In an enlightening fireside chat at Astrea Investor Day 2024 held on 6 February 2024, Christopher Tan, CEO of Providend, shared his experience in investing for retirement. Christopher's journey in the financial services industry, which began in 1998, culminated in the founding of Providend, a fee-only wealth advisory firm. He emphasized a "philosophy of sufficiency," advising against chasing maximum returns due to associated risks, and instead focusing on obtaining reliable returns to meet one's needs.
Planning for Retirement with a Multi-Bucket Strategy
Christopher highlighted five significant risks that retirees face, offering strategic insights into mitigating these challenges to ensure financial stability in retirement.
- Inflation Risk – the prospect of reduced purchasing power over time
- Longevity Risk – the chance of outliving their retirement savings
- Healthcare Risk - the potential for high medical expenses, which can be a considerable burden in retirement
- Sequence of Return Risk – the risk of lower or negative returns due to market downturns when withdrawing funds in the early years of retirement, leading to a more rapid depletion of the portfolio
- Overspending Risk – the risk of overspending or underspending during retirement years
To address these risks, Christopher outlined a multi-bucket strategy that involves compartmentalizing assets into income, cash/near-cash, and equities/bonds buckets.
- Income Bucket: This bucket includes assets that provide a reliable and steady income stream, such as CPF Life, annuities, bonds, and other fixed-income instrument
- Cash/Near-Cash Bucket: Comprising cash, CPF OA and SA, fixed deposits, Singapore savings bonds, T-bills, and other similar liquid assets, this bucket is designed to cover immediate and short-term expenses in the first several years of retirement. It serves as a financial buffer during market downturns, allowing retirees to avoid selling equities at low prices, thus addressing sequence of return risk
- Equities and Bonds Bucket: The rest of the retiree's portfolio can be allocated to a mix of equities and bonds for a long investment horizon, with the proportion depending on the individual's retirement years left (i.e. investment horizon), risk tolerance, and income needs
He stressed the importance of integrating assets into a comprehensive spending plan to ensure financial security in retirement.
Astrea PE Bonds and Diversification
Discussing Astrea PE Bonds, Christopher pointed out that Astrea bonds, backed by cashflows from private equity funds, provide diversification in investors’ portfolios.
Key Takeaways for Investors
The fireside chat concluded with the following key takeaways:
- To plan for retirement early
- To maintain a diversified portfolio
- To ensure a steady income stream through various market cycles
Watch the full replay of the fireside chat here:
