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Rob Carrick

The dramatics of the past month remind us that the ideal allocation to stocks for some people is zero.

Avoid stocks if:

You're saving to buy a home

The average-price resale home in Canada runs about $400,000, which means the minimum 5-per-cent down payment would run you $20,000 and closing plus moving costs could add another $5,000 to $10,000. The stock market running at full tilt would be a big help in meeting your savings goals. Figure on total returns of 7 to 9 per cent before fees on average over the long term.

Problem is, you're likely to buy a home in the short to medium term. As we've seen in the fall of 2014, stocks can fall by double-digit amounts over a short period of time. If you had $20,000 saved to buy a house and had half your money in the stock market, a 10 per cent market decline could cost you $1,000.

The right place to keep your money if you plan to buy a home in the next five years is a high-interest savings account. Yes, the 1 to 2 per cent returns from high interest savings accounts will at best match the inflation rate. But thin returns beat big losses, any day.

Your kids are drawing down on the RESP you set up for them, or will be in a year or two

As mentioned in a previous column, I've de-risked the registered education savings plan for our two boys, one in his third year of university and the other in Grade 12. I figure that once you're drawing down on a RESP, it's almost negligent to expose this money to the risk of loss.

Have a lot of stock market exposure when your kids are young, and then dial it back to zero or close to it as your kids approach the university or college years. By Grade 11 or 12, capital preservation is your prime goal in managing an RESP.

You're fighting – or succumbing to – the urge to sell

You have to be able to tough it out during market plunges like we've seen lately. If you even came close to selling, you may not be cut out for the markets. The all-bond or all-GIC approach is doable, as long as you realize that the lower returns will likely require you to save more than if you had the long-term power of stocks working for you.