Retirement portfolios evolved over many years to a sophistication that was thought to be rock solid. Well, today we know that the diversified portfolio we thought to be solid did not stand the test of time.
Since 2008 virtually all sectors of our portfolios lost value. In some cases there were serious losses. When you are already in retirement, you know that the chances of recovering in our lifetime is slim.
Like many of you I had to watch our home equity lose value. But far worse, a residential property that I regarded to be a solid investment was finally sold at 75% of the offer that I refused five years ago as too low!
An investment in rentable holiday property is still earning money, but the security that we could sell this property at any time for more than we paid for it is gone.
An investment in a world-class private nature reserve screeched to a halt. Sales of shares don't happen anymore so any idea of re-selling, even at break-even, is merely a dream.
My diversified investments in equities lost about 50% of its value.
The theory of diversified portfolios is that you are never invested in any one sector for more than 20% of your total portfolio. When one sector goes down, the other usually goes up and your portfolio balances out. This time however, the slump was across the board.
So, what do we do? Do we stick to a diversified portfolio? Or do we put our cashable assets in an income fund?
My portfolio manager convinced me to increase our holding in gold, and to invest in some cash hedging instruments. These investments seem to do pretty well.
There are some minute signs of recovery in the global economy. And that makes me optimistic.
Would I re-invest in rentable residential property? I am very tempted but I remain cautious. The deal must make very good sense with very good prospects before I'll consider.
For the moment I'll stick with a diversified portfolio.
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