2. Not taking into account the effect of a down or volatile market.
Drawing on retirement assets in a down or volatile market can end up compromising a portfolio’s ability to see a retiree through retirement. The retirement guide points out that greater diversification among noncorrelated asset classes and annuities with guarantees and/or protection features can help ward off the damage that can be done to a portfolio under such conditions.
More than nine in 10 institutional investors in a new survey expressed confidence that their organization could successfully navigate future market volatility, Wilshire Associates reported this week.
Thirty-nine percent of the 75 investors surveyed said they were very confident, and 56% were somewhat confident.
As to how their organization’s preparedness today for a bear market compared with how well it was prepared in 2007, 58% of respondents said they felt more prepared, while 29% purported to feel “far more prepared.” Thirteen percent reported feeling the same level of preparedness.
“If history teaches us anything, it is that markets do not go up forever in a straight line, so it is reassuring that many institutions have been proactive in their preparation for this inevitability,” Steven Foresti, chief investment officer of Wilshire Consulting, said in a statement.
“However, with roughly six in 10 institutions feeling anything less than far more prepared for a bear market than in 2007, and the same number feeling only somewhat confident about weathering volatility, there’s opportunity for improvement.”
Looking forward to the next 12 months, 21% of respondents said U.S. equities would generate the best market returns, and 20% cited emerging market equities.
Fixed income followed, with 29% of institutions saying international and U.S. fixed income would create the greatest investment opportunity. One-fifth said they looked to alternatives for the best market returns, and 10% cited real estate.
Most institutions in the survey said they expected geopolitical events to be the likeliest trigger for a sustained downturn. Two in five investors pointed to the U.S.-China trade situation as being the potential epicenter of the next market correction or downturn.
Global fund managers in a recent survey shared this concern, calling a trade war the no. 1 tail risk.
A quarter of respondents in the Wilshire survey said they expected U.S. monetary policy to be the likely trigger for a sustained downturn, and another 14% cited the 2020 U.S. presidential election.
“While it is nearly impossible to predict what might trigger a sustained market correction, institutions can make sure their portfolios are well diversified to account for various risks and market scenarios,” Foresti said.
“Since investor perceptions of preparedness for market turbulence can often differ from actual readiness, running portfolio stress tests can be a valuable technique to pre-experience an institution’s preparedness.”