Investment changes in retirement

Preparing for life after work. RRSPs, RRIFs, TFSAs, annuities and meeting future financial and psychological needs.
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Spidey
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Re: Investment changes in retirement

Post by Spidey »

I think we always have to be prepared for the unlikely scenario of equities loosing 50% of their value. It has happened twice in NA over the last century. The worst was the 1929 crash which on purely a price basis took 25 years to recover from. However, the dividend yield of the stock market was over 14% and this article claims, recovery time wasn't near as bad once dividends are factored in:

http://www.nytimes.com/2009/04/26/your- ... 6stra.html

The other of course was the 2008 crash and most of us who stayed put have recovered quite nicely:

http://money.cnn.com/2015/02/26/investi ... index.html

I guess it is up to every individual to determine how much safety they require. For me, I like to be covered for about 10 years with relatively safe FI and I figure if there happened to be a black swan event after that I would withdraw dividends and if necessary bite the bullet and start withdrawing what remaining I needed by cashing in equities at 50% of their value. Admittedly it could affect our lifestyles somewhat (but maybe not as well) if the market stayed at something like 50% of its value for decades to come (if I even live for decades to come after 10 years into retirement) but Its a risk I'm willing to take.
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Re: Investment changes in retirement

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My portfolio is 67% stocks, ~20% GIC/StripBonds ~13% cash. If equities crash 50% and stay down, I would have ~5 years cashflow without dividends and perhaps 10 years with dividends (Depends how bad dividends get cut during a bad market crash.) After that the depletion of capital would be too large to sustain without employment or other income.

I am also aware of the risk of not retiring, that is continuing to work and dieing early, before or soon after you retire. I saw my father die just 8 months after retiring (After only 8 monthly annuity payments - the insurance company did very well there.) Life is a choice between different risks.
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Re: Investment changes in retirement

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adrian2 wrote: 16 Jul 2017 08:58
Taggart wrote: 16 Jul 2017 04:11 I think there's a lot of underestimating on here about how long equities can show negative real returns. I mean historically in some major countries out there it's been basically an investor's entire lifetime. Canada just happens to be one of the few lucky countries of the world that has done really well for it's investors.
That's very true, but what can anyone do about it?
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Re: Investment changes in retirement

Post by Taggart »

adrian2 wrote: 16 Jul 2017 08:58
Taggart wrote: 16 Jul 2017 04:11 I think there's a lot of underestimating on here about how long equities can show negative real returns. I mean historically in some major countries out there it's been basically an investor's entire lifetime. Canada just happens to be one of the few lucky countries of the world that has done really well for it's investors.
That's very true, but what can anyone do about it?
Well, I could always dream about being a similar investor to a T. Rowe Price or George Ross Goobey. When it became necessary they could completely alter course in their investments and be mostly right in their maneuvers. Unfortunately, I don't have that capacity.

More than likely, I'll just keep doing what I've been doing for the last few years, and hope for the best.
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ghariton
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Re: Investment changes in retirement

Post by ghariton »

Not only can equities have negative real returns for extended periods of time, so can bonds and other fixed income. In fact, if there is unanticipated inflation, bonds can suffer much more than equities. Similarly, wars and changes of regime can completely wipe out bonds, while equities do retain some (or all) of their value. Think Tsarist bonds, or Weimar Republic obligations.

Life is uncertain, and you can't provide for all possible risks. Trying to do so leads to fortified bunkers, stockpiling firearms and munitions (and presumably food) and hoarding gold.

Yes, tail risk exists. We should recognize it, but we shouldn't let it drive our lives, financially or otherwise.

George
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Re: Investment changes in retirement

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Nice to here from so many happy retirees and that there is no one route to getting there. Sometime we (me) get wrapped up in our own method and forget there is more than one way to reach the same point or that each person's goal and needs are different.

Not having any pension other than cpp\oas, we needed to find our own source of income. We chose the Connolly strategy and fortunately began switching to investing for Income before the financial crisis. We dumped many of our holding which were mutuals and growth stocks. Initially we had about 40% in GIC's but after 2008/2009 we invested them in DG stocks. Now 75 we are fully invested in Cdn equities and only maintain about $35k in cash. As we don't need all our income about 60% is reinvested which continues to grow our annual income. Yes, we expect to leave a legacy but we rather outlive our funds than run short. I've looked into private Long term care and the costs are $80k plus for one. It would drop to about $40k at provincial facilities.
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Re: Investment changes in retirement

Post by Taggart »

ghariton wrote: 16 Jul 2017 13:53
Life is uncertain, and you can't provide for all possible risks. Trying to do so leads to fortified bunkers, stockpiling firearms and munitions (and presumably food) and hoarding gold.

Yes, tail risk exists. We should recognize it, but we shouldn't let it drive our lives, financially or otherwise.

George
That's the environment I entered into when first starting to get involved in investing. I was a bit of a contrarian even at that time, ignored the advice from the doomsayers and bought a 1 year GIC. If you think that was a good move, it wasn't. What I really should have done was get all the little savings I had at the time and buy a 30 year federal government bond. Unfortunately, I wasn't that prescient.
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Re: Investment changes in retirement

Post by Taggart »

Jonathan Chevreux has a brief rundown on potential medical care costs in Canada at Moneysense. One huge cost to factor into retirement plans
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Re: Investment changes in retirement

Post by Sensei »

Hi,

Many belated thanks! I've read through all the great advice and benefited from it and I think that others have too. The main changes since I started this thread are that I've gradually reduced my cash position to about four years of living expenses and I will continue to seek investment income opportunities to reduce this further. It seems like many posters allow for one to two years cash to cover living expenses, so that might be my guide. Having a bit of cash around helps me to take on some risk elsewhere. At the moment it is a portfolio of high yield global CEFs. On the other hand, as suggested, I've upped the quality of my stock portfolio which is the bulk of my net worth.

It's now less than two months before I start receiving my first pension from Japan and probably 10 months to my CPP and my other Japanese pension. These three pensions will amount to probably $1000, so not a living income. However, I've been aware since 1997 that pensions would not support me, so I've been diligently saving and investing as well as being frugal. My net worth has increased a bit over the last year but offset by some major expenses like buying a car and financing our estate plan.

In sum, I could retire now, but I prefer to continue working as it continues to be emotionally rewarding and will allow us to maintain our current lifestyle with out decumulating just yet.

Attached is what my current stock portfolio looks like.
2018 05 19 Current Portfolio.docx
(16.6 KiB) Downloaded 87 times
Cheers

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Re: Investment changes in retirement

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Since 2008, I have allowed the buildup of a cash buffer to cover 2 years of expenses. I also have an emergency fund that is 6 months of expense for unplanned outflow like replacing defective appliances*. The only speculative equity I hold is LULU. DW got us into AAPL and LULU. She wanted to bail on LULU but I insisted on holding on. Our average cost is under $17.5 and currently trading above US$102 but does not deliver a dividend so we are watching for the right exit point.

I agree with your approach. Since you seem to enjoy working, keep it up. There is nothing wrong with building a buffer if there is no serious sacrifice. OTOH it is always good to imagine that you are going to die at age 70 and is that how you would choose to spend your last years. We had a very dear friend who just died at 71 but he had been retired since 1992.

*DW wants to replace our 2005 Escape and the current front-runner is a Range Rover! Blow that dough.
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Re: Investment changes in retirement

Post by JaydoubleU »

Not quite sure where to post this, but it's an interesting article on retirement readiness, comparing a few countries.

https://www.bloomberg.com/news/articles ... retirement
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Re: Investment changes in retirement

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kcowan wrote: 20 May 2018 09:03*DW wants to replace our 2005 Escape and the current front-runner is a Range Rover! Blow that dough.
So she decided on a Mercedes GLK250 with 36000KM. Really nice car. 3 year bumper to bumper warranty.
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Re: Investment changes in retirement

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kcowan wrote: 30 May 2018 11:11
kcowan wrote: 20 May 2018 09:03*DW wants to replace our 2005 Escape and the current front-runner is a Range Rover! Blow that dough.
So she decided on a Mercedes GLK250 with 36000KM. Really nice car. 3 year bumper to bumper warranty.
Is this for use in Canada or Mexico? (Or both?)
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Re: Investment changes in retirement

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adrian2 wrote: 16 Jul 2017 08:58
Taggart wrote: 16 Jul 2017 04:11 I think there's a lot of underestimating on here about how long equities can show negative real returns. I mean historically in some major countries out there it's been basically an investor's entire lifetime. Canada just happens to be one of the few lucky countries of the world that has done really well for it's investors.
That's very true, but what can anyone do about it?
diversify beyond financial instruments
history shows what survives - human capital (children), geographically diversified real estate (sometimes), gold, silver, diamonds, chicken farms and vegetable patches. I said it before, I will say it again, most people confuse luck with skill. The majority of Canadians have seen nothing, the DOOM and GLOOM are coming, ooh-ha-ha (exiting to the left, evil laugh). :rofl:
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Re: Investment changes in retirement

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I don't disagree with you but I will take my chances that central bankers in OECD countries, especially the G7, will not allow decades long 'depressions' to occur. GDP growth is just too important to service the debt and provide what has become 'essential' social services. We know Japan f*cked itself for decades due to misguided domestic policy, but at least Japanese investors could have diversified their investment baskets elsewhere in the world.

A very good reason to diversify one's portfolio on a global basis. One never knows when one nation goes into a self-destructive funk. Those who limit themselves exclusively to their own country really have set themselves up for a case of double jeopardy.
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Re: Investment changes in retirement

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I'm slowly letting equity grow by about 1% a year by the time I'm 70 I will be at about 50/50 most likely cap it there but as I get older things may change. I think "hamor" brings up a good point, product diversification is important as well. If all you have is world wide common equity & Canadian fixed income might not be a good thing. I guess most have CPP & OAS of some sort, only three silo's.
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Re: Investment changes in retirement

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If common equity on a global scale collapses, we will have problems way bigger than the value of the investment portfolio. I will take my chances.
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Re: Investment changes in retirement

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AltaRed wrote: 30 May 2018 15:18 If common equity on a global scale collapses, we will have problems way bigger than the value of the investment portfolio. I will take my chances.
You don't think 2009 will ever happen again wasn't that about a 50% haircut across the board?
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Re: Investment changes in retirement

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skinnyinvestor wrote: 30 May 2018 13:50
kcowan wrote: 30 May 2018 11:11
kcowan wrote: 20 May 2018 09:03*DW wants to replace our 2005 Escape and the current front-runner is a Range Rover! Blow that dough.
So she decided on a Mercedes GLK250 with 36000KM. Really nice car. 3 year bumper to bumper warranty.
Is this for use in Canada or Mexico? (Or both?)
Just Canada. In Mexico, we have a Nissan X-Trail model only available outside Canada/US. I would never subject a Mer to the cobblestones of PV.

(Although the drive to Mexico is not bad now we are retired but we can afford to fly. The key problem is finding a place to store the car during the rainy and hot summer there. In BC, we have secure covered parking.)
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Re: Investment changes in retirement

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BRIAN5000 wrote: 30 May 2018 15:35
AltaRed wrote: 30 May 2018 15:18 If common equity on a global scale collapses, we will have problems way bigger than the value of the investment portfolio. I will take my chances.
You don't think 2009 will ever happen again wasn't that about a 50% haircut across the board?
It did not last decades. I didn't panic with ~35% decline in my overall portfolio by March 2009. Back to where I was within a year or so if I remember correctly.
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Re: Investment changes in retirement

Post by kcowan »

hamor wrote: 30 May 2018 13:57The majority of Canadians have seen nothing, the DOOM and GLOOM are coming, ooh-ha-ha (exiting to the left, evil laugh). :rofl:
Yes I agree. However, it is not like we cannot react to new realities.
AltaRed wrote: 30 May 2018 14:25A very good reason to diversify one's portfolio on a global basis. One never knows when one nation goes into a self-destructive funk. Those who limit themselves exclusively to their own country really have set themselves up for a case of double jeopardy.
Well I have to admit that our diversification beyond Canada/US is in the hands of our FA. So yes we are in a state of dependency. But it is never blindly following. It is just another input!
It did not last decades. I didn't panic with ~35% decline in my overall portfolio by March 2009. Back to where I was within a year or so if I remember correctly.
Yes but expecting a total recovery might be a little foolhardy!
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Re: Investment changes in retirement

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kcowan wrote: 30 May 2018 15:54Yes but expecting a total recovery might be a little foolhardy!
I would expect a full recovery within 5 years, but I am mentally prepared to accept no recovery from a 35% haircut. The key point for any portfolio I think is to have some confidence on the size of potentially permanent haircut one might be prepared to grudgingly accept long term, i.e. one's sleep-at-night factor.
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Re: Investment changes in retirement

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AltaRed wrote: 30 May 2018 16:06
I would expect a full recovery within 5 years, but I am mentally prepared to accept no recovery from a 35% haircut. The key point for any portfolio I think is to have some confidence on the size of potentially permanent haircut one might be prepared to grudgingly accept long term, i.e. one's sleep-at-night factor.
At whar point do you capitulate? If you a willing to accept a 35% haircut where do you draw the line?
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Re: Investment changes in retirement

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AltaRed wrote: 30 May 2018 16:06 I would expect a full recovery within 5 years, but I am mentally prepared to accept no recovery from a 35% haircut. The key point for any portfolio I think is to have some confidence on the size of potentially permanent haircut one might be prepared to grudgingly accept long term, i.e. one's sleep-at-night factor.
Agree for the same reason. For our retirement planning, I use an equity number that is 33% lower than what the market is giving us today. I then calculate expected real return based on that value. If we lose 50% or more, my assumption is that the 33% mark is the recovery point. Of course, it's all just guesswork!
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Re: Investment changes in retirement

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deaddog wrote: 30 May 2018 18:06 At whar point do you capitulate? If you a willing to accept a 35% haircut where do you draw the line?
I don't capitulate because I have strong beliefs that it wouldn't get worse than 50%... e.g. pretty much what was just said. Global markets simply won't be allowed to get into that territory.

Then again, if I am wrong, well, I learn to live off a much smaller cash flow and since we'd be in severe deflation by then, purchasing power decline may not be nearly as bad.
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