How to Navigate a Market Downturn for Retirees

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How to Navigate a Market Downturn for Retirees

With the market decline this year, people want to know what they can.

The following are suggestions and actions you can take to help navigate a market downturn.

Key Suggestions

Complete a Portfolio Performance Review

  • The first step is to find out if other portfolios with a similar investment mix have declined about the same as yours.
  • If your portfolio has declined more than similar portfolios, do a full review of your investments and asset allocation to find the reason.

Confirm you have a Globally Diversified Portfolio

  • Review your portfolio allocation, and confirm the allocation and investments are still appropriate for your requirements.
  • A globally diversified portfolio will normally include the following asset classes:
  • Canadian Equities US Equities
  1. Canadian Equities US Equities Global Equities Canadian Income Global Income
  2. US Equities Global Equities Canadian Income Global Income
  3. Global Equities Canadian Income Global Income
  4. Canadian Income Global Income
  5. Global Income
  • Also review your specific mix as over time a portfolio can drift to create a larger weighting in the prior best performing asset class.

Review your Tax Strategies

  • You may wish to review for any tax loss selling opportunities.
  • If the market value of an investment is less than the cost base, you may be able to sell and create an investment loss and reposition that investment.
  • You can carry any capital losses back 3 years, and forward indefinitely.
  • You can visit HERE or other tax strategies.

Review your Retirement Plan

  • When your retirement income plan was developed, ideally both bull and bear markets were taken into consideration to determine an appropriate investment allocation and spending amounts that can be sustainable over your lifetime.
  • You may wish to review your withdrawal rate again and re-run your plan to see what your spending risk may be, to determine if any adjustments are required.
Jack Lumsden, Financial Advisor

Review your Spending

  • One thing that you can control is your spending during market downturns. If you are worried, taking less from your retirement portfolio can help in any market downturn.

YOU COULD HAVE 6 BEAR MARKETS OVER YOUR RETIREMENT

Since 1956 the Canadian Stock Market has had 12 Bear Markets, which is about one major market decline every 5 years.

In a retirement span lasting 30 years or more, on average you may have 6 market crashes, corrections, or downturns. Most likely it will happen, you just don’t know when. You need to be prepared ahead of time and have a strategy in place.

As an example, if you retired 30 years ago in 1992, you would have gone through the market declines in 1998, 2000-2002, 2007-2009, 2018, the drop last year, and the start to this year, which has not only included the equity markets declining, but the worst quarter for the Canadian Bond Market since 1980.

Jack Lumsden, Financial Advisor

HOW TO PREPARE FOR THE NEXT MARKET DOWNTURN

Consider a Bucket Approach in Retirement

  • A bucket approach strategy for retirement divides your diversified portfolio into three main buckets:
  1. Cash Bucket: for one to two years spending. Income Bucket: the next two to six years of spending. Growth Bucket: the balance for longer term growth.
  2. Income Bucket: the next two to six years of spending. Growth Bucket: the balance for longer term growth.
  3. Growth Bucket: the balance for longer term growth.
  • The advantage of this approach for retirement is that it allows your growth investments (equities) to rebound during any market downturn, as you may not have to touch them for up to 8-10 years.
  • This strategy matches up well with a globally diversified portfolio. As an example, if you have a portfolio allocation of 40% income and 60% equities, with a 4% withdrawal rate you would have 10 years of spending in cash and income investments.

Rebalance your Investments

  • Annually you will want to review if it makes sense to rebalance your investments back to your target allocation.
  • Over time your investment allocation will drift without rebalancing, resulting in perhaps an overweight in an asset category that does not make sense.
  • This strategy can make it easier to automate the selling high and buying low strategy.

Invest using a Dollar-Cost Averaging Strategy

  • When investing, consider a dollar-cost averaging investment (DCA) strategy where you invest on a regular basis. This strategy is well suited for a market decline.
  • Each month as you buy, if the market has decreased you are investing/buying more of that investment at a lower cost, which will help to increase your returns over the longer term.

Obtain a Line of Credit

  • A good strategy is to have a line of credit in place for any large emergency that may come along so you don’t have to sell investments that may have temporarily declined.
  • When the investment has recovered, you can then sell it to pay off the line of credit.

Market declines unfortunately will happen on a regular basis, and therefore your financial and retirement plans have to take that into consideration when developing your strategy.

For more information, you can refer to Preserving Wealth: The Next Generation - The definitive guide to protecting, investing, and transferring wealth by Jack Lumsden, MBA, CFP®

Jack Lumsden, Financial Advisor

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This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see me for individual financial advice based on your personal circumstances. The information provided is for illustrative purposes only. Commissions, trailing commissions, management fees and expenses, may all be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently, and past performance may not be repeated. Please read the Fund Facts and consult your Assante Advisor before investing.
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