Edward Farrington, EVP Business Development & Retirement, Natixis Global Asset Management
2014 has brought a return of investor uncertainty. The CBOE Market Volatility Index, or VIX, showed a 34.18% spike in volatility in January. In February, CNNMoney’s Fear and Greed Index moved into the Extreme Fear category. This return of fear and uncertainty comes at a time when more and more Americans are retiring or planning for retirement.
As investors near or enter retirement, the performance of their investments becomes more personal and less relative. Beating an arbitrary stock market benchmark that they hear about on the news every night is no longer the goal. It is replaced by the goal of having enough money to generate a sustainable level of monthly income throughout retirement. At Natixis, we call this the personal benchmark. And we believe it is critical to expand the choices that investors have so that they can create a more predictable, more personal investment portfolio.
Alternatives can help
Liquid, alternative mutual funds can be part of the solution. They can help investors stay invested without having to be fully exposed to equity or interest rate risk. In traditional asset allocation, the only way to avoid those risks is to move to cash. As we know, this can leave investors at risk of diminishing purchasing power as inflation outpaces the rate they earn on cash.
In the past, the limited choices and limited track record of alternative funds made it difficult for retirement plan sponsors to add them to their investment menu. This is no longer the case. Many funds now have more than five years of performance to reference and some funds have more than a 10-year track record. Further, dozens of liquid alternative strategies have been introduced since 2008, providing further choice for investors.
The good news is that investors are open to new approaches. In a recent survey conducted by Natixis, we discovered that 65% of investors would be willing to incorporate alternatives if their advisor recommended them.1 So advisors need to familiarize themselves with the universe of liquid alternative funds, understand their role in Durable Portfolio Construction® and introduce them to investors. Then they will be on the path to helping them create – and reach – their personal benchmark.
1Natixis Global Retirement Index nation rankings composed of 20 performance indicators grouped into four broad categories: health, material well-being, finances in retirement and quality of life. Yearly ranking of 150 nations based on the 20 performance indicators that identify overall welfare in retirement and old age.