On the back of pleasing inflation data, January saw record share market prices in Australia and the US.  But does that just mean retirees should be doing more to protect themselves from future investment losses?

A good year

2023 was a good year for investors. The Australian share market experienced 13% returns when you include dividends paid, and the typical balanced fund returned 9.9% over the same period.

The year was characterised by slowing interest rates hikes, the housing market recovery and a government spending spree.

In late January the official inflation rate was published by the Australian Bureau of Statistics.  There was good news.  With CPI at 4.1% for the year, it appeared that Australia had wrestled back control of the rising costs of living. 

Naturally, there was immediate speculation about interest rates and the prospect of short-term reductions.  This, in turn, fuelled buying activity that sent shares to record highs.

Inflation is still too high

CPI at 4.1% is a welcome change, but it is still way too high.  Keep in mind the Reserve Bank’s target for inflation is between 2% and 3% per year.  Inflation is hard to budge, and it may take some time, even years, before it is sustainably in the target range. 

So, interest rate reductions maybe some time off, and the recent surge in share prices premature.

Continuous planning cycle

In truth, we don’t know what’s next.  In coming weeks and months the share market may continue to surge or it might self-correct, and lose 10% or more overnight.  

In our experience, retirees are more conservative than their younger selves were, so it pays to review the progress of your financial plan over time and make sure you’re not taking unnecessary risks. 

Are you better positioned to achieve the things you want to do now?

Should you look to reduce risk or increase the reward?  Is it possible to de-risk your portfolio and increase the likelihood of achieving the outcomes you are seeking?   Or would you like to increase the drawdowns so you have more to live on day-to-day or maybe go on another holiday now that you’re ahead of the game?

It doesn’t matter whether your financial plan is old, or if you’ve never even had a financial plan.  At When Financial Solutions we are independent financial advisers who can look at your financial projections and check on the risk and reward trade-off.  It’s not a matter of ‘if’ but ‘when’.

This article is general and does not consider your personal circumstances so it may not be appropriate to you.  If you would like advice specific to you, please let us know.