Come New Year’s Day 2020, we’ll be facing new challenges, but also new opportunities — many of which we can’t even imagine. The year 2020 will be “another country.” And yet despite the many, many unknowns and surprises that lie ahead of us, I do want to suggest to you that there is a lot about the world of 2020 that we really can foresee, at least in broad outline.
American success is not inevitable. But what history tells is that Americans don’t just get worried when our country goes off track. We fix things. Winston Churchill had it just right when he said: “You can always count on America to do the right thing, after trying everything else.” I have to believe that America is too strong, too resilient, and too optimistic a culture to accept the near stagnation and joblessness that some call “The New Normal.” Americans are going to demand something better than that from our leaders. We are going to get our country back on a path to national solvency, and we will be outgrowing our debts well before we pop the corks on New Year’s Day, 2020.
Part 3 of a 4 part series
Excerpted from a speech given at Mutual Fund Wire’s Thought Leadership Series Influencers’ Summit 2011, Boston, Massachusetts, October 5, 2011
Read the speech in its entirety on Scribd.com
Let’s turn now to some emerging investor needs and product innovations that we’re going to see in the investment world by 2020. You don’t need a crystal ball to anticipate rising demand for low-volatility investment products or continued growth in demand for asset-allocation-based “solutions” beyond funds that are bound to specific style boxes.
I am convinced that we will also see a huge appetite for “total-return” or “absolute-return” strategies that offer at least the possibility of delivering economically meaningful, positive returns — whatever markets do. The prime drivers of demand for these types of products will be investors close to or already in retirement. These investors have been badly shaken by two black swan events in less than a decade, and they are getting seasick from recent volatility.
Some have suggested that this kind of higher volatility is just part of the so-called “New Normal.” But I don’t believe that investors — especially older, more affluent investors — will ever get used to these kinds of market swings. That’s why I expect to see steady, rising demand right through this decade for products and strategies that offer at least the hope of less rocky, more predictable returns. We could see just as dramatic a rise in demand for “low-vol” and absolute return type funds as we saw over the past decade for target-date lifecycle strategies.
Something else we’ll see for sure will be an explosion of offerings in the lifetime income arena. It’s simple, really. Baby boomers are the first mass generation of self-directed retirement investors ever, and they are turning 65 at the rate of roughly 7,000 a day. What they are discovering — and millions more will discover each year — is that turning a life’s savings into a reliable source of lifetime income is actually tougher than accumulating that nest egg to begin with. We are going to see a flourishing of lifetime income offerings: annuities, partial annuities, non-annuity drawdown plans, and many, many other income innovations.
The Putnam Retirement Income Tool
IMPORTANT: The projections, or other information generated by the Retirement Income Tool regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. The results may vary with each use and over time. The analyses present the likelihood of various distribution outcomes if certain investment strategies or styles are undertaken, thereby serving as an additional resource to investors and their advisors in the evaluation of the potential risks and returns of investment choices and distribution strategies.
Each simulation takes into account the investor’s current assets, age at which distributions would start, income need, and retirement time horizon. The tool runs over 50 billion market simulations to provide an illustration of potential monthly income streams in retirement, how those income levels may change with different risk parameters, and how long the income might last. The tool does not take into account post-tax contributions to savings. It also cannot account for dramatic changes in a participant’s personal situation, including unexpected expenses and other financial situations that may negatively affect one’s estimated monthly income in retirement. Stock performance shown in the tool portfolios is based on the S&P 500 Index, an unmanaged index of common stocks. Bond performance is based on the Barclays Capital U.S. Aggregate Bond Index, an unmanaged index of U.S. investment-grade fixed-income securities. Cash is represented by the BofA Merrill Lynch US 3-month Treasury Bill Index, an unmanaged index that seeks to measure the performance of U.S. Treasury bills available in the marketplace. While other investments may have characteristics that are similar or superior, these indexes are the most common means of measuring the performance of these asset classes.This information is not meant as tax or legal advice. Please consult with the appropriate tax or legal professional regarding your particular circumstances before making any investment decisions.
