Age-proofing your portfolio

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Scott Boyd

September 11, 2019

Saving strategies

It’s only to be expected that our priorities change as we age. Whether just starting out in the workforce, raising a family or nearing retirement, the different stages we experience throughout our lifetime determine the decisions and actions we take. The same holds true when it comes to investing, and this is why it is so critical to regularly review your investment portfolio to ensure that your investments continue to be appropriate.

For instance, if you’re in the early stages of building your career, retirement is still a couple of decades away. This gives you time to build up your retirement savings, and you can afford to be more aggressive in your asset selection.

Now imagine that it’s 30 years later, and you find yourself in your late 50s and very close to retiring. At this point in your life, you may be more concerned with protecting your investments than chasing higher returns, and this objective will be reflected in the choices you’ve made for your investment portfolio.

Before continuing, keep in mind that you should always seek professional financial guidance that takes into account your individual circumstances. This piece is for informational purposes only and is not intended to provide investment advice.

Asset allocation and risk tolerance

The assets you hold in your portfolio fall into one of three main categories: stocks, fixed income, and cash. The percentage of each category within your portfolio, or the weighting of each category, will vary depending on your risk tolerance.

1. Stocks: Stock prices can fluctuate on a daily basis and are considered to have a higher degree of risk. However, stocks also have the potential for greater returns. For those with a higher risk acceptance, stocks may account for a greater percentage than someone with a lower risk appetite.

2. Fixed income: Fixed income refers to investments that pay a predetermined rate of interest until they reach maturity. Guaranteed Investment Certificates (GICs) are a common example of a fixed income investment that you can hold in your portfolio. Because the rate of return is guaranteed, GICs represent very little risk. However, in our current environment, to get a higher return, you will have to consider a longer term to maturity. In the case of a long-term GIC, you will be locked-in for up to five years, during which time you can not access your money.

To provide greater flexibility, you could consider a redeemable GIC at a lower rate of return, in exchange for allowing you to withdraw your funds prior to maturity. Alternatively, you could also keep a portion of your investment portfolio as cash held in a savings account.

3. Cash: Cash and cash equivalents provide the ultimate in liquidity, but this flexibility does come at a price as you will likely receive a lower return on your cash holdings than if invested in a long-term GIC. There is also the possibility that, over time, you may lose buying power if the return on your cash fails to at least match the annual rate of inflation.