Stocks: Still good for retirees’ portfolios?

April 6 2009 by Ellen Roseman

That’s the subject of the PBS Nightly Business Report on April 10 (Good Friday). Previous shows in a year-long series on retirement investing are available here.

I haven’t seen the programs, but I think this is a terrific topic. Many seniors have been devastated by the stock market crash. They had way too much exposure to common and preferred shares, income trusts and equity funds in their retirement plans.

As interest rates fell to levels never seen before, many retirees wanted an alternative to investments that paid low interest. Financial advisers took advantage of their trust with promises of high returns and low risk. No one anticipated the severity of the stock market meltdown that started last year.

“It’s not about me, but my parents. I feel most adults ‘get’ your advice, but seniors are another matter,” said a reader who’s in the process of suing his father’s investment adviser.

You can read the rest of his story below.

9 comments

  1. brad

    Apr 7 2009

    One could quibble with the statement that “if your parents are over or nearing the age of 65…the stock/bond balance in the portfolio should be something like 95 per cent bonds and GIC’s with only 5 per cent in stocks or mutual funds.”

    With today’s longer expected lifespans, a mix like that will increase the risk that inflation will chip away at the value of your savings and you won’t be able to make ends meet in your 80s. What you want is enough secure income to meet your short-term needs while continuing to invest in longer-term growth for your later years. If you assume you will live to be 85, some of your investments have 20 years to grow. I don’t think a 95/5 percent split is going to give you anywhere enough growth over that period to keep pace with inflation. I would separate my portfolio into the money I’m going to need over the next decade (and put nearly all of that into secure investments) and money I’ll need during the decades after that (and put the majority of that into index funds).

  2. Ray

    Apr 7 2009

    I am sorry about your dad’s funds, this is not the first time we hear stories about bad advisors and unfortunately it will not be the last time. That is why it is so important for people to do regular reviews, educate themselves and ASK THE THOUGH QUESTIONS!

    However something did concern me in the letter, moved from 100% stocks to 100% bonds. I understand you moving into wealth preservation stage, but 100% OF EITHER is not good. Also moving to 100% bond will have a very negative effect during high inflation periods, and I strongly believe we are moving into very high inflationary period.

    Asset Allocation is important at all stages of investment! I recently wrote a post on this topic:
    http://financialhighway.com/asset-allocation-what-it-is-and-why-its-important/

    the best results are obtained when you have mix of both, stocks AND bonds, efficient frontier.

    I highly doubt if the move was a good move for your dad, he has already lost 40% of his portfolio and selling all the stocks at this stage might have been counter productive.

    Maybe your dad could benefit from the new Segregated funds “Guaranteed income” like income plus from manulife. It at protects you from downturns and you can benefit from upturns, however they do come with a price tag.

    Again I highly recommend reviewing your dads bond holdings and potentially adding SOME equities.

  3. pat

    Apr 7 2009

    People, stop selling this guy solutions! What this is really about is the need to become a partner in your parents’ wellbeing – whether it’s health, care, housing or fnances – to recognize & head off situations like this. There’s no magic bullet, and no product or plan is a quick-fix – just be there for them.

  4. brad

    Apr 7 2009

    @Pat: “Being there” for them involves recognizing and heading off situations like the one Ray and myself pointed out above. We aren’t “selling solutions,” we’re trying to head off a bad situation, which is precisely the role that a concerned son/daughter/friend should take.

  5. Ray

    Apr 7 2009

    EM are this Mutual Fund holdings? You could look at the guaranteed products, like income plus. Seems like you have about 27% in equities and good amount in balanced funds so it also fairly good to me. It also depends on what type of funds you are holding. If cost is an issue look into the couch potato strategy.

  6. Hollie

    Apr 7 2009

    Just wanted to let you know that I love your blog posts, and your other stuff too, and posted you as one of the Top 10 Canadian Blogs that help You Save Money. Thanks for all you do to help us Canucks!

  7. Mike Macdonald

    Apr 14 2009

    EM, NO that is not a conservative portfolio.

    Being in a “balanced fund” actually tells you very little. You may have 70% of those funds in equities and as the allocation changes in the fund, you get no notification.

    Balanced funds are NOT an asset class and having one does not help you understand what you own. They are great funds for lazy advisors.

    As to the comment on Income Plus, that is a very expensive product that is selling you a guarantee AFTER the market dropped. It made sense 18 months ago, but not so much today.

    I suggest you have your advisor put you in “pure” equity or Fixed Income funds and get rid of the balanced funds. At least then you can see your equity exposure at a glance.