Risk tolerance and investment balance | General financial discussion | Discussion forum

Never heard that one before!!

Funny how advice changes over time, as we convince ourselves that more risk is acceptable - with the aid of our friendly-faced "advisors".

Nowadays, they would say to your 20-yr-old, "You must invest in the stock market for long term gain or else (panic! panic1) you'll never be able to "afford" to retire; and you shouldn't sell your investments" (ever, apparently.

In retrospect, the current version of advice might have been best applied 40 years ago.

So, then, the question now is, when today's 20 yr old reaches retirement, what great advice will they wish they'd been given in 2018?
Hindsight is a terrific asset. Wish I could have some of the 2040 issue! I'd settle for 2030. ..

Good point, Norman1. If equity exposure is a constant staple of the large, conservative pension managers then that's a clear sign to others with less expertise. Same with Ontario Teachers pension plan, lots of equity investment exposure over the decades, and great returns. It could probably lose a fair bit and still beat what they would have had with a 100% GIC portfolio, especially when we've had decades of low interest rates (and if that's not a signal to someone to be at least partly in equities then likely nothing will be).
P.S. Anyone can look up and see what equities are held by these pension plans, though it doesn't show what their purchase price was. Of course you could review them regularly and see what new equities have been added and get an idea of the price paid. Problem is it would be impossible to get the same level of diversification, pension plans usually hold numerous equities (that's what ETFs and mutual funds are for).

You have to take into account that some (many?) of the folks drawn to a site dedicated to HISAs may be pathologically risk and/or fee averse (not saying there's anything wrong with that!) thus will always be pointing out the pitfalls, so it's probably not the place to come for advice re investing.

There is really no comparison between what large pension plans can and should do with what is suitable for individuals in various circumstances. This will be very obvious if one does indeed look at the invesetments of such plans, as I have done in the past.

Pathological?
By definition, pathological has to do with disease. If you're "not saying there's anything wrong with that", then I guess you think disease is good or at least OK. If not, be more careful with your language.

For myself, I am quite happy with the fact that the CPP and the other pension plan which affects my family are able to make the kinds of infinite-horizon investments which they do make. I am aware of what percentage of my retirement income is dependent on them, and consider it an appropriate amount. There is no need or motivation for me to enter topsy-turvy markets, with my limited horizon.

While I might disagree with word choice, I have to agree with Bill a bit here in terms of the necessity to take a bit of risk re: long-term retirement investment assets. For instance, if Save2Retire is in his 30s or early 40s (or younger) and transitioned everything to Simplii Financial HISAs, I think that's a mistake and I think it's incumbent upon us to provide any investor education/advice that we can. For Loonie, while he may not earn an annual return that is high enough to prevent depletion of capital taking into account minimum annual RIF rates, he may have enough retirement assets that he's OK with that and may want to actually draw things down quite a bit, to limit the tax impact upon his death (sorry to be morbid here, Loonie).

Cheers,
Doug

There is no doubt some truth in what has been said, but I find it a precarious model that says that you must invest in equities in order to have a retirement worth having. To the extent that people are persuaded of this, they will remain invested in these things regardless of whether the companies or indeed the market itself remain good or not.
As soon as you start making it sound inevitable that people must do this and that this will remain a good investment, you increase your vulnerability if something else happens out there. It starts to sound like the thing that is sustaining it is confidence.

not much point in comparing to 10 years ago, when stock prices were at bottom. Those folks had already lost 25 to 50% and had to make it up before they could consider competing with fixed-income over the longer term. The only "term" that makes sense for comparative purposes is actually your own personal "term", i.e. when are you going to invest and when are you going to cash it in? and what will your annualized return be? Most people would find that difficult to calculate, and it's always speculative because they always still have money invested when they try to figure it out.
Don Bortolotti did a chart about a year ago showing insignificant differences over 10 years , not worth the risk. Sorry , I can't find it at the moment, but I remember it because I questioned him about it in person.

Times change, and ideas about what is the perfect investment strategy change. Several decades back, dividend stocks were considered uninteresting and only for old folks on fixed incomes, and mutual funds were "hot" regardless of fees of 2 and 3% annually, even back end load (often with fees up to 8%) was considered justifiable. I can even remember when mortgage funds were hot one year, but you don't hear about them any more. Right now, it's ETFs, robo-management and large cap dividend stocks. I remember when dividends were rediscovered and were considered novel again. This too shall pass.

I'm not saying what people should do, just that they should take a really hard and long look to separate the hype from the realities. This is extremely difficult. Don't allow yourself to be driven into something because you think it's the only thing you can do. Take risk seriously, on all fronts.

It was precisely those ETFs where Bortolotti found his results , as that's what he specializes in. It did not look good for his approach so he had no reason to manipulate the result. Yes, it would have included 2008 because it ended at end of 2016. However you slice it, it's a fair period of time.

Each to their own. The future is unknown, and that's what counts now.

I agree, Top It Up, no markets, no POP. But again, the facts won't matter to the pathologically risk-averse, those folks will be driven by their fears, their compulsive worry about the risks of investing in the markets. So to me a good idea is to figure out if you're in that group (and I imagine a site like this would tend to attract some folks like that) and then you can save yourself a world of time in your life by ignoring anything having to do with investing and concentrating instead on saving via HISAs, GICs, etc (of course, you'll need to have a plan to handle the feelings of envy you'll inevitably have towards those around you who are "winning" in the markets). As in many things, our psyche overrules reason and it's a good idea to pay heed to that, IMO.

Of course if you're expecting a substantial inheritance that might reduce your need to take risks too. I've seen some reports that inheritances represent a significant part of many folks' net worth later in life.

Or the best investment might be getting a job with a public sector paycheque - the present value of your pension when you get it may very well be your biggest financial asset.

Top It Up said
Further complicating the current low returns on GIC/HISA accounts for retirement planning, are the abysmal statistics of OAS and CPP payout amounts to individuals. The fixed OAS rate is $585 per month, and while the maximum CPP payment is $1,134 per month, Canadians only received an average of $641 per month.

You do the math.  

Isn't the $641 so low because the majority begin drawing CPP at 60? If it is an "average", then a considerable amount of people are collecting quite a bit less. Also, to get maximum payout, you would have to have made maximum contributions for your whole career. I managed to stay close to maximum contributions throughout my working life and I get 718.00 per month starting at 60.

Top It Up said
"Less than half — 40 per cent — were counting on an inheritance, while 34 per cent hoped to win a lottery. Twenty-eight per cent say they expect to get financial assistance from their children or other family members."

That's some good retirement planning right there. Have PERSONALLY seen peoples' inheritances turn out to be significantly less than what they were "planing" on... right down to inheriting debt. Plan on receiving nothing and you won't be disappointed.