Are you ready to embrace the golden years with confidence? Let's talk about a common dilemma many retirees face: managing investment risk. Should you dial down the risk as you approach retirement, or is there a smarter way to navigate this financial journey?
Our story begins with a retiree in their late 50s, planning to retire at 60, with a 90% equity portfolio. But here's where it gets controversial: should they reduce their risk exposure, especially with their partner's longer time horizon ahead?
Enter Jillian Bryan, a senior portfolio manager at TD Wealth Private Investment Advice. She believes it's time to reconsider. "A 90% equity allocation is aggressive for someone nearing retirement, especially when they'll soon be relying on their portfolio," she explains. Sequence-of-returns risk, the potential for poor market performance early in retirement, can erode long-term wealth, even with average returns looking good on paper.
"The impact of negative returns early in retirement cannot be overstated," Ms. Bryan emphasizes. With the market at an all-time high, there's a risk that the current asset mix is too reliant on market perfection.
So, what's the solution? Ms. Bryan suggests a bucketed structure plan: "One to three years of cash and short-term fixed income for known expenses, mid-term balanced holdings for income and moderate growth, and long-term growth-oriented equities to protect purchasing power."
"A more balanced approach, with 60-70% equities and the rest in high-quality bonds and alternatives, can provide a smoother ride and reduce the need to sell equities during downturns," she adds. The partner's continued income offers a safety net, so there's no rush to derisk completely, but it's a prudent time to shift towards a more resilient portfolio.
And this is the part most people miss: liquid alternative investments, or liquid-alts. These are often overlooked but can protect your portfolio in a declining market and even generate positive gains when other investments are losing value, according to Ms. Bryan.
So, as you plan for retirement, consider these strategies. Are you ready to embrace a more balanced approach? We'd love to hear your thoughts and experiences in the comments below! Don't forget to send us your financial planning and retirement queries - we're here to help.
