A Balanced Approach in Retirement
A Balanced Approach in RetirementWealth Management
A Balanced Approach in Retirement
Retirement and wealth strategies expert Matt Sommer discusses how a dynamic asset allocation strategy can address the new challenges many retirees are facing today, including the need for growth in portfolios with a risk-focus. He explores different ways investors, plan sponsors and advisors can incorporate a dynamic asset allocation approach, such as the Janus Henderson Balanced Fund, into their retirement strategies.
Matt Sommer: Retirees today are facing new challenges such as increasing costs of health care, unexpected expenses and market volatility. Add in inflation and tax implications to the mix, and investors have to find ways make their money last. Keeping people invested for the long term, despite the short term fluctuations that result in panicked selling, can help ensure clients won’t need to cut back their lifestyle in retirement because their portfolios experienced a large drop in value.
These challenges also emphasize the need for growth in portfolios with a risk-focus. Defined Contribution plans, for example, may want to consider a dynamic asset allocation strategy with the flexibility to defensively position ahead of market volatility while seeking strong risk-adjusted returns to help achieve these goals. At Janus Henderson, our Balanced Fund would be an option.
Of course, the vast majority of plans use a target-date fund a qualified default investment alternative. However, there still are a number of plans that prefer a risk-based or balanced fund as a QDIA. In these cases, plan sponsors and advisors prefer the simplicity of these alternatives while appreciating the high levels of transparency to help fulfill their fiduciary responsibility to monitor their managers’ performance.
Even for plans that use target-date funds as their QDIA, a risk-based or balanced fund can still be a part of the plan’s core lineup. According to one consultant, 60% of plans have a moderate allocation option. Typically, the plan sponsors and advisors are concerned that age alone, may not be the appropriate and sole parameter to determine the right investment strategy for all participants. A balanced fund offers an attractive alternative in these cases.
Another area where advisors could utilize the Janus Henderson Balanced fund is within IRAs for certain clients. Every late March and early April, advisors are flooded with checks designated for prior year IRA contributions. Further, according to the Bureau of Labor Statistics, the average American worker changes jobs every 4 to 5 years. This mobility allows workers to access their former employer’s retirement plan. Both IRA contributions and IRA rollovers offer advisors an opportunity for new assets, and the Janus Henderson Balanced fund provides a professional, diversified option that may be a consideration for many clients with a moderate risk tolerance
For clients who save outside of qualified plans and IRAs, you will find the Janus Henderson Balanced portfolio offered in variable annuities with over 30 major insurance carriers. The VIT or variable insurance trust version will celebrate its 25th anniversary in 2018.
Since the Janus Henderson Balanced Fund’s inception in 1992, the Balanced Fund has achieved a similar return as the S&P 500 index, but with 40% less risk on an annualized basis. Unlike many other balanced funds, the Janus Henderson Balanced Fund employs a dynamic asset allocation process. When the portfolio managers think it’s prudent to take more risk, they can invest up to 65% in equities, and if they want to take less risk, they can reduce equities to 35%. Another key differentiator is that the equity sleeve employs a large cap growth strategy, while others in the Morningstar Allocation 50-70% Equity category have a value-oriented approach. And, our fixed income sleeve is managed as an active core plus bond strategy, tactically allocating among U.S. treasuries, agencies and corporate credit. Many other balanced fund managers in our category allocate primarily to high yield, seeking more yield and return but also potentially increasing volatility, and use cash as a buffer to the risk in the equity sleeve.
Finally, the Balanced Fund has a proven track record of helping advisors generate sustainable inflation-adjusted cash flow for their clients. Let’s assume a client retired twenty-five years ago in 1993 and allocated $1,000,000 to the strategy. The first year withdrawal was 5% or $50,000 and every year thereafter increased by 3% to keep pace with inflation. Using the S&P500 as a proxy, by the end of 2017, the residual balance is virtually identical, but with substantially less risk, and the fund outperformed its primary benchmark.
Providing investors nearing retirement with the growth potential they need while adapting to changing markets is critical for this phase in their investment journey. Evaluating investments with this in mind can help you and your clients plan for this new phase of their life.
Please consider the charges, risks, expenses and investment objectives carefully before investing. For a prospectus or, if available, a summary prospectus containing this and other information, please call Janus Henderson at 800.668.0434 or download the file from janushenderson.com/info. Read it carefully before you invest or send money.
The opinions and views expressed are as of November 2018 and are subject to change without notice. They are for information purposes only and should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation to buy, sell or hold any security, investment strategy or market sector. No forecasts can be guaranteed. Opinions and examples are meant as an illustration of broader themes and are not an indication of trading intent. It is not intended to indicate or imply that any illustration/example mentioned is now or was ever held in any portfolio. Janus Henderson Group plc through its subsidiaries may manage investment products with a financial interest in securities mentioned herein and any comments should not be construed as a reflection on the past or future profitability. There is no guarantee that the information supplied is accurate, complete, or timely, nor are there any warranties with regards to the results obtained from its use. Past performance is no guarantee of future results. Investing involves risk, including the possible loss of principal and fluctuation of value.
Performance may be affected by risks that include those associated with non-diversification, portfolio turnover, short sales, potential conflicts of interest, foreign and emerging markets, initial public offerings (IPOs), high-yield and high-risk securities, undervalued, overlooked and smaller capitalization companies, real estate related securities including Real Estate Investment Trusts (REITs), derivatives, and commodity-linked investments. Each product has different risks. Please see the prospectus for more information about risks, holdings and other details.
Investing involves risk, including the possible loss of principal and fluctuation of value.
Foreign securities are subject to additional risks including currency fluctuations, political and economic uncertainty, increased volatility, lower liquidity and differing financial and information reporting standards, all of which are magnified in emerging markets.
Fixed income securities are subject to interest rate, inflation, credit and default risk. The bond market is volatile. As interest rates rise, bond prices usually fall, and vice versa. The return of principal is not guaranteed, and prices may decline if an issuer fails to make timely payments or its credit strength weakens.
There is no assurance that the investment process will consistently lead to successful investing.
Standard Deviation measures historical volatility. Higher standard deviation implies greater volatility.
Balanced Index is an internally calculated, hypothetical monthly rebalanced blend of 55% S&P 500® Index and 45% Bloomberg Barclays US Aggregate Bond Index (Bloomberg Barclays U.S. Government/Credit Index prior to 07/2009).
Ratings and/or rankings may be based, in part, on the performance of a predecessor fund or share class and are calculated by Morningstar using a methodology that differs from that used by Janus Henderson. Methodology differences may have a material effect on the return and therefore the rating/ranking.
As of 9/30/2018, Balanced Fund Class I Shares Morningstar RatingsTM in the Allocation – 50% to 70% Equity category: 5 stars out of 703 funds, 5 stars out of 619 funds and 5 stars out of 450 funds, for the 3-, 5-, and 10-year periods, respectively.
Ratings based on risk-adjusted returns.
The Morningstar RatingTM for funds, or "star rating", is calculated for funds with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar Risk-Adjusted Return measure that accounts for variation in a fund's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. The Overall Morningstar Rating for a fund is derived from a weighted average of the performance figures associated with its three-, five-, and 10-year (if applicable) Morningstar Rating metrics. Ratings may vary by share class.
Janus Henderson Distributors
Janus Henderson and Knowledge. Shared are trademarks of Janus Henderson Group plc or one of its subsidiary entities. © Janus Henderson Group plc.
The Janus Henderson Balanced Fund is a dynamic asset allocation strategy with the flexibility to defensively position ahead of market volatility while seeking strong risk-adjusted returns. The Fund’s asset allocations may vary between 35% and 65% equities depending on market conditions. Providing investors nearing retirement with the growth potential they need while adapting to changing markets is critical for this phase in their investment journey. As investors near retirement, we think it’s important to focus on both the preservation of capital and the potential for growth when investing.
Submit your retirement and wealth strategies questions to Matt Sommer, head of the Defined Contribution and Wealth Advisor Services team at Janus Henderson.