Investing for Growth, Now and in Retirement

A somewhat scary truth is that today’s retirees could easily face up to 30 years in retirement. This means that their assets have to last for a substantial period, and keep pace with inflation. To avoid depleting their principal, retirees may need to focus on investing for growth, even during the retirement years.

“It’s important for people on the sidelines to move back into higher-risk asset classes for growth, so they don’t outlive their wealth,” notes Elizabeth Forget, senior vice president at MetLife. “But after the market downturn in 2008, we can understand why our research shows that people don’t have the appetite for risk that they had pre-2008.”

It’s not surprising that many investors have preferred to sit out of the market after the turmoil of recent years. However, the tides may be turning somewhat, with flows coming back into money market funds in 2008; fixed income in 2009; and equity markets most recently. But even with movement happening, investors are still wary.

Missed opportunities

Wasif Latif, vice president of equity investments at USAA, based in San Antonio, understands why clients may be gun shy about the markets. “Even though the stock market has run up, given all the macro challenges we continue to face, there is still some fragility in the economy and so investors are rightfully concerned.” But, as Latif is quick to point out, by being too defensive and acting only on those concerns, investors can lose out on growth opportunities. Moreover, there is every sign that the economy is improving, as reflected in corporate profitability.

Latif suggests that investors proceed with investments in a measured way and pay particular attention to value. This doesn’t necessarily mean becoming a “value” investor and narrowly searching for out-of-favor and underpriced stocks. Instead, this means looking for stocks from high-quality companies. Latif characterizes these as companies that show consistent and predictable earnings, as opposed to having a strong quarter followed by a weak quarter. In addition, these companies exhibit strong balance sheets in terms of not being overly leveraged. And finally, they tend to be market leaders in their respective industry or sector, commanding a brand premium.

“If you invest in the stocks of companies with these characteris-tics, which also pay a divided, you will have a steady income stream and lower volatility than the overall markets,” says Latif.

There are other means of accessing growth beyond careful stock selection. Investing in broad markets generally positions investors to be able to exploit economic growth from around the world. “But this broader approach comes with more volatility,” cautions Latif.

The power of participation