To illustrate my retirement plan in action, let’s go through an example of how it handles a big stock market drop. My plan certainly isn’t for everyone, but you may find elements of it you like. Hopefully, this post is what reader KT had in mind when asking for a detailed example. Imagine a hypothetical couple, the Carsons, who are following the same retirement plan my wife and I are following, but they’ve just turned 70, so they’re much further along than we are. Our portfolio is currently split 80/20 between stocks and fixed income, but this will change to 76/24 by the time we’re 70. So the Carsons’ current asset allocation is 76/24. The Carsons deferred both their CPP and OAS to age 70. In total, they get $4000 per month or $48,000 per year. If this sounds high, then welcome to the power of deferring CPP and OAS. They could be getting a lot more if they both got maximum CPP benefits. The Carsons have a million dollar portfolio ($760,000 in stocks and $240,000 in fixed i...

Here are my posts for the past two weeks: It’s Too Late to ‘Re-Evaluate Your Risk Tolerance’ Reader Question: What to do about the Stock Market Crash Many “Experts” are Wrong about Risk Here are some short takes and some weekend reading: Robb Engen at Boomer and Echo has a big choice to make about whether to take a deferred pension or take it’s commuted value. The deciding factors are how long the pension would be deferred and the current health of the pension plan. Tom Bradley at Steadyhand says that if you choose to get out of the market, expect some tough choices on when to get back in. Preet Banerjee explains the Canada Emergency Response Benefit (CERB) in a 3-minute video. Ben Felix discusses how to handle the recent market crash. Stay calm and think. Canadian Mortgage Trends describes the big banks’ mortgage referral relief. It’s hard to see how this differs very much from normal operation for banks. I used to get skip-a-payment offers from my bank when...

COVID-19 has brought a stock market crash and widespread unemployment, two things that often go hand in hand. None of the specifics of this crisis were predictable, but it was inevitable that the stock market would crash at some point. Now we have a vivid picture of what is wrong with a lot of financial advice. I frequently argue with bloggers, financial advisors, and others about mortgages, borrowing to invest, and emergency funds. Some so-called experts say it’s fine to max-out your mortgage to invest more in stocks, or borrow to invest, or plan to use a line of credit instead of having an emergency fund. Imagine what it’s like to have huge mortgage payments without a paycheque coming in. Sadly, many people don’t have to imagine. Those who use leverage to invest in stocks are looking at 45-60% losses or more, and they don’t know if it’s going to get worse. In these circumstances, an emergency fund helps a lot more than piling up more debt on a line of credit. The problem ...

Art asks the following (lightly-edited) question about what to do with his portfolio now that the stock market has crashed. Like everybody, I guess, I've lost a lot of money. Life goes on and I'm surprised at my risk tolerance. I have no desire to sell low (I grew up on the game Stock Ticker). But I do get monthly RIF and LIF payments. As I can't stop payment, due to current conditions (and assuming that things will get better), I'm thinking of switching from month to month to an annual withdrawal which would leave me having losses only on paper. That makes sense to me as I can live without my RIF and LIF for now. I set up some GICs and they will keep me floating for a couple of years. My second idea is, if I stay month to month, is to sell bonds (in my case ZAG) as they have suffered less damage than the stocks. I'm using Couch Potato 50-25-25, XAW/VCN/ZAG. Along with that, I would start a new RRSP as things are certainly a bargain right now and plough ...

It’s not easy to know your true investment risk tolerance. Fred Schwed explained this problem wonderfully in his book Where are the Customers’ Yachts? : “There are certain things that cannot be adequately explained to a virgin either by words or pictures. Nor can any description that I might offer here even approximate what it feels like to lose a real chunk of money that you used to own.” Now that the stock market has tanked and investors are learning what it feels like to lose money, experts like financial planner Jonathan Bednar are saying “This is a great time to re-evaluate your true risk tolerance,” and “If you are nervous then you may be taking on more risk than you are really comfortable with and should rebalance into a more conservative portfolio.” This advice amounts to “sell stocks while they are low.” The best time to figure out that you don’t have the stomach for a stock market crash is while prices are still high. It’s now too late to reduce your stock allocati...

Here are my posts for the past two weeks: My Asset Allocation in Retirement The Ultimate Guide to When to Buy and Sell Stocks Here are some short takes and some weekend reading: The Canadian government is providing useful COVID-19 information . I’ve heard many opinions that Canada isn’t doing enough, and others saying that the risk is overblown. Amusingly, I heard one person with both of these contradictory opinions. Preet Banerjee explains the different types of life insurance in more detail than the usual superficial explanations. Broadly, there are two types: term life insurance and permanent life insurance. There are many subcategories of permanent insurance. No one type of insurance is inherent;y good or bad; what matters are the numbers. I don’t claim to have investigated every type of life insurance, but when I’ve dug into the numbers, anything that wasn’t term insurance looked quite bad. I’ve had many insurance salespeople tell me there are good kinds of perm...

We’ve all heard that we should buy low and sell high. But when are stocks low and about the rise, and when are they high and about to fall? Here we reveal the secrets to when to buy and sell. We begin with the short answer and then explain more fully. When to buy. When you have the money. When to sell. When you need the money. The stock markets as well as markets for bonds, real estate, currencies, and other investments are complex systems controlled by many people whose collective actions cannot be predicted with accuracy. So we have to make choices without accurate predictions. So, when I have money I want to invest, I don’t pay the slightest attention to my predictions about the near future (or anyone else’s predictions). Knowing that stock markets are volatile, I don’t invest any money that I think I’ll need within 5 years. When I do have some money to invest, I do so right away and don’t think about whether today is a good day. Now that I’m retired, I sell stoc...

Occasionally, I get questions about my portfolio’s asset allocation now that I'm retired. I’m happy to discuss it with the understanding that nobody should blindly follow what I do without thinking for themselves. When it comes to the broad mix of stocks/bonds/real estate, my answer used to be very simple: 100% stocks. But now that I’m retired, I do have a fixed-income allocation that consists of high-interest savings accounts, GICs, and short-term government bonds. My current mix is roughly 80% stocks and 20% fixed income, but I plan to increase the fixed income component over time. The way I think of it is that I have 5 years of my family’s spending in fixed income and the rest in stocks. Over time as I spend down my portfolio, the fixed income percentage will rise. For example, it will be up over 22% in a decade. Some investors use a “bucket” strategy that resembles my approach, but there is a crucial difference. These investors typically plan to make active decision...