By Karin Mizgala, Co-Founder and CEO Money Coaches Canada
It’s not uncommon for folks approaching retirement to think that retirement planning is finally behind them. They’ve put in the years of saving and investing; now it’s time to Google hotels in Santorini, Greece, right? Well it is, and it isn’t! There are many decisions about your savings and investments that you need to make to ensure that you can kick back and enjoy retirement.
Marisa is a 60-year old environmental engineer considering retirement within 3-5 years. She manages her own investments ($800,000), mainly in ETFs and a few stocks – including shares in a company she used to work for. She has accounts with several different financial institutions – Qtrade, TD Direct Investing and BMO. She is passionate about the environment and would prefer to invest in socially responsible investments. She is very busy and wondering if it’s time to reconsider her investment strategy. She likes the fact that she isn’t paying high investment fees but she wants to spend more time travelling in retirement and is worried that she won’t have time to watch her portfolio as closely. She has money invested in several RSPs, TFSAs as well as bank accounts and non-registered investment accounts.
5 Investment Strategy Tips
Here are the 5 investment strategy tips that I gave Marisa to help her reach her retirement goals and simplify her life:
Streamline. Consolidate your accounts. A bank account here, an investment account there; next thing you know you have eight or 10 investment accounts, it creeps up without you really noticing it. Many accounts may not be a problem when the focus is on saving, but it’s less practical as you plan for tax-efficient draw down strategies through retirement. Aim to have no more than 3-5 investment accounts – ideally 1 RSP, 1 TFSA, 1 non-registered account.
If you have multiple accounts, you can usually transfer from one investment company to another, without incurring tax or too much in transfer costs. Check with your accountant and the company you want to transfer to. They can help you assess the pros and cons, and assist with the paperwork. If you want an outside perspective, check out the Investment Report Card™.
Hire out. Unless you really enjoy spending your time researching and monitoring your investments, find an investment manager who fits your investor profile (in Marisa’s case that would include offering socially responsible investment options), has transparent and reasonable fees (1-1.25% range for Marisa’s portfolio size), has a good track record for investment performance, is respectful, listens to you and is enjoyable to work with. There are over 100,000 investment managers in Canada that want your business—you can afford to be picky!
Manage your risk and tax-efficiency. Revisit your asset mix. Things are different now. As you approach retirement you no longer have as much time on your side. Even though you won’t need the bulk of your portfolio immediately; once you’re retired you will likely need your portfolio to start paying you a “salary.” And, you’ll need to re-assess your relationship to risk. How freaked out would you be if the stock market drops and your portfolio goes down by 25%? While you may be more cavalier about these kinds of fluctuations when retirement is way down the line, you may feel different as you approach retirement. Most of my retired client’s portfolios have an asset mix of 50-60% equity/stocks and 40-50% cash and fixed income/bond investments. You may not shoot the lights out when the market is hot, but you may not be able to afford the financial or psychological impact of a higher risk portfolio when the markets go down.
Stay engaged. You don’t need to “get under the hood” but you do need to measure the progress of your portfolio against your goals – goals which could be dynamic in the years coming up to, and as you transition through retirement. You may work less, start receiving pensions or have paid off your mortgage – all things that could change the priorities and strategy for your portfolio. Keep your advisor informed of your cash flow needs, income sources and other life changes and priorities. Your investments need to reflect your unique circumstances and evolve with you and your life changes.
Hold your investment manager accountable. While you may like your advisor and are happy to hand over the reins, be sure you delegate not abdicate responsibility. The best way to keep on top of your money is to review the performance of your portfolio at least annually. Did you earn 4%, 5% (nice!) or did you lose 3%, 5% (not so nice) over the last year. Better yet, ask your advisor to show you your returns for the last one, three, five and 10 years and since you started investing with them. It’s also key to compare your returns against the general market returns in the types of investments you hold. If your portfolio is mainly large company Canadian stocks and mutual funds, then you would need to compare your returns against the S&P/TSX index.
Marisa mentioned to me that she did really well managing her own investments over the last five years – she earned 5%. But when I looked at her portfolio against the returns in the markets she was invested in, her performance didn’t stack-up. Meet with your advisor at least once a year and be sure you’re getting the rate of return numbers for your overall portfolio, not just a bunch of stats and graphs that don’t mean a thing to you.
You’re Almost There!
If your retirement is approaching, take stock and be sure your investments are well-positioned for the future you’ve worked so hard for.