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Nick Maggiulli’s Of Dollars and Data finance site recognizes that retirement is the ‘nastiest problem in finance’ but a recent article “The Easiest Retirement Choice“ goes a long way to help simplify the process.

Mr. Maggiulli argues that savings rate and asset allocation are the two most important determinants of standard of living for retirees. Savings rate is the byproduct of thousands of small and large spending decisions over time so the author highlights asset allocation as the “one decision that you make that will have the greatest impact on your finances for the least amount of effort.”

The analysis that follows is comprehensive. It assumes that the average working life is 40 years, starts with a hypothetical $50,000 salary that increases with inflation, a 10 per cent savings rate, and a retirement lasting 25 years. Mr. Maggiulli (using U.S. market data) then calculated returns for each major type of asset allocation – 100 per cent bonds, 100 per cent equities, and a 60 per cent equities, 40 per cent bonds portfolio – for every year starting with 1926.

The results for a 40-year career ending in 1966 were $382,000 for an all-bond portfolio, $1.6-million for the 60/40 portfolio and $3.7-million for 100 per cent equities.

If this retiree spent 90 per cent of their final working year salary, the bond portfolio would only last for five years of retirement. Returns for the all-equity investments would support spending for more than 25 years.

Mr. Maggiulli’s point here is that ‘risk cannot be destroyed, only transformed.’ In this case, the 100 per cent bond portfolio implies very little market risk, but significantly increases the likelihood of running out of funds in retirement.

The calculations for portfolio values starting in every possible year between 1926 and 1978 include drastically different market conditions for each asset class and they’re worth studying. Above all, the analysis provides a reminder that there is no free lunch where markets, risk, and returns are concerned.

-- Scott Barlow, Globe and Mail market strategist

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Stocks to ponder

Dream Industrial Real Estate Investment Trust (DIR.UN-T). This security appears on the positive breakout list (stocks with positive price momentum). All eight analysts covering the REIT have buy recommendations. The Trust is anticipated to deliver a 13-per-cent total return (including the yield) over the next 12 months, which is on top of its year-to-date gain of over 15 per cent. However, there is further upside potential depending on the Trust’s acquisition growth. The REIT pays its unitholders an attractive steady, distribution that is currently yielding 6.4 per cent. Toronto-based Dream Industrial REIT owns and operates a portfolio of 223 industrial properties across North America. Jennifer Dowty reports (for subscribers).

BRP Inc. (DOO-T). This stock may appear on the positive breakouts list (stocks with positive price momentum) later this year as the share price continues to stabilize and recover from its steep decline in late 2018. Recessionary fears drove the share price lower as investors feared demand for the company’s products would fall. Given the sharp pullback in the share price during the final four months of last year, the stock is inexpensive, trading at a discount to its historical valuations. The stock has eight buy recommendations and an expected one-year price return of nearly 43 per cent. Quebec-based BRP manufactures and markets powersports vehicles and propulsion systems. Products manufactured include roadsters, all-terrain vehicles, snowmobiles, and personal watercrafts with brand names such as Can-Am, Lynx, Ski-Doo, and Sea-Doo.

The Rundown

Rosenberg: This is my biggest conviction about markets right now (and dividend and bank investors will like it)

David Rosenberg has to make this point and make it emphatically – central banks continue to matter and maybe now more than ever. Those of us that have been cautious on the markets have rightly said, time and again, in this two-month bounce-back that prices have begun to reflect a whole lot of potential good news – from a successful resolution to the trade file, to Chinese stimulus to ‎a Brexit solution. Since early January, Fed official after Fed official has come out and told investors “we hear you." Back in December when U.S. Federal Reserve chairman Jerome Powell tightened into the market maelstrom, threatening two more hikes and the continued selling of Treasuries, the sharp slide that quickly ensued was the message from Mr. Market to the Fed to the effect of “buddy, you are tone deaf.” But then the Fed backed off. So if there is one conviction he has, it is that front-end rates and bond yields of all maturities on the curve will be melting before our eyes in the next 12 to 24 months. This obviously spells decent returns in the fixed-income market (bond prices and yields move inversely), but it should also be a solid underpinning for high-quality, blue-chip, non-cyclical dividend-paying stocks. North American financials are the first to come to mind, and this is from the resident bear. David Rosenberg outlines his view (for subscribers).

The new retirement challenge: What to do when things go right

Nearly all retirement planning is devoted to spotting potential disasters – a stock market crash! Unexpected inflation! Long-term-care bills! – and devising ways to reduce their possible damage. This is all useful and good. But it means that nearly all of us ignore an intriguing question: What should we do if disaster doesn’t materialize and everything works out just the way we hoped? Granted, this would be far from a catastrophe. But it is a fascinating puzzle, because a significant number of people who follow the standard rule of thumb may be restricting themselves unnecessarily in their golden years. Instead of running out of money, they have built up what retirement researcher Michael Kitces calls “excess wealth.” They’re living below their means, for no good reason. Ian McGugan investigates (for subscribers).

Why you shouldn’t necessarily fear investing at a market peak

New investors worry about buying just before a market crash. Don’t we all. But long-term wealth accumulators benefit from temporary downturns. Most investors don’t invest all at once. They slowly build their portfolios over many years before retiring when they start to take money out. The steady inflow of money changes the return math. Norman Rothery takes a look at what it would mean if you had invested at either the high or low of the market (for subscribers).

Vanguard, iShares or BMO? A side-by-side comparison of the new all-in-one diversified ETF portfolios

In many aspects of our lives, we embrace convenience except when it comes to investing. It’s the one area where simple, excellent options are available, yet too many people resist them because they’re too, well, simple. Here’s hoping a recent trend in the ETF marketplace will help investors overcome that tendency. In the past year or so, all three of Canada’s largest exchange-traded-fund providers have launched products that allow investors to own a complete portfolio with just one trade. Each includes a mix of global stocks and bonds, so anyone with a brokerage account can get extremely broad diversification with minimal maintenance and rock-bottom costs. Dan Bortolotti explains.

Gordon Pape: Don’t ignore mutual funds yet. Here are four quality options I like right now

We don’t hear a lot of talk about mutual funds these days. The critics say it’s an outdated industry, plagued with expensive fees, underperforming products, and high-pressure sales tactics. Exchange-traded funds (ETFs) are the future, offering low costs, liquidity, and transparency. There’s just one problem with this scenario. Canadians have about $1.4-trillion invested in mutual funds. The total for ETFs is $164-billion. Clearly, mutual funds and their performance still matter to a lot of people. So, here are four mutual funds that Gordon Pape likes right now. All offer stability and above-average performance. Yes, the fees are higher than those of ETFs. But in these cases, you’re getting the quality you’re paying for. Gordon Pape explains (for subscribers).

Demand for meat alternatives drives new investment opportunities

First, there was the smash success of the Beyond Burger, leading to a planned IPO from the California plant-based company behind it, Beyond Meat. Then came the announcement last month that Canadian meat behemoth Maple Leaf Foods Inc. plans to seize a piece of the burgeoning alternative protein market with the launch of a rival veggie burger, heralding it as one the greatest creations in the company’s history. This food revolution is also creating new opportunities for investors with a desire to combine their investment needs with progress on environmental, social and governance (ESG) issues. AGF’s Martin Grosskopf explains (for subscribers).

A TFSA can leverage the power of an RRSP

With the March 1 registered retirement savings plan (RRSP) contribution deadline approaching, many Canadians will be looking forward to a hefty tax refund in the spring. But for disciplined investors prepared to forgo the gratification of immediate cash, there’s a way to make better use of those refunds. Namely, put them in a tax-free savings account (TFSA), in which gains on investments are never taxed. “I consider it using the same dollar twice. Make your RRSP contribution and, all things being equal, use the tax refund as your TFSA contribution,” says Kathryn Del Greco, vice-president and investment advisor at TD Wealth Private Investment Advice in Toronto. Dale Jackson reports.

Cashless society series:

Saving money without pain or effort? Yes, it’s possible with these apps

The march toward a cashless society presents a challenge for old-school savers. If you’re not paying for things with cash, you’re not getting coins back as change. And so you’re not able to drop your nickels, dimes, quarters, loonies and toonies in a change jar and watch them accumulate over time. Never dismiss small change as a way of making big improvements in your savings habits. You can save more than $600 a year by paying for a $2.50 coffee every workday with a $5 bill and then tossing the change in a jar. Will you be able to save this effortlessly if cash falls out of use? The answer is yes – in fact, it’s already happening in a way that beats the change jar for convenience. Rob Carrick explains.

Others (for subscribers)

The 10 top-performing Canadian equity analysts – and their stock picks for 2019

The 50 stocks hedge funds depend on

The crude rally’s ‘shaky foundations’

Canadian pension funds buy cannabis stocks

Buffett appears to fault Trump, laments M&A dearth in Berkshire letter

Tuesday’s Insider Report: President trades over $12-million in this stock

Monday’s Insider Report: CEO trades over $8-million in this large-cap dividend stock

Tuesday’s analyst upgrades and downgrades

Monday’s analyst upgrades and downgrades

Strategy focuses on quality, profitability in the oil patch

Insiders bet on Bank of Nova Scotia

Why U.S. growth stocks may soon lose their momentum

Others (for everyone)

The Globe’s stars and dogs for last week

Collectible cars can lead to a windfall for investors - or heartache

Ask Globe Investor

Question: For a retiree, do you think that 20 per cent in Canadian banks is a reasonable amount?

Answer: Yes, 20 per cent sounds reasonable. Canadian banks enjoy an oligopoly and their long-term returns have been excellent. To take one example, Royal Bank of Canada has posted an annualized total return of about 12.5 per cent over the past 20 years, assuming all dividends had been reinvested. Banks also have some of the strongest dividend growth records in Canada. Royal Bank – which hiked its dividend by 4 per cent when it announced first-quarter earnings on Friday – is now paying more than twice as much as it did in 2010. I only wish my salary had grown that much.

As we saw during the financial crisis, however, banks – which are leveraged by nature – can also get hammered when the environment turns sour. Fortunately, our banks bounced back – although they went a few years without raising their dividends at all – but I would not want to have excessive exposure to banks lest the next credit crisis, or some other unforeseen financial calamity, turns out to be even worse.

In Canada, it’s easy to get carried away with banks. Some exchange-traded funds, for example, have 40 per cent or more of their assets in the sector. I have even heard from readers who have their entire portfolio in banks, which is just reckless. As always, diversification is the key. If you have 20 per cent of your portfolio in banks – which, incidentally, is a few percentage points below the bank weighting of the S&P/TSX Composite Index – you’ll control your risk while still having plenty of exposure should the banks continue to deliver outstanding results.

--John Heinzl

Do you have a question for Globe Investor? Send it our way via this form. Questions and answers will be edited for length.

What’s up in the days ahead

Many people have described Barrick Gold Corp.’s hostile takeover offer for Newmont Mining Corp. as bold and audacious. A better word might be unnecessary. Unnecessary, that is, from an investor’s perspective. Ian McGugan will explain.

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

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Compiled by Gillian Livingston

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