If anything, recent volatility in the markets should remind people that planning for the long term makes it easier to tune out all of the noise. And keeping a long-range focus can help investors realize the ultimate goal: outlasting their resources.
"More investors are asking today, will I outlive my assets?" said Tim Noonan, managing director of individual investor services at Russell Investments, which hosted a forum on investment-related topics last Friday in New York. "As they accept the possibility of much longer lifetimes, they wonder whether their nest-egg will last as long as they do. They are quickly moving beyond returns to concerns about whether those returns will convert to income adequate for their lifestyle."
Conventional wisdom holds that retirement portfolios should become more conservative as investors get older. Noonan said that's being questioned by advisors who realize they need to plan for retirees to live for another 30 or more years. In that vein, advisors should recondition their clients "to engage with them on a long-term plan and allow product choices to fall out of that, rather than make their familiar product choices roll up to a long-term plan."
Russell Investments, the Tacoma, Wash.-based provider of equity indexes, also manages $230 billion in assets globally for both retail and institutional investors. Russell sees a new paradigm approach to risk that moves away from short-term volatility and instead focuses more critically on the challenge of retirement planning from a long-term liability perspective.
The most important thing advisors can do for clients is help them visualize their future income requirements and figure out where it's going to come from, Noonan said. "When it's clear that future expectations are unrealistic, then coaching a client on how much and how soon they need to modify their lifestyle is the really tough challenge, coinciding with the big opportunity of serving baby boomers."
One trend emerging today is that more investors are looking to use fewer advisors as they begin to value holistic advice, according to the Noonan. "As they see their future financial security more defined by good planning, they're looking for that one good planner," he said.
Erik Ristuben, managing director of Russell's client investment strategies, said advisors can benefit from packaged approaches to asset allocation such as target date funds, based on an investor's target date of retirement, and balanced funds, which have target asset allocations that are automatically rebalanced. Their simplicity can make them a long-term solution for defined contribution plan participants, who have historically been unfocused when it comes to making sound plan elections.
Advisors also can leverage institutional quality managers within account programs. "In our view," said Noonan, "separately managed accounts can play an important role in high-net-worth taxable clients' strategic asset allocations, provided advisors are willing to actively manage the separate account lots."
-Bruce W. Fraser