By Wendy Myers, Head of Securities at PSG Wealth

Equity markets around the globe have taken a knock recently. Yet, although volatility tends to make investors uneasy in the short term, shares are proven to be the key contributor to inflation-beating returns that assist investors in achieving their long-term financial goals.

Below I’ve shared six guiding principles to consider when looking to invest retirement savings in shares. While not necessarily an exhaustive list, the principles described in this article are certainly top of mind to me when investing retirement savings in shares.

1. Have clear goals

Goal-based investing provides investors with direction and meaning for their investment efforts. Having goals in mind will make it easier for you to make sacrifices or stick to a budget because you know what outcomes you’re striving for – and this helps to keep you focused.

Due to the short-term volatility of equity returns, staying focused for the long term is critical when considering investing in shares.

2. Start with the end in mind

Once you have defined your goals, the next step is defining how much you will need – in monetary terms – to retire comfortably. This amount is unique to each individual, as retirement is different for everyone. So each investor needs to consider how they wish to live during retirement.

It is also likely that you will experience several life stages in retirement. For example, scaling down on work by focusing on consulting or doing part-time work, then retiring to enjoy spending time with loved ones or travelling the world, and finally settling into a more inactive phase. These post-retirement life stages have implications for your financial plan. Visualising your desired lifestyle in retirement is important, as it defines your financial needs.

When considering shares, you will also need to ensure that your pool of retirement assets includes shares with high dividend yields, as this income will fund your retirement and help preserve your capital. Your financial adviser is best placed to assist you in defining the right balance between dividend-paying stocks and growth stocks – not only to help you secure your retirement outcome, but also to fund your lifestyle in retirement.

3. Know your risk tolerance

“Risk tolerance” is the amount of market volatility and loss you’re willing to accept as an investor. Determining your personal risk tolerance is perhaps the most fundamental step you can take in deciding what types of investments to make. Typically, the closer you get to retirement, the lower your risk tolerance will become. Weathering short-term losses is possible if you have decades left before you leave the workforce. As you enter your golden years, however, you’d ideally like to be in a position to decrease your exposure to market volatility.

4. Make adjustments as you go

Life is unpredictable, so it’s important to adjust your retirement plans to account for unforeseen events. Reviewing your goals ensures you either know you are on track to achieve your goals, or realise these initial goals are unachievable. In these instances, I would always recommend seeking the advice of a financial adviser, who can assist with practical adjustments to your plan while ensuring your goals remain achievable in the medium to long term.

5. Have a transition plan

A phased retirement plan includes multiple arrangements that allow an employee nearing retirement age to continue working with a reduced workload. Reduced working hours allows you to continue earning income to fund your living expenses without needing to draw from retirement savings. It also allows you to invest time in ensuring your retirement portfolio is well structured to accommodate increased draw-downs as you approach retirement. This is the perfect opportunity to engage your financial adviser on how to structure your retirement portfolio by reducing exposure to high-growth stocks and increasing exposure to dividend-paying stocks.

6. Withdrawal plans

Defining your withdrawal percentage is a key variable when deciding how much retirement savings are required to fund your retirement lifestyle. If your withdrawal percentage is higher than average, then you will need more retirement capital to fund your withdrawal needs.

* Affiliates of the PSG Konsult Group, a licensed controlling company, are authorised financial services providers www.psg.co.za.

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