Conventional wisdom says that once you are retired you shouldn’t take risks with your money. That’s good advice, however it doesn’t mean you need to be a ‘conservative’ investor. It simply means that if you invest in assets such as shares and property which have a high return but high volatility, you need strategies for minimising the risk of loss.

If you have a KiwiSaver fund, managed fund, or investment portfolio that is managed according a ‘conservative’ risk profile, it will be invested mostly in low risk, low return assets such as cash and bonds. In this context, low risk simply means low volatility; it doesn’t mean low risk of loss. In fact, at present with rising interest rand falling bond prices, you could say that bonds are currently not a low risk investment.

Retirees need to get a good return on their investments over the long term. The average life expectancy is now approaching 90 years, so anyone retiring at 65 will have money invested for an average of 25 years and for many it will be an even longer period. That’s a very long time to have money earning a low return. Getting a high return means having some exposure to volatile growth assets.

With a diversified portfolio of growth assets the risk of loss occurs only when funds need to be cashed up in order to be spent, at a time when values are low. The way to solve this problem is to have stable assets on hand for short term spending needs, and to put aside into growth assets the funds will not need to be spent for at least five or ten years.

That way, you can have your cake and eat it too – a high return without a high level of risk of loss.