I delayed responding immediately because I wanted to have the time necessary to focus and articulate my ideas and rationale as my answers to your comments and concerns…

So here goes!

If investing were easy we would all be millionaires!

And if GICs were “the best thing since sliced bread” all any pension managers or private money managers would do would give a call to the banks in the morning – “book” the best rate for say $30 billion dollars on behalf of their clients – call it a day and go and play golf!

However, there does need to be an element of growth to not only to provide the promised pension checks to current retirees but to “grow the pot” to be able to pay out future retirees!

And they grapple constantly with their “asset allocation” model to fulfill this mandate to preserve capital and still allow it to grow in a prudent fashion…they try to aim for a “sweet spot” of 7.5%.

Now to us mere mortals, left to our own devices and with often no clear understanding of “markets” and investments or things like “asset allocation”, etc. the path “of least resistance” chosen by most Canadian’s – is through the banks and GICs.

However, the real risk in retirement is outliving your capital!

And herein is “the rub”, as the dilemma that you and others face is face in retirement is to create sustainable income streams – for life – YOUR life!

And to be able to accomplish this without financial worry or stress!

Incomes that will remain fairly constant while protecting capital –
for as long as possible.

This is where “asset allocation” is critical!

There are 3 basic asset classes to choose from in determining an
asset mix – cash, fixed income (bonds) and growth (equities or
stocks).

How much should you put into cash, bonds, and various types of
stocks? (or by proxy – mutual funds)?

One “rule of thumb” in financial planning circles is to use your
age as a guide…

Take 100 minus your age and allocate that amount to equities putting
the remainder in stable fixed income investments. So, if we assume
that you are age 65 – this rule would suggest that a 65 year old be
invested 35% in equities 65% in bonds. As you age you correspondingly
reduce the growth element and increase your fixed income component.

However, some investors would find that figure to conservative –
while others might find that it’s too aggressive…

That being said: such rules are like a “one-size-fits-all
shirt”: Yes, you can wear it, but does it really suit you (or look
good on you)?

Often, with retirement approaching retirees will begin
“harvesting” profits from their invested capital and put it into
their bank accounts to build up amounts necessary for the express
purpose of having enough resources to draw on for the next 2 to 3
years of living expenses. Then, this exercise is continually
repeated, but only in the years when their portfolios are in profit
positions.

This strategy works nicely because then in “down markets” one is
not forced to encroach on the capital that is at work – to maintain
a retirement lifestyle.

Additionally, there is a certain “peace of mind” knowing that
irrespective of what the “markets” or their portfolios are doing
they have the “wherewithal” for 2 to 3 years of living expenses.

Another strategy is to use some of your monies to purchase an
“annuity” from an insurance company. (An annuity is just a name
to describe an “income stream”) Much like a pension, you will
have created a known in advance, predictable income stream coming
through your mail slot each and every month.

The amount used to “purchase an annuity” would be predicated on
your actual monthly “fixed expenses” that you want “covered
off” with certainty.

This again, gives you peace of mind knowing you don’t have to
encroach on your portfolios when they are “going through a bad
patch”…or, if you must, it would be for a far lesser amount than
if you had not implemented this strategy.

Therefore, the question should never be an “all or none” for one
product or one strategy but rather “how much here – how much
there”…

You want to create income streams from various sources and have a
“fall back” position if one dries up on you for a while.

In fact, this what financial planning is all about…

“Expecting the best but planning for the worst!”

The ideas presented here are often difficult to put into practice if
the majority of ones retirement capital is tied up in RRSPs and/or
RRIFs.

It is because of these and various other reasons as to why I am not a big fan of contributing to RRSPs in the first place.

You can learn more about my philosophy in one of the Books which I
have authored on this very subject called,

“The UnCanadian Way To Deal With Your RRSPs”, you can get your
copy as a FREE “download” here on my Website at:

http://www.howtobesetforlife.com/resources/

Have a read and you may with to comment back here with you
thoughts…always interested to hear what’s on peoples minds.

In closing, I have included the link below to an excellent video
authored by Moshe Milevsky, which again underscores the importance of constancy and constancy of returns – especially in retirement…

http://manulifedc.com/files/market/MilevskyVideo.wmv

I trust that I have addressed the issues that you face and provided
you with some ideas as far as potential solutions…

All the very best to you and yours!

It certainly makes GIC’S look good right now.

I know you cannot time the market but what safety is there when all your pension is in mutual funds and all it does is keep falling? Every month we have to take out about $2400, so that in combination with the loss of capital makes it even worse.

Help!
Any suggestions would be welcome.