Retirement Stress Test 2 - Sequence Risk

What’s the trickiest component of a successful retirement plan? 

Of the many retirement risks - like inflation and longevity - perhaps the most challenging one to manage is Sequence of Return risk (aka Sequence Risk)

What is it?
Simply put, sequence risk, is the danger of the timing of your withdrawals having a negative impact on the longevity of your assets.  Put another way, selling investments to generate income during a bear market is more costly than the same withdrawals in a bull market.

When is it an Issue?

Sequence of returns risk emerges when you begin systematic withdrawals from your investment portfolio to fund an ongoing income need like retirement.

Why is it an Issue?

Your portfolio will most likely be at its peak value at the beginning of retirement as it is the culmination of your life savings.   Your investments are therefore at their point of greatest vulnerability, since any loss will be felt on the entire nest egg

Once withdrawals begin, the order of your returns from year to year (whether positive or negative) matter as much as your average returnWithout the proper strategies place, an unkind market in early retirement, could significantly increase the risk of early asset depletion.

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Q2 2019 | Portfolio Commentary

To be ‘worth one’s salt’ is to be good or competent at your work.   The expression has roots in ancient Rome, where soldiers received a recurring allowance to buy salt.  This was called their ‘salarium’ and is the etymological root of the term ‘salary.’

Are your investments worth the fees you pay to your manager? This is always a hot-button topic in the investment world, especially regarding stock or equity funds.  What about the fixed-income or bond portion of your portfolio?  Is your fixed-income manager ‘worth their salt?’

A Lesson in Bonds
Finance 101 teaches us that when interest rates go down, bond prices generally go up.  The inverse is also true; bond prices tend to go down when interest rates go up.  In the chart below we can see that the 10-year Government of Canada bond yield has been dropping consistently for the past 30+ years:

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Kicking the ‘Home Country Bias’ Habit

Everybody likes familiar things. We all have a favourite neighbourhood restaurant or watering hole. We gain a sense of comfort when we see a face we know in a crowd of strangers. This is simply the nature of who we are. It seems human nature has also driven the average Canadian investors to gravitate to the familiar when it comes to their portfolios.

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The ABCs of RESPs

The Registered Education Savings Plan (RESP) is an excellent way to save and invest for the future education costs of a child, whether one is a parent, grandparent, relative, or family friend.

There are almost no downsides to an RESP.  In our opinion, one of the biggest hurdles faced by advisors and clients alike is the complex nature of the plan.  This article will help you understand RESPs and provide some tips on using them effectively.

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Q1 2019 | Portfolio Commentary

If you tried to time the market at the end of 2018 by selling your long-term portfolio and going to cash, the solid bounce back of the market in the first quarter of 2019 would have been humbling. Conversely, those who remained invested in our models witnessed an aggressive rally since the start of the year and have seen their portfolios fully recover from 2018 and then some.

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2019 Federal Budget at a Glance

The liberal government introduced the 2019 federal budget on March 20, 2019.  This is to be their last budget before October elections.  While some expected the liberals to incentivize voters for the upcoming election with big tax cuts, none were included in this year’s budget.  Perhaps unsurprisingly, two new housing measures were introduced under the impetus of helping first time home buyers enter the property market.  Time will tell whether these measures will ease affordability or have any impact at all.

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The Problem with Market Timing – Part I

We’ve all heard sound bites of investment gurus espousing such a strategy.  It’s often referred to as ‘market timing.’  The idea seems simple enough; when the market is high, you should avoid investing more money (or sell everything) and wait until things get cheaper.  Conversely, if the market is cheap, now is the time to put money to work (or buy back in).

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