MAY 25: BEST FROM THE BLOGOSPHERE

Times are volatile, but there are things NOT to do with retirement savings: Gordon Pape

We’re living through a public health crisis that has undermined Canada’s economy and made the stock and bond markets go topsy-turvy.

Noted financial author Gordon Pape, writing in the St. Catharines Standard, says that this situation is particularly frightening to those among us who are living on their retirement savings.

Protecting your health, he writes, is number one. But number two should be protecting your savings, he advises.

“Some older Canadians have a significant amount of money tucked away in their retirement plans, and they don’t want to lose it,” writes Pape. “They’re depending on those RRSPs, RRIFs, and LIFs to support them in the coming years.”

He notes that the stock market “has taken a beating,” and “there’s turmoil in the bond market,” leaving many with no idea “which way to turn.”

Don’t get frightened and put everything into cash, Pape warns. “I’d prefer to have cash reserves to cover two years of expenses and invest the rest in government-issued fixed income securities, high-quality, dividend-paying stocks, and some gold funds or stocks.”

Putting your investments in cash is problematic, he writes. You won’t earn much interest. But the return of inflation could erode the spending power of your cash, notes Pape – governments are being forced to spend more than expected during the pandemic and some economists feel we could see inflation rates of up to three per cent in just a few years.

A second, albeit unlikely scenario with cash investing is bank failure. “Don’t misunderstand me here,” he stresses, “Canada’s banks are well-capitalized and among the strongest in the world.” But there have been failures among smaller institutions in years gone by.

Be sure to take advantage of the Canada Deposit Insurance Corporation – you can put up to $100,000 per person in CDIC-backed savings accounts, so that in the unlikely event of bank problems, your money is insured, writes Pape.

Pape’s advice makes a lot of sense – he’s describing a balanced approach to retirement savings, with enough cash to cover your expenses for a couple of years, and then a mix of quality equities and government-backed bonds. For good measure, he also recommends a little exposure to precious metals.

There was a time, perhaps in the 1980s, when interest investing through GICs and high-interest savings accounts was seen as the right approach to retirement savings. But in those days, interest rates were far higher, at certain points of time reaching the mid-teens. Save with SPP remembers getting a $1,000 Canada Savings Bond that paid 16 per cent interest – and a car loan, from the bank, that cost 18 per cent interest! So the good old days weren’t always all that good.

The Saskatchewan Pension Plan’s Balanced Fund has an asset mix (as of December 2019) that features 29% bonds, 19% U.S. equity, 18% Canadian equity, 18% per cent non-North American equity, as well as exposure to real estate (10%), infrastructure (3%), mortgages (2%) and short-term investments (1%). Members who have holdings in this SPP fund are benefitting from diversification and professional investment management, with a goal of safe, low-risk growth. Check them out today.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

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