Investing for Life

Investing for a lifetime means starting early.

Allan H. Macdonald, B.Sc., RLU, EPC is an Independent Financial Security Advisor and Elder Planning Counselor based in Montreal.

Your 20s: Getting a Good Start

• Lay the foundation of your financial future by paying yourself first. A good place to start is to save 10% of your earnings.
• Never squander free money. Is your company offering to match your retirement savings? Take advantage of it. Are you planning on saving for your first house? Start saving in a Registered Retirement Savings Plan (RRSP), which will get you a tax refund.
• Know what your investment goals are and open separate accounts to segregate your investment strategies. Aggressive investment strategies, which put more assets in riskier equities, are more suitable for long-term purposes such as retirement savings. If you are saving to buy a car in two years, then use a short-term investment strategy consisting of guaranteed investment certificates (GICs), savings accounts, or other cash equivalents.
• You have plenty of time to learn how to invest on your own. To help you get started in the meantime, take advantage of professionally packaged investment plans tailored to satisfy different investment needs. These can be found at most financial institutions in the form of either mutual or segregated funds.

Your 30s: Nurturing Your Nest Egg

• Don’t lose confidence when the markets drop. Continue saving in a disciplined investment program. Remember: it’s time in the market that counts, not market timing.
• Protect your growing investments from setbacks. The last thing a successful investment program needs is an investor pulling money out when the markets are down. The idea is to sell high, not low. If you are worried about market fluctuation, set up a separate emergency fund equal to three to six months of income. The emergency fund should hold secure and liquid investments, such as cashable GICs, daily interest savings accounts, or other cash equivalents.

Your 40s: It’s Never Too Late

• By now many have experienced divorce, while others have had career setbacks. Regardless, it’s important not to become discouraged if you haven’t been able to save. There are still decades of savings available and decades of compounding interest that you can earn.
• If you are discouraged, seek professional financial advice. A good financial advisor will show you how to realize your full financial potential within your means.

Your 50s: The Aggressive Years

• Your children have left, you’ve paid off your mortgage, and you are in your peak earning years. With this newfound financial freedom, consider a more aggressive investment strategy to boost your savings or to speed up your retirement date. There is nothing wrong with 80% equity in a well-diversified portfolio, or, for that matter, 100%. But be careful: look ahead five to ten years and plan to increase your conservative investments to match your cash flow requirements.
• Reduce your investment risk by making sure your strategy is tax efficient. Concentrate interest-bearing investments in registered plans and hold equity investments in non-registered accounts.

Your 60s: Avoid Costly Retirement Mistakes

• Most Canadians will enjoy a long and healthy retirement, but plan to cash out your savings wisely. Have your financial advisor create a cash flow analysis to show you how much you can withdraw from savings each year, throughout retirement, without breaking the bank. Avoid these mistakes:
• 1. Failure to plan for a long retirement. In Canada the average life expectancy is 80 years old. Plan to have your money last at least to 90, if not 95.
• 2. Failure to factor in cost-of-living increases. Your savings during retirement should be structured to provide a consistent income stream that allows for inflation. Equity investments are a hedge against inflation and should be included in your assets. This is why conservative investment programs often hold 20% to 30% equity.
• 3. Becoming a target. Avoid isolation and involve your loved ones in your financial decisions. It will help to protect you from the unscrupulous when you are most vulnerable.

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