A fixed income retirement strategy is suicide, according to Nick Murray, author, speaker and financial services professional.
Speaking via video link at the CISI Financial Planning conference last week, Murray discussed how equities have historically performed well despite the economic and political landscape of the time.
He explained: “Yesterday's news becomes ancient history that bores you to tears when you hear it, and in the meantime, the value of equities, broadly diversified, mainstream equities, goes up 50 times based on innovation.”
Murray shared what he called the two “greatest truths” that he had learnt from being in the financial advice profession for 55 years.
He said: “The first truth is accepting that the most powerful forces on Earth is human ingenuity, and the second is that equities are the only asset class that fully captures human ingenuity, and it is the owners of great companies, not their lenders, who ended up reaping all of the exponential benefits of that unforeseeable progress.”
Murray asked advisers in the room to think about what they were allowing their clients to focus on.
“All of this can be boiled down to the choice between totally existentially obsessing about the multiple apocalypse du jour, which will be current at any given moment, just as they were then and just as they are now. Or you can focus on the market going up 50 times.
“What is your choice of focus? And what do you allow the clients to focus on? Is it focusing on the inconceivable progress of modern life and astonishing appreciative wealth in equities, or is it the apocalypse du jour?” he contemplated.
Murray categorised this as being the essential choice of wealth managers today.
“You’re counselling people today in their 50s and 60s, who will experience three decades of times which has never existed, the largest generation, as well as the wealthiest generation.
“Long term inflation rate in my country is 3 per cent. You may ask yourself, as wealth managers, how will people find an income that will rise enough to offset that?
“In a mundane, global, everyday two-person 30 year retirement, people will see an increase in their living costs of around 3 per cent. What on earth can they invest in that has any history at all? Never mind the perfect history,” he asked.
Murray emphasised that fixed income would never be able to do this and it would be “suicide” to have a fixed income retirement strategy.
“We have to find and base our modern retirement income strategy on an asset class or classes that historically increases our income, not only at the same rate as inflation, but at a premium to inflation.
“Well I'm thrilled to report to you that at least since 1960 the S&P 500 has been raising its cash dividend at twice the consumer price index, I refuse to believe that it's any different elsewhere in the developed world.
