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Poor investment returns are a concern at any stage of life, but they’re particularly worrisome when you’re on the verge of retirement.

That’s the predicament a reader described to me recently.

“What can we invest in that will stop the bleeding of our investments?” he wrote. “This year has seen a steady dwindling of our [tax-free savings accounts] and [registered retirement savings plans]. We hope to retire in the fall of 2020 [and] we want to protect our investments. What’s safe these days?”

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To be honest, nothing is completely safe when it comes to investing. But let’s leave that aside for now and look at a bigger problem.

The past 12 months have been very good for both stocks and bonds. A portfolio that is bleeding in 2019 needs some analysis to find the problem. Is the underperformance a short-term anomaly in an otherwise strong long-term portfolio, or is it the latest setback in a portfolio that never gelled in the first place?

Particular attention should be paid to the asset mix of this portfolio. With a year to go until retirement, the mix of stocks and bonds should reflect the needs of someone trying to balance some degree of growth with capital preservation. The bleeding in this portfolio may reflect too much of a tilt toward stocks.

This reader’s desire to protect his investments is totally understandable, but a move to “safe” investments could be problematic. Cash protects you against stock-market declines, but it can leave you vulnerable to the effects of inflation. Retirees who hold a lot of their investments in cash also lose out on the opportunity to offset withdrawals from their portfolio over the years with gains from holding stocks and bonds.

Government bonds are very safe in terms of the risk of default, but they have low yields right now and would fall in price if interest rates were to move higher. Guaranteed investment certificates offer slightly higher yields and are safe as well – they hold their value and offer deposit insurance that in most cases is subject to an upper limit. GICs aren’t liquid, though.

The best way to add safety to a portfolio is to come up with a sensible mix of investments based on age, investment goals, risk tolerance, total assets accumulated for retirement and tax brackets. Cash, bonds and GICs may seem safer than that, but they have their flaws.

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