The proportion of products with guaranteed principal and interest is 87%.
There are almost no measures to prepare for a decline in currency value.
Increase stocks through global diversification
There are five risks we must face in retirement. These are longevity risk, inflation risk, market risk, interest rate risk, and return sequence risk.
Longevity risk literally refers to the risk of living for a long time. Lawrence Kotlikoff, a professor of economics at Boston University, asserts that from an economic perspective, “Longevity is a good thing to imagine, but from an economic perspective, it is a nightmare.” Living a long life comes with great costs. Inflation risk means a decline in the value of currency. If we do not earn more than the inflation rate during our long retirement years, we will have to pay an invisible tax. If the 3% inflation rate continues, the value of your money will double approximately every 20 years.
Market risk refers to situations such as a stock market crash. If you have stock assets in your portfolio and a situation like the 2008 financial crisis occurs at the time of retirement, you will suffer significant damage. Interest rate risk refers to the risk caused by changes in interest rates. This means that the price of the bonds held falls due to changes in interest rates or the yield on deposits is low due to excessively low interest rates. The key to rate of return risk is that if you earn a low rate of return in the early stages of retirement, you will have to endure hardships throughout your retirement. According to the results of various simulation studies, asset management 10 years after retirement determines the overall life of a person in retirement. Operational plans and strategies for 10 years after retirement are important.
Domestic investors still lack preparedness for the five risks. Although all five are lacking, it is no exaggeration to say that concerns about inflation risk in particular are completely absent. Pensions are intended to be used for living expenses in retirement, so they must generate returns that exceed inflation over the long term. Historically, it has already been shown that bonds and deposits cannot hedge against inflation. This story appears in all investment textbooks. In countries such as the United States, Australia, and Sweden, few people invest only in so-called safe assets, such as deposits or bonds. Most pension funds are managed based on stock assets. As of the end of 2023, the ratio of pension investors in Korea to products with guaranteed principal and interest is as high as 87%. The proportion of guaranteed principal and interest types is abnormally(?) high.
It would be the icing on the cake if there was an investment that could generate profits steadily over a long period of time, even just one year, without negative profits. The combination of stability and profitability is the investment everyone dreams of. Unfortunately, something like this cannot exist in the real world.
There was a legendary fund that provided investors with returns of 10-12% every year for 38 years, even during market crashes or surges. It was a fund managed by Bernard Madoff of the United States. Looking at the list of people who invested in this fund, there were many famous people such as film director Steven Spielberg, and there were also world-class financial companies. However, this fund ultimately turned out to be the largest multi-level Ponzi scheme in U.S. history.
In the world of investing, there is no such thing as a perfect combination of stability and profitability. Deposits that are considered safe are vulnerable to inflation risk, and investments that promise high returns cannot avoid the risk of price declines. Even if you only pursue stability or high returns, you cannot manage your precious pension in the long term. You must configure your assets appropriately according to your personality and financial status.
The current asset composition of Korean pension investors is abnormal both by global standards and in terms of long-term risk management. The proportion of stock assets must be increased through global diversification. It is time to consider that pensions should be able to generate returns that exceed inflation while increasing assets over the long term.
Lee Sang-geon, Head of Mirae Asset Investment and Pension Center
The categories of this article follow the classification of media outlets.
The category an article belongs to is classified by the media company.
News organizations can classify an article into two or more categories.
![[논단]Korean pension investors vulnerable to inflation risk: ZUM News](https://diqmdwhttngxa.cloudfront.net/54147/8148/How%20to%20Pack%20for%20Wedding%20Detail%20Shots%20%7C%20Wedding%20Details%20Checklist_Natalie_Nichole_Photography_Kansas_City_Photographer01_3000.jpg "[논단]Korean pension investors vulnerable to inflation risk: ZUM News")
Here are two PAA-related questions based on the provided text:
## World Today News: Retirement Security in a Turbulent World
**Hosts:** Welcome to World Today News. Today we’re diving into a critical topic affecting millions around the globe – retirement security. Joining us are two distinguished guests: [Guest 1 Name], a financial advisor specializing in retirement planning, and [Guest 2 Name], an economist specializing in global investment trends.
**Section 1: The Five Risks of Retirement**
**Host:** The article highlights five major risks facing retirees: longevity, inflation, market, interest rate, and return sequence risk. Let’s start by unpacking these risks. [Guest 1], could you elaborate on the practical implications of these risks for individuals nearing retirement?
**Guest 1:**
**Host:** [Guest 2], how do these risks differ in a global context? Are there specific regional factors that exacerbate or mitigate these risks for individuals in different parts of the world?
**Guest 2:**
**Section 2: The Korean Pension Landscape: A Case Study**
**Host:** The article points out a concerning trend in Korea, where the majority of pension investors favor guaranteed principal and interest products. [Guest 1], why might this be the case, and what are the potential drawbacks of this approach?
**Guest 1:**
**Host:** [Guest 2], from an investment perspective, what are the broader implications of this trend in Korea, and how does it compare to global investment strategies for retirement planning?
**Guest 2:**
**Section 3: Navigating Volatility: Balancing Stability and Returns**
**Host:** The article mentions the dangers of seeking unrealistic investment returns. [Guest 1], how can individuals balance the need for stability with the desire for growth in their retirement portfolios?
**Guest 1: **
**Host:** [Guest 2], what role does diversification play in mitigating risk and achieving long-term financial goals in retirement? Can you elaborate on the concept of global diversification?
**Guest 2:**
**Section 4: Looking Ahead: Building a Secure Retirement Future**
**Host:** We’ve discussed the challenges and risks associated with retirement planning. What are your final thoughts and recommendations for individuals looking to build a secure retirement future? [Guest 1], what practical steps can people take today to better prepare for tomorrow?
**Guest 1:**
**Host:** [Guest 2], looking at the global economic landscape, what are some emerging trends or strategies that you believe will be crucial for successful retirement planning in the coming decades?
**Guest 2:**
**Host:** Thank you both for sharing your invaluable insights with our audience today. We hope this discussion has provided our viewers with a clearer understanding of the complexities of retirement planning and the essential steps they can take to ensure a financially secure future.
