Economy

Opinion – Grain in Grain: Three failures of investors who invest in fixed income for retirement

by

Planning investments for retirement is different from investing for those who are already enjoying retirement. Today I will address the first case, that is, how you can plan your fixed income portfolio with retirement in mind. I discuss three mistakes that investors make when structuring the fixed income portion for this purpose.

The first flaw concerns liquidity.

When we talk about fixed income, the first confusion that arises is that fixed income should be short-term and liquid.

Do not confuse your liquidity reserve with the fixed income portion for retirement. You need to be aware of the difference between the two.

I understand that the fact that we have experienced several moments of uncertainty and fear of political changes makes most people want to have only liquid or short-term bonds. Many live in fear of a new confiscation. It maintains the illusion that if they are in liquid securities, they will be able to withdraw sooner.

First, the chances of a new confiscation like there was in the Collor administration are minimal. Second, if there is, just like in the other one, you won’t find out in time to rescue. Then take advantage of fixed income premiums.

However, having some liquidity in the portfolio is important to take advantage of moments like the current one when interest rates rise and you can lock real interest rates for the medium and long term. But, you don’t need to have the entire portfolio liquid.

Remember, to take advantage of opportunities, you have to invest. If you keep waiting for the scenario to get worse, you will miss several chances to invest better.

Plan staggered inflows as real interest rates (above inflation) rise.

Also consider that if you are on your way to retirement, you still have cash inflows to invest in the future with new leftovers from your income.

Another common failure of investors is not to privilege IPCA-referenced securities. We are used to the comfort of CDI or Selic, but we have to be careful.

As the reserve created will be used in 10, 20 or 30 years, its biggest concern is the erosion of purchasing power, that is, inflation, and guaranteeing a real gain above this.

Therefore, the portion of fixed income destined for retirement must be made up of at least 60% in bonds or fixed income funds referenced to the IPCA.

We are often tempted to invest in fixed-rate bonds, as they seem to have greater gains. Be very thrifty with them in the retirement portion.

The maturity of the securities in the portfolio is also another source of confusion.

Usually, we want to solve a problem and not spend more time on it. With that, many set a date and want to buy the entire resource in titles with that date.

My experience is that we shouldn’t allocate everything to the long term. Allocation to intermediate maturities, between four and six years, often has a better risk-return ratio.

Undoubtedly, locking real interest rates in the long run gives us security, but they do not always carry the highest premium and certainly carry the greatest risk.

Remember, long-term bonds are more sensitive to interest rate changes. Therefore, they can undergo fluctuations as large as a stock index. This can cause investor anxiety in the short term and you may despair that you are not managing to beat inflation.

I didn’t address all the points so as not to make the text tiring. There are other points to consider, such as the choice between bonds with and without periodic interest or between public and private bonds. I will leave these and other dilemmas for a future article.

Considering these adjustments to your fixed income portfolio, just be patient and wait for the results.

Michael Viriato is an investment advisor and founding partner of Investor’s House

(Follow and like De Grão em Grão on social networks. Instagram.)

If you have questions or suggestions for topics that you would like to see commented on here, please feel free to send them by email.

cupfeesfixed incomefoiinvestinvestment fundleafpensionretirementsavingsSelic

You May Also Like

Recommended for you