Retirees have become increasingly worried about their investments in the face of recent market declines, with some wondering if they should sell their stocks altogether.
A Standard Advice in Question
Staying invested through market downturns is typically advised, but is it always the right approach? Daryl Diamond, a seasoned financial planner, disagrees. He believes that the key to addressing retiree anxiety lies in the layering of worries that retirees are experiencing.
- 2018 stock market decline
- Pandemic
- 8-per-cent inflation
- Rising interest rates
- Trade war
The Compounding Effect
Mr. Diamond attributes the retiree anxiety to the compounding of these worries. Each problem has built upon the last, leaving retirees feeling uncertain about their financial security. This layering of worries can be overwhelming, making it difficult for retirees to make informed decisions about their investments.
A Long-Term Perspective
Retirees own stocks for their superior long-term growth potential compared to safe investments like guaranteed investment certificates or cash in savings. This growth helps their money last longer, even with periodic stock market declines.
- Having a financial planning professional build a retirement plan for a fee or doing your own
- Addressing what-if questions, such as what if stocks fall hard
- Retirement spending needs and government benefits
The Trade War Connection
The current trade war has triggered a decline in the stock market, but it should not have come as a surprise. Both the Canadian and U.S. markets had achieved back-to-back years of double-digit returns in 2023 and 2024, which is an unusual level of success. A pullback was inevitable, and the trade war has simply accelerated it.
| Year | Return |
|---|---|
| 2023 | 11.4% |
| 2024 | 12.3% |
Building Portfolios for Retirement Income
Mr. Diamond’s strategy is to build portfolios that generate retirement income. He recommends keeping a chunk of retirement portfolios in cash, which can be used to supplement income or replace hard-hit stocks or funds.
“How much cash depends on the times and the feelings of the client. It might be six months or it might be 18 months. It might be 2½ years.”
A Safety Net
Mr. Diamond’s approach also involves having a cash wedge in retirement portfolios. This can be used to mitigate the risk of making a mandatory annual withdrawal from a registered retirement income fund (RRIF).
- Draw down on cash, not on hard-hit stocks or funds
- Make an in-kind withdrawal from a RRIF, which involves moving a security to a non-registered account without selling it
A Perspective on Bear Markets
Mr. Diamond notes that bear markets on the S&P 500 since 1957 have lasted an average of 10 months. “This doesn’t mean that the accounts are even in 10 months,” he cautions. “It just means the bear market is over. So we’ve got a little bit of a wait after that.”
A Word of Caution
Retirees should be wary of being too conservative, as this can lead to insufficient growth and depletion of savings. The stock market may be difficult to navigate, but it’s also hard to live without.
Retirement Planning in the Face of Uncertainty
In conclusion, the current trade war has triggered a decline in the stock market, but it’s essential to maintain a long-term perspective. Building portfolios that generate retirement income and having a cash wedge can help address retiree anxiety. By having a financial planning professional build a retirement plan or doing your own, retirees can make informed decisions about their investments.
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