Preserving capital is usually a high priority for retirees. As they focus on maintaining a stable income, managing the balance between volatility, liquidity, and returns becomes important.
Volatility: A Common Concern for Retirees
Volatility, or fluctuations in investment value, can be a significant risk for retirees. High volatility may erode savings, especially for those who don’t have time to wait for market recovery. Real estate credit funds tend to have lower volatility than listed investments, as they are not subject to daily stock market movements. This stability may appeal to retirees looking to protect their capital.
Liquidity and Trade-Offs
Liquidity refers to how quickly an investment can be converted into cash. ASX-listed assets, for instance, are highly liquid and can typically be converted within three business days. However, this ease often comes at the cost of lower returns and higher volatility. Some retirees may prioritise this flexibility despite the lower yield and higher volatility. On the other hand, real estate credit funds may offer a “liquidity premium” – potentially higher returns and capital stability in exchange for reduced liquidity. These funds can, however, take six to twelve months or more to convert to cash, making them more appropriate for those comfortable with longer-term commitments.
Key Considerations
- Lower Volatility: Real estate credit funds often offer more stability, with less exposure to market fluctuations.
- Higher Returns: The liquidity premium in real estate credit funds can result in higher returns compared to listed investments.
- Reduced Liquidity: The trade-off for this stability and potential return is less liquidity, requiring a longer-term outlook.
For retirees, understanding these factors can help in selecting investments that align with their goals of capital preservation and stable income, even if it means sacrificing some liquidity.
Disclaimer: Past performance is not indicative of future performance. The distributions and investment returns depend on the performance of the underlying investments. Information contained within this article does not constitute financial advice, nor is it a personal recommendation. Capital Property Funds is not authorised or qualified to provide financial advice or to make an investment recommendation. Information contained within this article is general in nature and has been prepared without regard to the individual objectives, financial situation, or requirements of any person. Prospective investors should seek personal financial and legal advice before deciding to invest.