Opinion – Grain in Grain: How to invest during retirement

When scrolling through social media, you will find countless suggestions on how you should invest to achieve financial independence. What few mention is that the target equity to achieve this independence depends on how you will invest after achieving it. So just as important as knowing how to get there is what to do when you reach the goal.

There are several models to guide investment during retirement. But no matter which model you choose, two lessons must be respected.

The first lesson is the much-talked-about diversification. It is not recommended to concentrate investments in a single asset.

Even if you are a conservative investor and only invest in fixed income, the same principle holds true.

Diversification between different fixed income vehicles such as government bonds, private bonds and investment funds will provide a better balance between return and risk.

Even if your profile is more aggressive, it is also not appropriate to concentrate the entire portfolio in a single product, be it stocks, Real Estate Funds (REIFs) or real estate.

Here, I take the opportunity to answer the question of the reader Vinícius Lobosco. He asked: “What’s the problem with putting everything into a super-diversified portfolio of (REIFs) that now pay an average of 0.7% per month?”

Indeed, this dividend rate seems irresistible. I remind you that this dividend is the result of rents that are adjusted for inflation. Therefore, if you had BRL 714,300 invested in a portfolio of FIIs, you could earn BRL 5,000 per month exempt from income tax.

Care must be taken when extrapolating this inflation-adjusted gain to the end of your retirement. Remember that FIIs are risky assets. Dividends can fall at some point caused by several factors.

The pandemic that occurred in 2020 showed that even resilient and diversified assets such as shopping centers can suffer. Previously, we have seen the FIIs of bank branches, which were once one of the most demanded, suffer from the movement of branch discontinuity.

The same principle would apply to those thinking of putting all their money into apartments for rent. At first, the risks seem low in this investment. However, if you have three properties that provide you with a monthly income of BRL 5,000, you can, for a few moments of vacancy, have three assets that generate a monthly cost of condominium and IPTU greater than BRL 3,000.

That is, instead of earning, you may spend a few months having to contribute resources. So, if you don’t have a financial reserve, you may have to sell the asset at the very worst time.

Not even Warren Buffett’s equity investment company, Berkshire, has all of its equity invested in stocks. The company’s latest report points out that it had almost 15% of the market value in fixed income assets at the end of 2021.

The second lesson is related to the risk of your investments during retirement.

Your investments during retirement should not be riskier than those during the accumulation period. I’ve seen investors who spent a lifetime accumulating funds in savings and just when they retired they decided to take a risk.

If you have not been emotionally prepared to live through periods of volatility during moments of accumulation, you may end up despairing and selling investments at unfavorable times because you do not have the ability to take risks.

So, since your retirement portfolio will be at least a little more conservative, your potential return should also be lower. Then, adjust this lower return to estimate the equity needed to enjoy your retirement.

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

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