you double up on the holding; or treat the investment as a long-term investment and not view things in the short term. It is important for investors to treat an investment as a long-term solution to adding value to their overall wealth.

It all depends on one’s overall investment strategy. If an investor believes in the company, s/he might view a market sell-off as an opportunity to buy the equity when it is ‘on sale’. If the market recovers over the next, say, 5 years, then an investor is likely to profit considerably by investing in the equity market when prices are declining. It is important, however, that any investor follows sound investment practices.

And that is the beauty of mutual funds, or rather, collective investment schemes, as these investment vehicles spread the risk over several different stocks. This protects you if one of the companies were to decline unexpectedly. Also, during a bear market, investing in direct bonds or equities can place investors with a tricky situation. Investors holding direct investments in bonds or equities would not be faulted if s/he had to, perhaps as early as now, begin to transfer his/her holdings into investment funds bit by bit. It is always recommendable for an inexperienced investor to get advice from a financial planner.

As investors grow closer to their retirement, they might consider switching their investments into investment funds (as opposed to direct holdings) in order to reduce investment risk, volatility, and have the peace of mind that their investments are being taken care of by professionals. However, the younger generations are in a position to assume larger risks, and participate in a falling market. This will not only serve to smoothen out their overall weighted average price of their underlying investments but it will also serve to place them in a better position to benefit from market upturns. And here is where savings or retirement plans come in.

Clearly, savings and retirement plans are tools which aid investors plan for the future. is not the notion of planning for the future, but merely the idea that, at a small monthly cost, an investor can participate in the market (via investment funds, at monthly intervals) and have his/her average cost smoothed out.

Nevertheless, it is important to remember that investing for retirement is a long-term process, and in order for a savings and retirement plan to be successive, investors must consistently save and invest – no matter what the current market conditions are.

This article was issued by Mark Vella, investment manager at Calamatta Cuschieri. For more information visit, information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investment Services Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.


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