Inflation

Inflation

How much should Retirees with RRIFs “de-risk” their portfolios?

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In mid-April, my monthly Retired Money column for MoneySense looked at the experience of new retirees who have just shifted from RRSPs to Registered Retirement Income Funds (RRIFs), including my own.

Now my followup May column has been published, and it looks in more detail at how such new retirees should handle their Asset Allocation, particularly in light of this volatile Trump Trade War era we are now in. You can find the full column by clicking on the highlighted headline: How to allocate a RRIF for Secure Income in Retirement. 

The column begins with an old rule of thumb that advisor John De Goey says is now obsolete: that your age should roughly equal your Fixed-Income exposure. So, for example, that rule would suggest a new RRIF owner aged 71 might have 71% fixed-income and just 29% stock exposure.

I bounced that off De Goey, who recently aired his views on Trump’s second reign of Error in this recent Findependence Hub blog: The Gangster in the White House.

A new Rule of Thumb for Retirement Asset Allocation

He introduced me to a novel formula that was new to me and perhaps to most readers. “I believe longevity has made that [previous] rule of thumb out of date for at least a generation now. My view, after taking longevity into account, is that you should use age times the decimal of your age until you get to RRIF age (71). This assumes that the client is not particularly risk averse. The portfolio still has to be suitable.”

 So under this new rule and assuming the other qualifications apply to your personal -circumstances,  a 50-year-old should be 50 x .50 = 25% in fixed income; a 60-year-old should be 60 x .60 = 36% in income; and a 71-year old-should be 71 x .71 = ~ 50% in income. However, beyond that age,  De Goey thinks 50% fixed income is the maximum. “People over the age of 71 should be able to withstand having half their money in equities even if they’re in their 90s, because the risk associated with the 50/50 portfolio is quite low.

I was recently interviewed by Allan Small on his Allan Small Financial Show, along with financial commentator and broadcaster Patricia Lovett-Reid, formerly a TD Waterhouse senior vice president and later CTV commentator. Allan, who is Senior Investment Advisor for Scarborough-based IA Private Wealth Inc., probed us about current investor psyche and how to position for the global trade war.

Coping with the Triple T

Patricia coined the term Triple T: for Trump, Trade and Tension. Reviewing past investor panics, she said it is “different this time in that we have an individual wreaking havoc on a global platform.” Even so, she suggested staying the course with quality holdings, albeit being a more defensive with utilities, telecom, financials and Gold. Since we may all spend a third of our lives in Retirement, retirees should not abandon the “stocks for the long run” stance, she said. If you can’t sleep at night, ask your advisor what you can do about it but personally, Lovett-Reid says she has not made any drastic changes to her family’s Asset Allocation.

One focus of the interview, some of which also aired on CFRB 1010 Radio, was our “crystal ball” for markets by the end of the year. All three of us thought they would likely be a bit higher from where they were in late April. Patricia said the TSX should outperform for the rest of 2025, based on its resource and materials stocks (Gold, Oil). My view assumed Trump would partly back down from his harder-nosed Tariff positions but if he doesn’t, I said, “Look out below.”

One observation was that those with Defined Benefit pension plans can consider those to be a form of fixed income. That leaves more room to take risk with equities in other parts of one’s retirement portfolio. In a followup email, Patricia told me that “As someone with a DB [pension], I tend to skew toward more equities. And yet I do like the 60/40 split (equities to bonds). I’m very much about asset protection versus accumulation, so we are erring on the cautious side.”

What role can Annuities play?

The full MoneySense column closes with a look at annuities, which resemble Fixed Income.

In the past, I have referenced retired actuary Fred Vettese’s suggestion in various Globe & Mail columns that – at least for those who don’t have employer-sponsored Defined Benefit pension plans – they should partly annuitize when their RRSP must be converted to a RRIF. Continue Reading…

Nobody can consistently make accurate Stock Predictions today — or any other time

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Relying on stock predictions today to forecast future market trends is likely to cost you money. Follow this advice instead: Focus on share value and using our three-part investing philosophy to profit

TSInetwork.ca

We think it’s a mistake to let stock predictions today guide your investments, but especially so at times like now, when new ideas and differences of opinion are continually streaming into the markets. They make more choices available to you if you are trying to create or update a prediction. This is hard on investors who focus on predictions. When more predictions are floating around, predictions fans have more ways to guess wrong.

The best way around this problem is to quit making predictions. Forget about trying to pinpoint future events or developments. Everybody who tries often enough will wind up making some good guesses. However, no one can foresee the future.

Instead, take a close look at what we know about the current investment situation. Then, try to spot investments that seem to offer attractive opportunities under a variety of future conditions.

No one can consistently make stock predictions today — or any other time

In investing, it pays to avoid relying on stock market predictions. Successful predictions can pay off enormously, of course. But nobody can consistently or even frequently predict the future in individual stocks or the market. The more your investment success depends on predictions, the greater the risk you face.

On the other hand, it’s possible to assess investment conditions in a general sense. That way you may recognize when it’s a good time to buy stocks, if you can afford to hold them for the next couple of years or longer. If you do most of your buying in times like that, you’ll wind up making a lot of money over the course of your investing career.

Keep a long-term view in mind when considering stock predictions today and “a good time to buy”

Mind you, “a good time to buy” is an opinion on a long-term probability. It doesn’t mean the market will go up right away. For that matter, you may buy just prior to one of the market’s occasional downturns. You have to accept this risk if you want to profit from the stock market’s ability to turn middle-income people into well-off retirees over the course of a few decades.

The funny thing is that many people hurt their prospects by going at it backwards. Instead of looking for good times to buy, which are relatively plentiful, they fixate on avoiding the market’s relatively rare downturns. They try to do that by hunting for reasons to stay out of the market. Continue Reading…

Retirement Confidence is Crashing: Here’s how Canadians can take back Control

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Image via Pixels: Marcus Aurelius

By Ben McCabe, Bloom Finance

Special to Financial Independence Hub

Over the past year, Canadian seniors have faced rising inflation, high interest rates, and ongoing economic uncertainty, all of which are reshaping what retirement looks and feels like in Canada.

Retirement was once viewed as a time of ease and stability; instead, for many, it now feels like a constant calculation of trade-offs and tough decisions. Recent data paints an unfortunate picture, as retirement confidence is declining fast. Only 36% of Canadians feel confident in their ability to stay financially stable in retirement and just 7% feel very confident, while 27% are not confident at all.

This isn’t about long-term planning gone wrong: it’s about the real-time impacts of economic conditions that have changed dramatically over the last few years. Inflation has outpaced income, and daily essentials like food, utilities, medical care and housing are up nearly 30% over the past three years. However,  there are ways to regain control.

A Shifting Retirement Reality

Many older Canadians are now exploring alternative ways to stretch their resources. For some, that has even meant returning to work:  nearly half (46%) of Canadian homeowners aged 55+ are considering part-time jobs to make ends meet with rising living costs. For others, it means delaying retirement altogether: 67% say they’re concerned their savings won’t sustain the quality of life they had envisioned.

Meanwhile, traditional supports like the Canada Pension Plan, Old Age Security, and personal savings no longer offer the security they once did, especially since many seniors are financially supporting family members. According to another survey, 1 in 3 Canadian grandparents are financially supporting their children or grandchildren, with 53% saying that support has increased over the last two years. With 65% acknowledging that assistance impacts their own retirement savings, it’s clear that seniors are carrying more financial weight than ever.

Taking back Control

In response, seniors are taking steps to regain their financial control. One critical first step is getting a clear understanding of the full financial picture: knowing what money is coming in and what is going out. By distinguishing between “wants” and “needs,” retirees can prioritize essentials like housing, food, healthcare, and look for opportunities to cut back where possible.

Exploring New Solutions

In a financial landscape that is ever-changing, more and more seniors are open to innovative solutions that may not have been part of their initial retirement plans. Three-quarters of Canadian seniors own the homes they live in, and most entered the housing market decades ago. With years of sustained low interest rates and population growth that has outstripped new housing supply, home prices have tripled nationwide in the last 20 years (and more than that in many markets). Continue Reading…

Coping with Market Smackdowns

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By Mark Seed, myownadvisor

Special to Financial Independence Hub

Hey Everyone,

Welcome to some new Weekend Reading, the market smackdown edition.

In case you missed any recent posts, here they are!

Before I started semi-retirement/part-time work this month, I shared some big retirement mistakes I hope to avoid in the coming years.

After reading about a 23-year-old athlete earning $2 million, I wondered if he was “set for life”?

And finally, I shared our latest dividend income update below – despite the stock market going down our income stream went up! Continue Reading…

Extremes breed Opposites

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Darling, I don’t know
Why I go to extremes
Too high or too low
There ain’t no in-betweens
And if I stand or I fall
It’s all or nothing at all
Darling, I don’t know
Why I go to extremes

 

  • I Go to Extremes, by Billy Joel
Image Shutterstock, courtesy of Outcome

By Noah Solomon

Special to Financial Independence Hub

The stock market crash of 1929, which was followed by the Great Depression, was arguably the best thing to happen to investors in the history of modern markets.

I am in no way suggesting that investors took pleasure in having their life savings largely obliterated, nor am I implying that bear markets are enjoyable. However, the tremendous pain that people experienced left them with a deep distrust of stocks that lasted for decades. It was this wariness that kept valuations in check, thereby paving the way for strong returns.

Both the passage of time and rising markets eventually led investors to relinquish their pessimism. Eventually, acceptance morphed into adulation, the widespread view that stocks harbored no risk, and an “it can only go up” mindset that culminated in the late 1990s tech bubble. This excessive optimism caused valuations to become untethered from reality, with the S&P 500 Index reaching its highest valuation in history and huge market capitalizations being awarded to companies with little or no earnings.

The irrational enthusiasm which created and propelled one of the greatest bubbles in modern history also set the stage for its ultimate demise in the form of a painfully long and deep bear market. Over shorter periods, fear can result in missed opportunities and regret while greed may get rewarded. However, over the long term, starting points of excessive pessimism set the stage for healthy markets while starting points of excessive optimism pave the way for disappointment. This observation is captured in the following graph, which clearly demonstrates that higher starting valuations lead to lower returns, and vice versa.

S&P 500 Index: PE Ratio vs. 10-Year Annualized Returns

 

 

 

This relationship brings to mind the following guiding principles of legendary investor Howard Marks:

  • It’s not what you buy, it’s what you pay that counts.  
  • Good investing doesn’t come from buying good things, but from buying things well.  
  • There’s no asset so good that it can’t become overpriced and thus dangerous, and there are few assets that are so bad that they can’t get cheap enough to be a bargain.  
  • The riskiest thing in the world is the belief that there’s no risk.

Forget Forecasting: Context is Everything

I know that booms, recessions, bull markets, and bear markets have happened and that they will happen. Where I run into trouble is knowing when they will happen. I am in good company when it comes to this deficiency, as economic forecasting has by and large proven to be an exercise in futility. As famed economist John Kenneth Galbraith stated, “The only function of economic forecasting is to make astrology look respectable”.

Given that predicting when changes in economic conditions will occur is a fool’s errand, investors should instead concern themselves with how markets will react if they occur. Importantly the same change can have a vastly different effect on markets depending on where valuations stand. Specifically, stock market multiples can be a gauge of the extent to which prices will decline in reaction to an adverse shift in the economic backdrop. Continue Reading…