Is your retirement portfolio positioned for the inflation-beating returns on offer?

If the last year has taught investors anything, it is the cost of ignoring risk assets when market circumstances change so dramatically. With a period of rapid global economic growth expected this year, risk assets such as equities remain set to benefit.

But inflation-plus returns do not come through in a straight line. As such, investors in or near retirement, specifically those who have de-risked their portfolios in recent years, need to ensure that their retirement savings are appropriately positioned to capture these returns that are on offer. Here’s what you need to know.

The stage has been set for a period of rapid global economic growth

The IMF expects global growth at 6% this year (up from their previous forecast of 5.2%), with growth in the US leading the way. Albeit off a low base, this global economic recovery is expected to continue in 2022 at a somewhat slower pace, but still above the long-term trend. This optimistic outlook is premised on the release of significant pent-up demand as economies start to reopen, further assisted by ongoing massive fiscal stimulus and very low interest rates.

In South Africa, we also expect a decent recovery, with the economy expected to grow at 4% or more this year - the highest number in some time, but also off a very low base. Looking ahead, however, we expect our economy to remain under pressure due to severe and ongoing systemic risks and the devastating economic costs of the looting and mayhem that erupted in KwaZulu-Natal and parts of Gauteng in recent weeks, although improved revenue collection by the South African Revenue Service and strong policy signals from National Treasury should see us moving in the right direction.

Growth assets remain set to benefit

Despite these headwinds to the respective global and local economic recoveries, we believe that equities (both local and global) still offer upside potential and we expect these asset classes to continue delivering inflation-beating returns in the next 3-5 years (see table below).

But these inflation-beating returns are finite

There will be abundant years and lean years. As an income-drawing investor it is important for your retirement portfolio to be positioned to capture these inflation-beating returns during the abundant years as is currently the case.

Your retirement savings can benefit without being exposed to undue risk

Investors in or near retirement should seek funds that invest a meaningful portion of the overall portfolio in growth assets but also maintain a strong focus on risk to reduce the likelihood of potential negative returns over shorter time periods. The latter is important as investors need to draw a regular income from these funds.

At Coronation, we offer two funds that specifically cater for the needs of retired investors: Coronation Capital Plus and Coronation Balanced Defensive. Both funds have long track records in providing that balanced solution to their investors by including allocations to growth assets while managing downside volatility.

As an example, investors in these funds were able to benefit from the strong recovery in equities since the Covid-19-induced sell-off in March 2020. At the time, our deep proprietary research enabled us to conduct rapid analysis and engage in robust debates, ultimately leading to the conclusion that the market was pricing in the worst outcome. Understanding this gave us the conviction to buy global and domestic equities at depressed levels. This decision paid off handsomely across our fund range. And given the current combination of assets held by Coronation Capital Plus and Coronation Balanced Defensive, we believe these portfolios will be able to deliver on their respective inflation plus targets.

To learn more about investing with Coronation, click here.

Coronation is an authorised financial services provider.