By Rob Carrick
Bear markets like we’ve seen recently are the precise reason why you’re supposed to increase your exposure to bonds at the expense of stocks as you get older. When stocks tank, bonds rise. This helps investors feel comfortable it the short term, but it may cost them over time in terms of foregone returns. That’s the thinking behind a pair of columns that appeared recently in the New York Times.
The case for a loading up on stocks in retirement is even stronger if you’re fortunate enough to have a defined benefit pension plan, where you receive payments for life based on factors such as your salary and length of service at your company.
Here’s a column I wrote for DB pension plan members wondering if they can lighten up on bonds.
Rob’s top web links
> A lot of people don’t realize it, but most credit cards apply a fee of 2.5 per cent on transactions in foreign currencies. Included in this list of best reward credit cards is one that does not charge these foreign transaction fees.
> You’ll enjoy this article if you’re one of the people who believe your frequent flyer customer loyalty program has become less generous. It says full planes and hotels mean these programs are less rewarding.
> Buying low is a foundation of long-term investing success, but it’s tough to do when stock markets are plunging. Read here about the rewards from persevering in tough market and doing some buying.
> I love stories of consumer empowerment, and there are some good ones in this blog post by a woman who turned some bad experiences into a free dinner and gift card.
> One guy’s list of 25 things about life he wishes he had known 10 years ago. Right in the middle is a thought-provoking point about money. Not sure I agree, but it’s worth thinking about.
> I hear a lot of parents say it’s the job of schools to teach kids about financial literacy. Actually, parents, it’s as much your job as anyone’s. For help, check out these suggestions from Globe tax specialist Tim Cestnick on three things every teen should understand about money.
Today’s featured investment tool
Wondering how the new federal rules on minimum house down payments will affect you? Try this calculator. The rules were introduced on Feb. 15 and apply to homes priced above $500,000.
The question:“Where would you invest $180,000 in U.S. funds for the next two years and receive dividends?”
My reply: I wouldn’t, period. If you have a two-year time horizon, you don’t invest money in stocks, even dividend payers, unless you accept that there’s potential to both lose money as well as make it. If you could wait five years plus, check out a U.S. dividend ETF. Several are listed on the Toronto Stock Exchange and can be bought and sold just like a stock through an online or full-service brokerage.
Do you have a question for me? Send it my way. Questions and answers are edited for length.
Wondering how and when to move taxable investments into an RRSP or TFSA? Check out this conversation I had with Kathryn Del Greco of TD Wealth.
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