Love to listen to you every morning and hear your wise and witty comments.
I don’t think anyone has addressed the problem of senior citizens already retired who have no company pension. My husband and I, like many others, are living on our RRIF and CPP. Our RRIFs are in mutual funds with an insurance company and these funds lost 35 to 40% last February. That’s when we panicked and got out. The remainder of what’s left of our money is now in Money Market and Bond mutual funds. Do you have any advice to give those of us (who probably expect to live another 10 years) as to how to allocate our assets? Thanks for any help you can give.
From what you have told me you are at least 71 years old which is the age that you have to begin to wind up your RRSP and convert to a RRIF. The allocation that you have now is very conservative and frankly at your age it should have been in place before. I have said many times that the only senior who should be invested in stocks is Warren Buffet.
Now I say that because when you are older there is a less time to make up for losses and usually the capital you have invested is providing supplemental income to support your retirement lifestyle.
One thing you could think about is to use a variation of the barbell strategy where you combine long term assets such as bonds and very short term assets. Now the variation is that instead of using money market funds for the short term portion of the investment you trade higher risk stocks. We often say that if you can’t afford to wait you have to speculate.
The implication of using a variation of the barbell using a trading strategy is that you allocate the bulk of your assets into safe investments while ramping up the risk on a smaller portion in an effort to grow the smaller pile sufficiently to replaced the lost capital.
Given that your assets are now invested in mutual funds with an insurance company you might want to consider using say a small cap fund for the smaller growth portion of your portfolio.
Another consideration is to see how you might make use of the new Tax Free Savings Account to generate tax free gains. Under RRIF rules you have to start withdrawing capital so that the government can start collecting its deferred taxes. You are allowed to invest $5,000 a year into a TSFA . Do some calculations as to how much you can withdraw at the lowest possible tax consequence and make use of the tax free provision of the TSFA for the growth strategy implied with a variation of the barbell. You can even use the TFSA to generate tax free income from more conservative investments like bonds.
Make it a great Summer Diane and Happy Capitalism!