Clay Gillespie is a financial adviser, portfolio manager and managing director of Rogers Group Financial in Vancouver.
During the asset-accumulation years, risk can be reduced by proper diversification. In retirement, you also need the portfolio to generate income in good and bad years – you need to be prepared for a stock market correction every day. While you’re working, income is coming from employment, but in retirement, income is coming from your investment assets and pension entitlements.
I, therefore, would recommend a portfolio mix with at least 40 per cent in equity-based investments but not higher than 60 per cent. The equity allocation would be 50 per cent in Canadian equity with the remainder split equally between U.S. and international equity. Retirees also need at least three years’ worth of income in cash and short-term fixed income investments with maturity dates within two years to ensure adequate income protection when stock market corrections occur. This buffer gives retirees a source of income during a market correction so they are not forced to sell any of their equity or other fixed-income investments that might have declined in value.
The most common mistake I see is when individuals decide how much income they need and then seek out the investment that generates the highest cash flow, rather than analyzing the risk of the investment properly. Most Canadians will need to dig into a significant portion of their investments to maintain their standard of living and fight off the effects of inflation over time. The search for the highest-yielding investments is very dangerous in retirement.