I’m sure a number of you are finding retirement different from what you expected. It’s always interesting to compare the world we live in with the world we anticipated it was going to be. Who could have foreseen an era of ultra-low interest rates? While low rates can present a bit of a challenge in terms of growing wealth, they aren’t a show stopper.
Part of the key is to avoid being distracted by myths and misperceptions around investing. Don’t let them get in your way. Let’s dispel some myths and offer you some tips:
Myth: If retired, you cannot invest in the stock market because you don’t have the time to make up losses should they happen. Figures from Statistics Canada show that men are living, on average, until they are 80 years of age and women are living to 84 years of age. That means that people have at least on average 15-20 years in retirement to continue to both protect and grow their portfolios. That is a longer period of time than people initially envisioned when planning for retirement. For more insights, visit Canadians are living longer. What does that mean for your portfolio?.
Myth: ‘Buy-and-Hold’ is the best investment strategy – This strategy is not particularly effective in volatile markets, which we have been experiencing for the past several years. If you look at the DOW Jones Industrial Average from 2000 to 2010, you’ll see that it passed the 10,000 point mark to the upside and downside a combined six times. Thus, If people followed the ‘buy-and-hold passive strategy’ during this period and just bought the DOW Jones Industrial Average index, they would have seen very little positive results during that period of time as gains were quickly followed by losses.
Active investors, who sold part or all of specific stocks when they reach pre-established targets, conversely, could have done quite well. They would have capitalized on the gains and sold all or part of their investment as it passed a target threshold, avoiding the dips in the market. For further information, visit Can buy and hold still work for retired investors?
Are your investments keeping up with inflation? – Many may be surprised to learn that you can be too cautious and end up having investments that do not keep up with inflation or the standard living. This can be particularly true in the case of GICs. The blog post Are your investments keeping up with inflation and taxes? takes a closer look at this issue and shows how to evaluate your own holdings.
Be careful not to buy yesterday’s hot investment – People often learn from a neighbour or read about a hot stock in a newspaper after it has already made its climb. By the time they learn about it, the stock has made its run and the risk of it now falling in value is greater. This is one of several risks we identify in the blog post Avoid these top mistakes retirees make when investment planning.
Consider passing along wealth while you’re still alive – Estate planning helps you to transfer the maximum amount possible to the next generation while minimizing taxation. One option may be to start making transfers while you’re still alive. You’ll be able to see your children enjoying the legacy you have created and minimize estate taxes if it makes sense to get started now. We’ve provided this and other tips in the blog Estate planning: Passing wealth from one generation to the next.
Don’t hesitate to turn for help – Studies from the Investment Funds Institute of Canada demonstrated that people who work with an Investment Advisor generally had more investable assets than those without an advisor, regardless of income, and were more confident about their retirement and their overall financial situation. For further insights and some tips on what to look for in an Investment Advisor, visit Did you know that people who work with financial advisors make more money?.
read all articles in Allan Small's Worry Free Retirement Series ----------
Worry Free Retirement - An Overview
Canadians Are Living Longer. What Does This Mean For Your Portfolio?
Are Your Investments Keeping Up With Inflation And Taxes?
Did You Know That People Who Work With Financial Advisors Make More Money?
Protect Your Investment Assets
Avoid These Top Mistakes Retirees Make When Investment Planning
What Do You Want Your Money To Do For You In Retirement?
The Art Of Creating A Portfolio For Retirees
Estate Planning: Passing Wealth From One Generation To The Next
Can Buy And Hold Still Work For Retired Investors?
Active Investing Key To Worry Free Retirement