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Why The Glidepath Is Vital For Managing Risk In Retirement Portfolios

How to land safely for retirement

Investments which have higher risk also have the potential to bring higher long-term growth. While the markets may have corrections and sometimes recessions, an investor who can stay invested can wait for the right time to liquidate their investments to realise a profit. Liquidating an investment during a drawdown may mean realising losses on the investment, resulting in a shrinking portfolio.

A retiree relying on periodic withdrawals from their portfolio may find themselves in a bind if they have to liquidate stocks to pay for living expenses during periods where the markets are down. Yet, a young investor who invests only in safe financial instruments may find their portfolio growing too slowly to meet their retirement needs.

Investing On A Glidepath

The glidepath is a concept where an investor begins with an investment portfolio that is initially allocated towards higher risk, but gradually reallocated over time to reduce risk. This is to capitalise on higher potential gains in the early years, as well as to provide more passive income stability during retirement years. Much like how aeroplanes follow a glide path to achieve a soft touchdown, the glidepath is designed to help investors arrive financially at retirement with a safe landing.

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Reallocating Your Portfolio Automatically

On 20 March 2024, DBS launched the DBS Retirement digiPortfolio in collaboration with J.P. Morgan Asset Management. This portfolio automates asset reallocation along a glidepath which starts with asset allocation more skewed towards equity funds when the user is younger, and gradually reallocates it towards fixed income funds as the user approaches the indicated target retirement age.

Source: DBS Retirement digiPortfolio Factsheet

In the example shown above, a user who starts investing into this portfolio at 30 years old will have the portfolio allocation skewed mainly towards equity funds. This allocation is gradually adjusted through the years until the retirement age chosen by the user, where the portfolio is mainly allocated to fixed income funds. Portfolio reallocation is automated depending on the user’s current age and selected retirement age.

When investing, users select an amount for initial investment and may optionally select an automatic monthly contribution. Based on these, the user can see how much the account is projected to have by the selected retirement age. Later this year, DBS also plans to add a feature to allow retirees to project how long their portfolio will last based on withdrawal amounts, and also allow them to automate their withdrawals accordingly.

The funds invested in DBS Retirement digiPortfolio will be allocated to the following funds:

Equity Funds Fixed Income Funds
JPM US Select Equity JPM Global Government Bond
JPM Europe Dynamic Fund JPM Emerging Markets Debt Fund
JPM Asia Growth Fund JPM Global Corporate Bond Fund
JPM Japan Equity Fund

Dividend repayments will be re-invested.

Users need to be 18 and above and need a minimum sum of $1,000 to start investing. Users can subsequently top up with as little as $100.

Funds invested into this portfolio can be withdrawn anytime without lock-in period or penalties. The only fees incurred is a 0.75% p.a. management fee that is charged annually.

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Comparing DBS Retirement digiPortfolio To Other Investments

Fixed deposits, Bonds and T-bills may be able to provide stable interest rates, but they generally yield between 2-4% p.a., which is only sufficient to keep pace with inflation. In addition to this, funds are typically locked in until maturity, which means that the funds cannot be accessed in an emergency.

While stocks may be able to give higher returns, it requires research and active monitoring, risk management and proper diversification. If improperly done, an investor could lose large portions of their portfolio as a result.

DBS Retirement digiPortfolio is vested in various funds, which are managed by professionals. While these funds are not impervious to risk, they are managed by professionals in a way that responsibly manages its impact.

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Hassle-Free Portfolio Management

Many people already have a bank account with DBS/POSB for savings, and into which their salary is credited. This avoids the hassle of setting up an account with another organisation and making transfers in order to invest.

Users also do not have to worry about market research, managing risk, diversifying the portfolio, or when to buy and sell. This is ideal for young people who have just started working – while they may not yet have the experience and knowledge to invest prudently, instruments such as digiPortfolio allow young people to begin building their retirement portfolio from a young age. Requiring just $1,000 to start, everyone can start saving and investing for retirement starting from their first paycheck.

Those who do not have the time to manage their own investment portfolio can similarly tap on DBS Retirement digiPortfolio to manage risk in their portfolio. Alternatively, people who choose to manage their own investments can still tap on DBS Retirement digiPortfolio to manage part of their portfolio as a safety net.

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