Decumulate & Downsize

Most of your investing life you and your adviser (if you have one) are focused on wealth accumulation. But, we tend to forget, eventually the whole idea of this long process of delayed gratification is to actually spend this money! That’s decumulation as opposed to wealth accumulation. This stage may also involve downsizing from larger homes to smaller ones or condos, moving to the country or otherwise simplifying your life and jettisoning possessions that may tie you down.

Vanguard is cautious on behalf of Retirees

Posted By |
Image coutesy MoneySense/Freepik

My latest MoneySense Retired Money column has just been published. Click on hypertext for full column: Why Vanguard’s ETF aimed at retirees is currently cautious in its asset allocation.

The column originated from a mid-January Vanguard Canada briefing with two of its economists held for the Canadian media in downtown Toronto. You can find at least two news stories on the web filed shortly after the event by Bloomberg News and Investment Executive.

While the general thrust of the press conference was on the opportunities for Canada in A.I. and materials stocks (chiefly gold and silver miners), the Q&A allowed me to probe Vanguard about something that has intrigued me for the past year: As a semi-retired investor who recently started a RRIF, I regard one particular Vanguard ETF as a big part of my core portfolio, along with low-volatility ETFs from BMO ETFs, and income-oriented ETFs from vendors you may see in blogs  on this site.

After the Liberation Day craziness of April 2025, I became more defensive, though my Asset Allocation is not (yet) to the point the Rule of Thumb that your age should equal your Fixed Income: that would suggest in my case I should have 28% in Equities and 72% Fixed Income.

One core fund for retirees is VRIF, the Vanguard Retirement Income Fund, which is one of several funds often mentioned by the Retirement Club (see this introductory blog on the Club co-founded by blogger Dale Roberts of  . ) It trades on the TSX under the ticker symbol VRIF.

The screenshot below from Vanguard’s brochure shows VRIF’s holdings of Vanguard ETFs and performance to the end of 2025.

 

I first started a position in VRIF soon after its launch in 2020.  At the time, its Asset Allocation seemed to be around 50% stocks to 50% bonds, spread around all geographies in the normal proportions.

However, as 2025 proceeded I noticed that VRIF had begun steadily to cut back on its equity exposure and raise its Fixed Income, almost to the point of 30/70.  I’ve also noticed various YouTube videos from Vanguard’s U.S. parent that suggest similar caution: a cutting back from the big US growth mega cap stocks and a move more to other developed and emerging economies around the world.

If you read the VRIF launch news release, it emphasizes the objective is to provide income-seeking investors with a “targeted 4% annual payout.” That happens to be in line with William Bengen’s famous 4% Rule, which is “fine with me,” as I quipped at the media briefing.

In response to my query, Vanguard Canada spokesman Matthew Gierasimczuk said VRIF’s asset allocation varies over time” but the goal is the targeted 4% Return: Vanguard sees a “more optimistic outlook on bonds and Fixed Income: better to lock in without risk of equities.”

Kevin Khang, Vanguard

Then Kevin Khang, Vanguard’s head of global economic research  [pictured left] reiterated that the ETF seeks to fund a “certain level of payout: bonds in our view can achieve the desired certain level of payout” and “the US stock market is pretty expensive for obvious reasons: the US is reasonably valued and bonds are very normally valued; which is a new thing.” From 2009 to  2022, since the Great Financial Crisis, bonds in general didn’t pay much, which upset people in 2022-223 when rates went up but now they are reasonably valued: relative to inflation they are paying a decent Real Return.”

Here’s the sector weightings for VRIF at the end of 2025:

Vanguard rates its volatility as “low.” Notice the weightings of certain sectors often overweighted in pure low-volatility ETFs (like those from BMO and Harvest): Health Care, Consumer Staples and Utilities. As you can see above, the weightings in more volatile sectors like Technology and Financials is much higher.

For the MoneySense column I was subsequently referred to Head of Product for Vanguard Canada, Aime Bwakira. The rationale for VRIF’s high fixed-income exposure appears to be one of not taking more risk than you need to take, a stance which is apt for the retirees VRIF caters to. Bwakira confirmed Vanguard “has been leaning more heavily toward bonds — particularly higher quality and corporate bonds — than in past years while staying within its equity guardrails” of a minimum 30% and maximum 60%.  This positioning “reflects the current environment and the results of our capital markets projections.”

3 reasons Vanguard is boosting Fixed Income in VRIF

The rationale is three-fold:

First is higher interest rates. Bonds — especially corporate bonds — are paying more than they did for many years post the 20008 Great Financial Crisis (GFC): “This makes them well‑suited to support VRIF’s 4% income target without taking on unnecessary stock-market risk. VRIF includes corporate bond exposure specifically to help enhance yield for investors.

Second, given today’s market outlook, the fund’s model has shifted toward fixed income because bonds “currently provide a more favourable balance of expected return and risk.”  I was also referred to  Vanguard’s current VCMM 10-year projections (VCMM = Vanguard Capital Markets Model) for various asset classes. It’s also published in the US for US investors Vanguard Capital Markets Model® forecasts | Vanguard.

Dated January 22, 2026, the document states that “Even at current stretched valuations, rising earnings growth could provide momentum for stocks in the near term. However, our conviction is growing stronger that long-term prospects for U.S. equities are subdued. Our model anticipates annualized returns of about 3.9% to 5.9% over the next 10 years.” It adds that “Our muted long-term return projection for U.S. equities is entirely consistent with our more bullish prospects for an AI-led U.S. economic boom.”

The third and most important point raised by Bwakira is that “a higher allocation to bonds helps VRIF deliver reliable cash flows, which is central to its mandate. Because income needs don’t disappear during market volatility, VRIF prioritizes stability and sustainability in its payout. VRIF aims to maintain the value of an investor’s initial investment over the long term. Tilting toward bonds during periods of elevated equity market uncertainty helps protect investors from large drawdowns while still supporting the payout.”

VRIF is one popular source of Retiree income at the new Retirement Club

This common-sense caution has not gone unnoticed by Canadian retirees seeking stable income. VRIF is a well-regarded ETF members of the Retirement Club, founded by Cutthecrapinvesting blogger Dale Roberts and partner Brent Schmidt. One of the club’s monthly Zoom presentations in the autumn of 2025 highlighted VRIF among several other income sources for retirees. Roberts has long championed VRIF, as in this blog on his site originally written after the launch, and subsequently updated: most recently in this version. Continue Reading…

Are your “Diversified” ETFs actually Concentrated ?

Posted By |

By Erin Allen, CIM, BMO ETFs

(Sponsor Blog)

For the most part, when searching for a passive index ETF, you’ll typically encounter products that are weighted by market capitalization. In a market-cap-weighted ETF, a company’s size (calculated by multiplying its share price by the number of outstanding shares) determines how much influence it holds within the index1.

You can see this clearly in widely held U.S. equity ETFs. Take BMO S&P 500 Index ETF (ZSP) as an example. After accounting for the top 10 holdings, the remaining 490 companies make up about 59.49% of the portfolio. That means the top 10 stocks alone represent roughly 40.51% of the ETF’s total weight2.

The concentration becomes even more pronounced in indices like the Nasdaq 100 or the BMO NASDAQ 100 Equity Index ETF (ZNQ) which already has a reputation for heavy exposure to technology companies. In that case, the remaining 90 stocks together account for only 48.58% of the index, while the top 10 holdings make up over half of the entire portfolio3.

Chart 1 Compares top holdings of ZSP – BMO S&P 500 Index ETF to ZNQ – BMO NASDAQ 100 Equity Index ETF

Source: BMO Global Asset Management as of January 30, 20264

Supporters of market-cap weighting say it allows winners to keep running. As a company grows and becomes more valuable, it naturally takes up more space in the index. Over long periods, this approach has benefited from the success of dominant firms that continue to compound.

At the same time, that same feature can make some investors uncomfortable. In the context of 2026, buying a broad market ETF can effectively mean committing a large share of your capital to a relatively small group of mega-cap stocks that are trading at expensive valuations.

Fortunately, the choice is not limited to market-cap weighting or sitting in cash. Equal-weight strategies offer a different way to construct an ETF. Instead of assigning weight based on size, equal-weight ETFs give each constituent the same allocation, regardless of how large or small the company is.

Understanding how these two approaches differ, along with their respective advantages and limitations, is key to choosing the structure that best fits your goals.

How Equal-Weight ETFs work

To see how equal weighting works in practice, it helps to look at a concrete example. Rather than staying in the U.S. market, consider the Canadian utilities sector and compare two different index construction methods applied to the same group of stocks.

A common benchmark is the S&P/TSX Capped Utilities Index. This index tracks 14 Canadian utility companies and weights them by market capitalization, subject to a 25% cap on any single holding.

As of January 31, 2026 the four largest holdings dominated the portfolio. Fortis accounted for 23.35% of the index. Brookfield Infrastructure Partners made up 14.47%. Emera represented 12.61%, and Hydro One came in at 10.84%. Together, those four companies made up more than 60% of the entire index.

Utilities are often viewed as defensive businesses with sensitivity to interest rates and stable cash flows. But instead of making a sector-wide allocation, most of the portfolio’s risk and return ends up tied to a small handful of companies.

An equal-weight approach produces a very different result. The Solactive Equal Weight Canadian Utilities Index holds a similar group of utility stocks, but each company is given the same weight at each rebalance. With 13 holdings, BMO Equal Weight Utilities Index ETF (ZUT)5 allocates roughly 7.7% to each stock, regardless of company size5.

The practical effect is a more balanced exposure across the sector. Smaller or mid-sized utilities receive the same attention as the largest incumbents, and portfolio outcomes are less dependent on the performance of one or two dominant names.

Equal-Weighting for U.S. Stocks

Equal weighting is not limited to Canadian sector ETFs. Entire equity markets can be constructed this way, including the U.S. market. There is a long history of data comparing the S&P 500 Total Return Index with its equal-weight counterpart – the S&P 500 Equal Weight Total Return Index .

Chart 2: Comparing the S&P 500 Total Return Index vs the S&P 500 Equal Weight Total Return Index.

Source: YCharts, as of January 21, 20266 Index returns do not reflect transactions costs or the deduction of other fees and expenses and it is not possible to invest directly in an Index. Past performance is not indicative of future results

Over time, both versions have gone through periods of outperformance and underperformance relative to each other. But from the start of the available data through today, the equal-weight version has delivered higher cumulative returns.
That outperformance tends to show up during periods when smaller and mid-sized stocks outperform large caps.

On the downside, they are also less exposed to drawdowns driven by a small group of very large stocks at the top of the index. However, equal weighting does not have to mean owning a modified version of the S&P 500. Canadian investors also have access to broader U.S. market solutions.

One example is the BMO MSCI USA Equal Weight Index ETF – ZEQL. This ETF tracks an index that includes the same companies as the MSCI USA Index, but weights them equally rather than by market capitalization. At each quarterly rebalance, every stock is reset to the same allocation. The practical effect, generally speaking, results in higher yield and lower valuations.

Chart 3: MSCI USA Equal Weighted Index (USD) Index Performance and Fundamentals

Source: MSCI as of December 31, 2025 7  Index returns do not reflect transactions costs or the deduction of other fees and expenses and it is not possible to invest directly in an Index. Past performance is not indicative of future results.

Continue Reading…

Preparing your Portfolio for Retirement? Income is SO Yesterday

Posted By |

By Billy and Akaisha Kaderli, RetireEarlyLifestyle.com

Special to Financial Independence Hub

Billy and Akaisha at Caleta Beach, Mexico

We’ve written about this for years in our books.

When preparing for retirement, designing your portfolio for income is over-rated. Oh, it feels good bragging about how much money you make each year, but then you also quiver about the taxes you owe each April.

What’s the point?

To make it – then give it back – makes no sense.

With today’s interest rates, people are being forced to look elsewhere.

Our approach 3 decades ago

When we retired 36 years ago, having annual income was not on our minds. Knowing we had decades of life-sans-job ahead of us, we wanted to grow our nest egg to outpace inflation and our spending habits as they changed too. Therefore, we invested fully in the S&P 500 Index.

On the day we left the working world the S&P 500 closed at 312.49.

We will get back to this in a minute.

500 solid, well-managed companies

The S&P Index are 500 of the best-managed companies in the United States.

Our financial plan was based on the idea that these solid companies would survive calamities of all sorts and their values would be expressed in higher future stock prices outpacing inflation. After all, these companies are not going to sell their products at losses. Instead they would raise their prices as needed to cover the expenses of both rising resources and wages, thereby producing profits for their shareholders.

How long has Coca-Cola been around? Well over 100 years and the company went public in 1919 when a bottle of Coke cost five cents.

Inflation cannot take credit for all of their stock price growth as they created markets globally and expanded their product line.

This is just one example of the creativity involved in building the American Dream. The people running Coke had a vision and have executed it through the years. Yes, “New Coke” was a flop as well as others, but the point is that they didn’t stop trying to grow because of a setback.

Coca-Cola is just one illustration of thousands of companies adapting to current trends and expanding with a forward vision. Continue Reading…

Why your Grandparents’ Investment Strategy may no longer be enough

Posted By |
Image by Unsplash

By Devin Partida

Special to Financial Independence Hub

The investment playbook has changed. It may have performed well for the last several generations, but finding financial stability is a different game in the 2020s. The best practices established by your grandparents have become obsolete. Therefore, you should look to new financial horizons to establish financial freedom in a way that is more accommodating to modern dynamism and volatility.

How traditional Investment Strategies fail to adapt

The contemporary investing landscape is different from that of the last several decades. The techniques of previous generations are less viable. While you may ask your parents or grandparents for investing advice, their strategies could minimize your wealth generation and financial opportunities.

Most of your grandparents likely maintained a portfolio that followed a simple framework:  the 60/40 rule. Place 60% of your money in reliable stocks or index funds and the rest in high-interest-rate bonds. Today, this is far from the portfolio diversity modern experts want to see. These kinds of portfolios are only growing 2.2% a year now, so professionals are recommending even more varied investments, including precious metals, collectibles, venture capital and private equity, to name a few.

Past portfolios worked alongside robust pensions that were once common in the workforce. It is less common now for this type of security to supplement a 60/40 portfolio. These factors, combined with lengthening lifespans, mean nest eggs are ill-equipped to make it through potential market downturns and the entire length of your retirement. If you are living in retirement longer than previous generations, then the money has to work for you longer.

Why Economic Shifts demand a different Investment Approach

Interest rates have collapsed, and bond prices are mostly trending less than in previous decades, making them unsuitable for outpacing inflation. This reality is why people are seeking even more places to put their money.

The democratization of investments, such as the rise of cryptocurrencies, has also made market understanding more complex. Pair this with exchange-traded funds (ETFs), real estate investment trusts, non-fungible tokens and more, and you have the most enigmatic market history has ever seen: long gone are the days of just relying on blue-chip stocks.

Additionally, retirement savings have become more of a personal responsibility as the number of pension plans has decreased by millions since 1975. An IRA or a 401(k) is the more common route nowadays, as they are cheaper and less risky for employers. Now, many could view their investments as a replacement for what could have been a pension.

Ultimately, the set-it-and-forget-it model of your grandparents’ investment strategies is missing the wealth-generating opportunities you need to prepare for retirement in this climate. The rising cost of living, the financial influence of technological advancements and geopolitical tensions are only a few other factors that could shape how you divert your money.

Ways to Adapt to increase Risk Tolerance and Wealth

You can diversify while still embracing security. It will allow you to prepare for the unexpected. For example, your grandparents’ generation likely faced fewer natural disasters, as climate stressors have increased in recent years. In 2024, natural disasters caused at least $368 billion in economic damage worldwide, affecting people and their financial well-being.

These are the best ways to consider external factors outside of your control while taking advantage of how the investor market looks today.

Craft your Investment Goals

Many choose to work with a financial adviser, but you should start planning by identifying short-, medium- and long-term goals. These could involve buying a house, starting a business or building for retirement. Each goal has a time frame, allowing you to make informed decisions about your risk. At this stage, evaluating the stability of your job, debt and household expenses is critical. Continue Reading…

Retirement Income Planning: Plan to Live, don’t plan to Die

Posted By |
wadepfau.com

By Michael J. Wiener

Special to Financial Independence Hub

 

Long-time reader Garth asked for my opinion on Wade D. Pfau’s essay Eight core ideas to guide retirement income planning.  Pfau is a smart guy and it’s no surprise that his article is excellent.  I do have some thoughts around the edges, though.

“Play the long game”

Pfau starts with an important point:

“A retirement income plan should be based on planning to live, rather than planning to die.”

This means that making sure you have enough money in old age is more important than trying to squeeze out as much money as you can in early retirement.  But we’re not asking you to sacrifice now.  By taking reasonable steps to protect your much older self, you’re freed up to spend a reasonable amount early in retirement without fear of running out of money.  Pfau lists six steps toward playing the long game, which I’ll translate into the Canadian context.

Delaying starting CPP and OAS

As long as you have some savings to live on and you’re in reasonable health, delaying the start of CPP and OAS gives you guaranteed inflation-protected income no matter how long you live.  This can free you up to spend some of your savings early in retirement safely.  Exactly how long you should delay these pensions depends on the details of your finances.

Buying a single-premium immediate annuity

I’m not as positive about this step as Pfau and other experts are because of inflation risk.  Many researchers and financial advisors run retirement simulations where they treat inflation as a fixed constant known in advance.  They might test a plan by trying a few different inflation levels, but this doesn’t capture the risky nature of inflation.

Historically, inflation has flared up unpredictably and stayed elevated for long periods.  A future inflation flare-up could decimate the purchasing power of future annuity payments.

Another concern is the fairness of annuity pricing.  Some researchers devise their recommendations based on the assumption that annuities will be fairly priced.  It’s not easy for average people to determine if the annuity they’re considering is priced fairly.

I’m not entirely against buying annuities, but the concerns of inflation risk and pricing risk make me think that people should annuitize a smaller percentage of their portfolios than others recommend.  Another mitigation of my concerns is to annuitize later in life when inflation will have less time to erode purchasing power.

Paying some extra taxes today to save more on taxes later

I’ve been doing this since I retired.  Late each year I estimate my income from all sources, and then I make an RRSP withdrawal to top up my income to the top of a particular marginal tax bracket.  The idea is to pay a small amount of tax now to avoid paying much higher taxes on this income in a future year.

For this to make sense, the tax savings have to outweigh the benefit of continuing to shelter this money from taxes.  Which marginal tax bracket to use for this strategy depends on the details of your finances.

Making renovations and living arrangements for living in place

The challenge I see here is that no matter how well you prepare a home to accommodate you as you age, if you live long enough, a time will come when you can’t safely stay any longer, unless you can afford multiple people providing round-the-clock expert care.  It’s hard on families when elderly people won’t leave homes they can no longer manage.

You need a plan for making your home work for you as you age, but you also need a plan for the next step when you must leave.  Whenever I hear someone say they don’t want to be a burden, there’s a good chance they’re about to become a maximum burden by insisting on staying in their long-term home.

Planning for managing your finances through cognitive decline

My own plans involve simplifying my investments and cash flow in stages and bringing my sons in to oversee my finances.  Some financial advisors use the possibility of cognitive decline as a selling point for their services.  However, I think it’s unlikely that a financial advisor will be your most trusted person.  If I had a financial advisor, I’d still want my sons to oversee my finances.  Financial advisors can tell many stories of corrupt family members, but there are also many stories of corrupt financial advisors.

Planning to get a reverse mortgage

When your assets are gone, and your income is inadequate, a reverse mortgage can be the best option.  However, there is one concern with reverse mortgages that I rarely see discussed: you must keep your house in reasonable condition and keep up with property taxes and insurance.

It’s tempting to brush this off as a technical concern, but I’ve known many people who reach the point where they don’t maintain their homes properly, particularly as money becomes tight.  Some of these people have been members of my extended family.

The concern here is that the reverse mortgage lender could force you out of your home if you’re not maintaining it properly.  Has the pool had green water for a few years?  Have you stopped cleaning the dog dirt off the carpets in the rooms you don’t use?  Is the deck you no longer use falling down?

Some might look at statistics on reverse mortgage foreclosure and decide the risk is low.  However, such statistics don’t tell us much.  The real test comes when a lender finds itself with many underwater reverse mortgages (where the borrower owes more than the house is worth).  This could happen with a mature portfolio of loans, or it could happen after a sharp reduction in house prices.

Such a lender would find itself with a strong incentive to start foreclosing on underwater borrowers.  One way for a respected name in reverse mortgages to do this without damaging its reputation too badly would be to sell certain loans to a more ruthless lender.

I’m not suggesting people should live in fear of being forced out of their homes.  But they need a plan for how they will maintain their homes as they become less physically able to do the work or even oversee such work.

Do not leave money on the table

Pfau explains that some plans are better in all respects than other plans.  We often face tradeoffs, but if a plan is inferior in every respect, we shouldn’t follow that plan.  It’s hard to argue with this point, but it would be good to get some examples of what he means.

Use reasonable expectations for portfolio returns

I find it helpful to think in terms of real returns (which means returns after subtracting inflation).  When inflation was high, it wasn’t unreasonable to expect high nominal returns (which means returns without subtracting inflation).  But if inflation is low, expected nominal investment returns are low.  It’s easier to just focus on real returns instead of thinking about inflation all the time.

Long-term world-wide historical real returns for stocks have been about 5%.  For my own planning, I reduce this to 4%, and I reduce this further with a formula when stock prices are elevated as measured by the Cyclically Adjusted Price-to-Earnings ratio (CAPE).  I call this formula Variable Asset Allocation (VAA).  I’m currently assuming my fixed-income investments will earn a real return of 1%.

Based on these assumptions, a spreadsheet can calculate a spending level.  Of course, it’s possible that stocks and bonds will underperform these somewhat conservative assumptions.  I’ve decided that I have the capacity to reduce my spending if future returns disappoint.

Counting on high market returns

Pfau says that planning to spend more than what a bond portfolio can give is risky.  How much such risk you choose to take on should be determined by your capacity to reduce spending as necessary.

Some reasonable people choose to assume higher stock and bond returns than I do.  For example, some expect stocks to earn a real return of 5%.  As long as they have a high capacity to cut spending as necessary, this can work.  But I fear that some aren’t as flexible as they think they are.

There are others who expect even higher returns.  They point to historical real U.S. stock returns of 7%.  There are strong reasons why we shouldn’t expect future U.S. stock returns to match the past.  The main one is that the U.S. has already risen from being similar to some other countries to being a superpower; it can’t do this again.

Managing risks

Pfau identifies longevity risk, market risk, macroeconomic risks, and spending shocks.  He says you need an integrated strategy for addressing these risks.  I agree with this, although we would have to look at some of his other work to see examples of such an integrated strategy.

I see many examples of bad plans for addressing risks.  Some commentators talk of owning gold in case civilization crumbles, bonds in case stocks crash, blue-chip stocks in case risky stocks crash, and other asset classes for similar reasons.  They see all these risks in isolation.  They’re like dieters who order a diet coke to go with their double-burger and fries as though the diet coke will somehow save them.  Just as we need to look at what we eat as a whole, we need to examine the totality of our retirement portfolios to assess risks.

Investments vs. insurance

“My research shows that the most efficient retirement strategies require an integration of both investments and insurance.”

By “insurance,” Pfau means various types of annuities.  This is another case where I have seen researchers work from the assumption that insurance products are priced fairly.  I see a small number of possibly good insurance products in the world along with a vast sea of terrible insurance products sold with deliberately misleading stories.

To be fair, there are many terrible investments out there as well, but insurance looks a lot worse to me.  I can figure out how to invest my money well, but I haven’t figured out how to find annuities worth owning.

Start with the household balance sheet

“Treat the household retirement problem in the same way that pension funds treat their obligations. Assets should be matched to liabilities with comparable levels of risk.”

Pfau doesn’t give much detail in this essay on how exactly to match assets and liabilities.  He gives some related ideas on distinguishing between technical liquidity and true liquidity.  These seem like good ideas in principle, but it’s hard to say much without more details.

Conclusion

Pfau lays out some excellent principles of retirement income planning in his article.  In the decade since he wrote it, no doubt his subsequent work has filled in some of the details I called for.  This area is complex, and retirees are largely over-matched.  Even most high end financial advisors aren’t great at retirement income planning.  The world would be a better place if people had more options for buying into pension plans that manage this difficult problem for retirees.

Michael J. Wiener runs the web site Michael James on Money, where he looks for the right answers to personal finance and investing questions. He’s retired from work as a “math guy in high tech” and has been running his website since 2007.  He’s a former mutual fund investor, former stock picker, now index investor. This blog originally appeared on his site on  Jan. 8, 2026 and is republished here with his permission.