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By Rod Smyth, Director of Investments
The Paradox of Youth: Why taking risk is ‘less risky’ and starting young may make a bigger difference than you think.
Recognizing that each saver has their own unique circumstances, RiverFront’s general advice for someone starting to save for retirement can be boiled down to four bullets:
Start as young as possible, save whatever you can afford.
If you can, we suggest saving 5-10% of your salary every year on a bi-monthly basis in a tax deferred account. Otherwise, start the process with something. (Maximize any employer matching in a 401(k),403(b), etc.)
Earnings Visibility Improving
Last year during first quarter 2020 earnings season – the first period impacted by the novel coronavirus – we advised investors to pay attention to the words and tone used by management teams discussing current business conditions. Words mattered more than the numbers as Wall Street analysts were forced to reduce forecasts significantly for 2020. Now, we know the lowered estimates were too conservative. As the recovery unfolds, it appears the S&P 500 is on the verge of returning to positive growth for the first time since the end of 2019. We now believe the words
and the numbers matter.
This week’s focus on earnings is about more than just earnings season. Concerns over market valuation are growing louder. Corporate earnings garner attention as one of several financial components of a company’s performance. Ratio-based analysis, a common approach used to assign values to companies, helps us determine relative valuation. The S&P 500 is current
Investors in the sustain phase face new challenges.
Portfolios will likely need greater exposure to ‘risk assets’ such as stocks and higher yielding bonds to meet return objectives, in our view.
We believe understanding and managing those risks is key to finding the right balance between preservation and growth.
Balancing ‘Growth’ and ‘Preservation’ Pre-Retirement
The ten years leading up to retirement, what we call the ‘Sustain Phase’, can be scary with questions such as:
Will I have saved enough to fund my retirement?
How can I mitigate the risk that my savings will see a significant decline just before I retire?