At 80 years old, should I move my wallet because of the Selic drop? – 08/04/2023 – From Grain to Grain

General rules are very good as they provide common direction. However, as the name implies, they are general, that is, they do not serve everyone, but the average of individuals. It’s not simply age that defines everything in a portfolio.

Coincidentally, that was the question asked by two readers this week.

Many could say that at this age, everything should be kept in daily liquidity and linked to the CDI. One of them justified a large concentration in LCIs referenced to the CDI because of age. There are two flaws in this thinking. One relative to age and the other to concentration in assets linked to the CDI or Selic. First let’s talk about age and then about assets.

In addition to age, it is also necessary to take into account factors such as the value of the portfolio, whether you are withdrawing or contributing, whether you want to leave it to heirs, among others.

Many confuse the average life expectancy of Brazilians of 77 years with their own and believe that if they passed this deadline, they would already be in the extension.

These commit a flaw in the premise. In addition to understanding that life expectancy is an average, it is necessary to consider that this 77-year expectation is for someone who has just been born.

This means that if you are 80 years old, according to the IBGE, on average you should still live another 9.9 years. As it is an average, there is the possibility of living even longer.

However, as we said, it’s not just age that defines your portfolio. In this case, one of the readers mentions in the e-mail that he still has leftovers of what he earns from retirement.

In this case, your portfolio may have an even longer horizon, as it will possibly leave the portfolio to much younger heirs.

Falling into the mistake I warned about, I list two general attitudes that you should do and two that you shouldn’t do when you turn 70 years old.

The two “don’ts” are:
I – Avoid buying assets that are difficult to divide and illiquid, for example, real estate or investments in private equity. With age, you need to consider the costs and consequences of the succession process.
II – Avoid taking unnecessary risks. A financial loss becomes more difficult to recover and the emotional state can lead you to bad sales decisions at inopportune times.

The two “yes” are:
I – Consider allocating part of your portfolio to products that facilitate and reduce the cost of succession, for example, private pension or insurance products. A general rule of thumb for the portion you don’t intend to use in retirement is to allocate a proportion equal to your pension age. For example, if you have R$1 million and you expect to use R$700 thousand until the end of your life in monthly withdrawals, then it would make sense to have at least 80% of the remaining R$300 thousand in pension.
II – Prioritize fixed income pegged to the IPCA throughout your portfolio. For example, a portfolio of CDBs referenced to the IPCA. I wrote a suggestion on this link. With bonds and funds referenced to the IPCA, you can have a better forecast of how much you can spend without compromising the principal. Forget the CDI. The focus should be on products referenced to the IPCA. The CDI is a risk and not a risk-free asset. Remember, you may not have time to recover from a real interest rate drop if the CDI falls as it did in 2020 and 2021.

Thus, everyone should move their portfolios to protect themselves from the fall in the Selic rate. It’s not just age that defines your portfolio, but exclusively the financial planning you built to use this portfolio. Therefore, the more dependent you are on your portfolio in retirement, the more conservative and more concentrated in IPCA-linked assets your portfolio should be.

Michael Viriato is an investment advisor and founding partner of Investor House.

Talk directly to me via email.

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