Retirement is the Time to Review and Adjust Your Investment Mix

In retirement, your investment mix becomes more important than ever. When you start spending income from your portfolio, how long your investments last will depend on asset allocation and asset location. Asset allocation means how much you invest in savings accounts, GICs, bond funds, stock funds or balanced funds. The type of account that holds those investments is what we call asset location. Retirement is a smart time to review your asset allocation and asset location to ensure that it produces both the income and growth that you need. At Quiet Wealth, we focus on constructing resilient portfolios that balance income and growth.

Asset Allocation in Retirement

When we make investment recommendations, we focus on risk and how fluctuations affect your ability to stick with your plan. In retirement, fluctuations also affect how long the capital will last once you start drawing an income. Bonds and bond funds are less volatile, but are unlikely to produce the growth needed to keep up with inflation. Stocks and stock funds tend to grow faster, but may not produce adequate income to fund retirement spending. When we recommend a portfolio for retirees, we account for both risk and income needs with the goal of producing income that will last as long as possible.

GICs and HISAs

Guaranteed Income Certificates (GICs) and High Interest Savings Accounts (HISAs) provide a safe return for your funds. If you're earmarking money for a near-term goal, opting for either a GIC or HISA is a prudent move. Your decision between the two hinges on factors like prevailing interest rates and your need for flexibility, which is a feature of HISAs.

Bonds and Bond Funds

Bonds and investment funds that invest in bonds or fixed-income investments are more suitable for longer time frames. They tend to offer better returns than GICs, but unlike GICs, their values can fluctuate. It is also important to account for duration and credit quality. Despite these complications, bonds and bond funds are considered a relatively conservative investment. However, they rarely offer enough growth to keep up with inflation in addition to providing current income.

Stocks and Stock Funds

Stocks and investment funds that invest in stocks or equity investments are more suitable for the longest time frames and investors with a higher tolerance for risk. There is a wide disparity in risk between stocks, e.g. a large dividend-paying local company vs. a small company in a developing country. Your choice will depend on the amount of risk that is suitable for you and the amount of current income that you need from your stock-based investments.

Balanced Funds and Income Funds

Some investment funds, like balanced funds, portfolio funds or income funds, combine different asset classes (stocks, bonds and cash) into a single fund. This can be helpful because of professional rebalancing to sell high and buy low. It can also reduce the fluctuations because bonds typically zig while stocks zag.

Asset Location in Retirement

When we create a retirement income strategy, we pay close attention to which account types you hold your investments in. We want to ensure that your investment income is as tax-efficient as possible and that your withdrawals will minimize your lifetime tax obligation. We may separate growth-focused investments from income-focused investments in order to produce the income you depend on while allowing your investment growth to fund periodic increases that keep up with inflation.

We recommend investment strategies that maximize growth and minimize fluctuations and taxes so that you can draw long-lasting retirement income from your portfolio. We also regularly review your portfolio and your strategy and recommend adjustments based on the market and economic environment. In this way, we help you make sure that you won’t run down your capital during your lifetime.

On our website, you can find more articles about investment solutions and other financial topics. If you have questions about this article or would like a conversation about how these ideas apply to your unique situation, call us at 403-290-0940.