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Investment Ideas A checklist for investors nearing retirement, fall portfolio advice from the pros, and an ETF that offers smart REIT diversification

Two articles I found this week provided highly practical tips for investors within 10 years of retirement. Morningstar’s “A Down-Market Survival Guide for Pre-retirees”, written by Christine Benz, was particularly topical as recent market volatility has led many investors close to retirement to search for ways to protect their existing savings from bear markets.

Ms. Benz outlined the worst-case financial scenario for retirees to describe what investors are protecting themselves from: “A perfect storm for a retirement plan is that you retire into a weak market environment and withdraw too much from a portfolio that’s simultaneously declining. Because that overspending leaves less of the portfolio in place to recover once the market does, that can reduce the odds that the portfolio will last for the 25 to 30 years (or more) that it may need to.”

Some of the preventative measures suggested were obvious – ‘turbocharge’ the savings rate in the years before retirement was one and delaying retirement another – but others were more useful. Ms. Benz suggested building large cash positions that won’t be affected by declining equity markets. Inflation-protected bonds were also suggested, although their availability is limited in Canada.

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Another suggestion involved a topic that’s often overlooked – insurance. Having the insurance needs squared away ahead of retirement can protect investors against big, unforeseen hits to net worth that will reduce standards of living in retirement. For Canadians with benefits coverage during employment, retirement brings new expenses like dental care costs that also need to be addressed.

“Improving With Age” by Dennis Friedman gets into detail about pre-retirement finances. He warns about potential mobility issues that can affect housing needs and urges near-retirees to make all major home repairs and improvement before retirement. Importantly, Mr. Friedman also urges people to speak with their credit card companies about ways to protect from fraud – seniors are prime targets for identity theft.

Combined, these two articles provide a decent (although not exhaustive) checklist for investors nearing the end of their working lives.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

CannTrust Holdings Inc. Watch for this name to be dropped from Canada’s benchmark stock index this month, the latest setback for a company that was rocked this summer by a Health Canada investigation into unlicensed cannabis production and subsequent executive departures. Andy Willis reports

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Park Lawn Corp. This is an oversold stock that nine analysts expect will bounce back, with an average 30 per cent gain forecast over the next 12 months. Jennifer Dowty profiles the stock.

The Rundown

REITs and utilities are the champion asset classes of the past 20 years

Through all the stock market ups and downs of the past 20 years, the best-performing asset classes for Canadian investors have been real estate investment trusts and the utility sector. In fact, writes Rob Carrick, It’s almost shocking how much better these two sectors have done in comparison with much riskier corners of the market.

10 stocks that had the biggest influence on the S&P/TSX Composite so far this year

The S&P/TSX Composite index is up 2,119.17 points, or 14.7 per cent, in 2019. The stocks that contributed most to the gains offer an instructive lesson on the investment strategies that are working. On the flip side, the three companies that have been the biggest detractors from the index highlight the fact that while the domestic equity market has generated strong returns, the negative effects of the global economic slowdown are already being felt in Canadian portfolios. Scott Barlow provides a breakdown of the 10 stocks that had the biggest influence on the composite so far this year.

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This 8.2% yielding ETF is ideal for Canadian REIT investors wanting to expand their horizons

Canadian real estate investment trusts have done very well this year. So far in 2019, the S&P/TSX Capped REIT Index is up more than 16 per cent. But you don’t need to limit your horizons to your home country. REITs in other parts of the world are also doing well, thanks in large part to falling interest rates. Gordon Pape recommends this U.S.-based REIT exchange-traded fund, which invests in 30 of the highest yielding REITs in the world.

Blaming weak returns on investor behaviour: A contrarian take on a familiar refrain

Investors are often accused of being poor market timers. They’re thought to panic in downturns only to pile back in when prices surge. It makes for a good story, but evidence for their poor behaviour isn’t always what it’s cracked up to be. Norman Rothery explains.

Why it’s time to look beyond U.S. stocks for decent returns

For most of the past decade, the U.S. stock market was the only game in the world worth playing. While shares in Canada and other countries struggled to generate modest returns, U.S. companies – especially the biggest ones – generated results that left competitors in the dust. But people with hefty U.S. exposures in their portfolios should think again, according to Ben Inker, head of the asset allocation team at GMO LLC, the widely followed Boston-based money manager. In his most recent quarterly note, he mounts a strong argument in favour of diversifying outside the United States. Ian McGugan reports.

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Globe Investor’s Fall Investment Guide

Wall of worry: Why the rest of the year could be a wild ride for stocks

It is often said that stock markets “climb a wall of worry,” using temporary impediments as stepping stones to greater heights. There is much to worry about in the months ahead, reports Tim Shufelt.

If stock markets plunge this fall, these websites can help you cope with the carnage

Rob Carrick provides a list of websites to help you manage your portfolio through uncertain times. Markets are often at their choppiest in the fall and this year there’s a particular concern about the possibility of a recession. Things could get interesting.

Also: Rosenberg, Belski, Lascelles and four other market pros reveal their best advice for investing in the rest of 2019

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Others (for subscribers)

Yield Hog: John Heinzl’s model dividend growth portfolio as of Aug. 31, 2019

Tuesday’s Insider Report: Three insiders are buyers of this security yielding 13%

Tuesday’s analyst upgrades and downgrades

Wednesday’s analyst upgrades and downgrades

Wednesday’s Insider Report: CEO and President top up their investments in this stock yielding 13%

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Oil sands vs. renewables: Where Canadian banks are putting their dollars

Globe Advisor

Five overlooked items in an estate plan

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Ask Globe Investor

Question: I’ve come into some wealth recently and have calculated that I can easily live off of dividends. However, I am concerned about a big market downturn affecting dividend payouts. Do you find that dividends get cut substantially during bear markets (such as 2008-09) or are most blue-chip Canadian companies strong enough to withstand severe slumps without chopping dividends substantially?

Answer: You can minimize the risk of dividend cuts in your portfolio by investing in strong, stable businesses with a history of raising – not reducing – their dividends. However, you can’t eliminate the risk entirely.

During the financial crisis in 2009, for example, insurer Manulife Financial Corp. (MFC) surprised many investors by cutting its dividend in half. Since then, we’ve seen dividend reductions from companies including power producer TransAlta Corp. (TA), mutual fund provider AGF Management Ltd. (AGF.B), broadcaster Corus Entertainment Inc. (CJR.B) and a long list of oil and gas producers. Resource stocks are especially prone to dividend cuts because their fortunes rise and fall with commodity prices that are beyond their control.

Even companies that were once seen as rocks of stability can slash their payouts; in the United States, the poster child is General Electric Co., which took a knife to its dividend in 2009 and then again in 2017 and 2018 as some of its businesses got into trouble.

The good news is that dividend cuts are still relatively rare, especially for well-established companies that have a strong competitive position. Among Canada’s major banks, for example, the last of the Big Six to cut its dividend was National Bank of Canada and that was back in 1992. Most of the other big banks have paid stable or growing dividends for well over a century, although during the financial crisis Bank of Montreal’s yield soared into the double digits, raising fears – which turned out to be unfounded – that it would cut its payout.

Even as banks put dividend increases on hold for several years after the crisis to rebuild their balance sheets, many other Canadian companies – Enbridge Inc. (ENB), TC Energy Corp. (TRP) and Fortis Inc. (FTS), to name just a few – continued to hike their payments annually. In the U.S., dividend growth stalwarts such as Procter & Gamble Co. (PG), Johnson & Johnson (JNJ) and Coca-Cola Co. (KO), among dozens of others, also continued to hike their dividends.

The lesson here is that if you want to generate a reliable stream of dividend income, you should focus on quality and diversify across companies and sectors to control your risk. If you lack the knowledge or time to manage a portfolio of individual dividend stocks, consider investing in dividend exchange-traded funds or broadly diversified index ETFs. The more diversified you are, the less impact a dividend cut will have on your cash flow. Also, be wary of stocks with very high yields, which can be a sign of a looming dividend cut, as happened with Corus, AGF and others. (For examples of stocks with yields, I consider sustainable, see my model Yield Hog Dividend Growth Portfolio at tgam.ca/dividendportfolio.)

Finally, devoting a portion of your portfolio to cash, bonds or guaranteed investment certificates will also help to control your risk. Some investors are okay with having 100-per-cent exposure to equities, but for most of us, putting a chunk of our capital in fixed-income investments will help to smooth the ride if markets hit a pothole.

--John Heinzl

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What’s up in the days ahead

A rather lacklustre earnings season just wrapped up for Canada’s big banks. David Berman shares his views on whether now’s the time to load up on shares.

Click here to see the Globe Investor earnings and economic news calendar.

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Compiled by Globe Investor Staff

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