4 ways to cope with low returns


4 ways to cope with low returns
  1. 4 ways to cope with low returns
    www.moneysense.ca
    Don’t let rock-bottom returns derail your investment plan The post 4 ways to cope with low returns appeared first on M…
    Personal Finance

If you rely on historical returns to guide your financial plan, then you may want to rethink your strategy. As I argued recently, investors need to brace themselves for substantially lower returns versus what they are accustomed to. It’s a helpless feeling—but investors aren’t completely powerless in this situation.

We can distill your choices in this situation into four options:

Brace for lower returns

  1. Invest (save) more while you’re working

  2. Invest more aggressively

  3. Accept a lower standard of living (income stream) in retirement

  4. Retire later

Most people can mix these variables and aim to tweak them to suit their circumstances. Life is about trade-offs and whatever you choose ought to reflect both your situation and your values. I might add that the obvious admonition to lower your costs should go without saying.

Save more in your working years

In working with about 100 families from across the country, I can tell you that the appetite for putting aside more money is still quite low. Anyone in the lowest tax bracket (under about $45,000) needn’t save much—and ought to be investing in a TFSA when they do save. Wealthy people (say those with a personal income over $150,000) should aim to maximize both RRSPs and TFSAs. Obviously, the more you make, the more you should be willing and able to save. Setting aside 10% of earned income is a bare minimum and if you want a comfortable retirement then you will likely need to set 15% of your income. But if you plan to retire early then you’ll likely need to set aside 20% of your income to make that happen.

Get aggressive

As a general rule, most people’s tolerance for risk is fairly stable over time. If you’re counting on your portfolio for income then you’re likely to be more sensitive to the lower returns because retirees can’t capitalize on market dips the way people who are still working can. But that said, I don’t generally counsel people to invest any more aggressively than they have in the past—assuming their risk tolerance was properly calibrated in the first place. This is a good time for investors to reexamine their risk profile and to consider whether they can take on more risk. If you are comfortable taking on more risk then consider increasing equity exposure by an additional 10%. One of my favourite phrases for this decade has been “70/30 is the new 60/40”.

Of course, if you’re working with an advisor that answers to a compliance department, a 10% variance from your long-term goal is likely all that will be tolerated, so don’t go overboard.

Lower expectations

Accepting a lesser quality of life is the sort of thing that no one willingly chooses. For some retirees reading this, however, it might be the only remaining workable solution. Of course, this should only be a last resort if all else fails.

Hold off on retirement

The ultimate guide to the Canadian Couch Potato Portfolio

That leaves us with the option of retiring later in life than we may have originally expected. To me, this is the easy winner in the great retirement multiple choice contest. First off, most people are living much longer than earlier generations have. Life expectancy has been increasing by about two years per decade for a few decades now. In short, someone who is 30 years younger than you might reasonably expect to live six years longer than you do – all else being equal. It’s simply not reasonable to expect to live longer than ever before, but not have any more money than ever before.

I’d like to encourage people to split those extra years of their lives equally between work and play. For every decade that you are older, consider working (and playing) a year longer because you’ll likely be living two years longer than someone who is a decade older than you. The rule of thumb that I’m fond of is to use the decade of your birth to be the last number in your retirement age. Those born in the 50s m…

  1. Video baristas latest attempt to lure more Canadians to drive-thru windows

    Torontosun.com - Money
    01.21 / 14:31 www.torontosun.com
    Starbucks Canada is installing two-way video links between baristas and drive-thru customers in what experts call the latest attempt to lure more consumers into the fast-food…
  2. 2017 Financial Predictions (and what it means for our wallets)

    Mint.com - Personal Finance
    01.21 / 04:44 www.mint.com
    As we ring in the New Year, financial resolutions top our to-do lists, from saving more to finding a new, better-paying job and getting out of debt once and for all. As you map out your next money move, take heed of some of these top market and economic predictions for added guidance. Higher Borrowing…
  3. New app will let you pay for your Tim Hortons in advance

    Moneysense.ca - Money
    01.20 / 16:03 www.moneysense.ca
    Bypass lines at Tim's and Burger King come this spring The post New app will let you pay for your Tim Hortons in advance appeared first on…
  4. What’s your best TFSA strategy?

    Moneysense.ca - Money
    01.20 / 11:17 www.moneysense.ca
    We want to hear your TFSA success story The post What’s your best TFSA strategy? appeared first on…
  5. Do I need to pay tax on a divorce settlement?

    Moneysense.ca - Money
    01.20 / 11:16 www.moneysense.ca
    Each province has laws regarding the division of marital property. Here's what you need to know The post Do I need to pay tax on a divorce settlement? appeared first on…
  6. More Americans to buy Canadian homes after Trump’s inauguration

    Moneysense.ca - Money
    01.20 / 09:13 www.moneysense.ca
    Data shows massive spike in interest, while reports on the ground from Royal LePage realtors confirm Americans are back to buying Canadian The post More Americans to buy Canadian homes after Trump’s inauguration appeared first on…
  7. Americans looking for Canadian real estate jumped after Trump victory: Royal LePage

    Globalnews.ca - Money
    01.20 / 09:08 globalnews.ca
    Some Americans may actually keep their promise to move to Canada after the results of the U.S.…
  8. CRA may be watching clients’ social media posts

    Advisor.ca - Personal Finance
    01.19 / 17:49 advisor.ca
    When your client shares information with family and friends on Facebook or Twitter, someone else might be watching: the Canada Revenue Agency. Read: CRA staff snooping on tax information To cut down on tax fraud, CRA has been scrutinizing “publicly available information” like social media posts, particularly for Canadian taxpayers identified as high risk, reports…
  9. A surprising place to find free financial advice

    Moneysense.ca - Money
    01.19 / 17:04 www.moneysense.ca
    Some local churches are offering financial help to those in need, for no cost at all The post A surprising place to find free financial advice appeared first on…
  10. Do I still pay advisor fees in a self-directed account?

    Moneysense.ca - Money
    01.19 / 15:00 www.moneysense.ca
    Simply transferring your mutual funds into a self-directed account won't lower your fees The post Do I still pay advisor fees in a self-directed account? appeared first on…
  11. Housing highlights from the monetary policy report

    Mortgagebrokernews.ca - Personal Finance
    01.19 / 14:02 mortgagebrokernews.ca
    While a great deal of the report focused on US policy change projections, exports, and core inflation, the Bank of Canada also snuck in a few bits about the housing industry. This is what brokers need to know
  12. Housing highlights from the monetary housing report

    Mortgagebrokernews.ca - Personal Finance
    01.19 / 13:21 mortgagebrokernews.ca
    While a great deal of the report focused on US policy change projections, exports, and core inflation, the Bank of Canada also snuck in a few bits about the housing industry. This is what brokers need to know