Unfortunately, what goes up must come down and recent volatility illustrates that the stock market is no exception. Your head knows this is the time NOT to check your investments every day or start selling at a loss, but your heart is still going pitter patter at random hours of the day and night.

There is little doubt that unpredictable markets will likely be the norm for the near future. This week we present blogs and mainstream media articles to help you achieve the intestinal fortitude to ride out the storm, particularly if you are retired or close to retirement.

The S&P 500 and Dow Jones Industrial Average both entered correction territory in early February — closing down 10% from the all-time highs that each hit several weeks earlier. The TSX also shed hundreds of points. Fortune explained the drop this way:

“The selloff comes as investors grow worried that the stock market may have run up too much too fast in anticipation of the impact of President Trump’s tax reforms…..The Bank of England likely also fueled some concerns that central banks worldwide would boost interest rates.”

On the Financial Independence Hub, Adrian Mastracci wrote that although you may be rattled by the correction, Diversification keeps your nest egg on the rails. He explained that diversification among asset classes, economic regions, time to maturity, foreign currencies and investment quality increases the odds of you being right more often than wrong. When some selections are suffering, others can step up and help cushion the rest of your portfolio.

For example, the diversified Saskatchewan Pension Plan Balanced Fund is professionally-managed by Greystone Managed Investments and Leith Wheeler Investment Counsel. As of December 31, 2017 the balanced fund portfolio is invested as follows:

• 30.6%: Bonds and mortgages
• 19.3%: International equities
• 19.2%: Canadian equities
• 18.8%: U.S. equities
• 10.2%: Real estate
• 1.9%: Money market

SPP has rated the volatility of this fund as low to medium. Nevertheless, the fund does not have any return guarantees.

The Globe and Mail’s Rob Carrick offers reasons why you should be grateful for the market freakout. “The markets are likely to be ornery for the next while, but there’s no need for radical surgery on properly diversified portfolios of stocks, bonds and cash that you’re holding for the long term,” he says. “Think about strategically adding stocks, not subtracting. After any big market decline, put a little money into quality stocks or exchange-traded funds and mutual funds that hold them.”

On the HuffPost Ann Brenoff addresses How To Handle A Stock Market Drop When You’re Retired. She acknowledges that for retirees or those close to retirement recent market gyrations are gut-wrenching. She comments, “Even those in their 60s likely have many investment years ahead of them. And with that length of time, you will have plenty of opportunity to recover from these types of market drops, she said. The key, though, is staying invested.” Brenoff also points out that if you were invested even just a few months ago, there’s an excellent chance you’re still ahead despite two days of falling prices.

Several months ago Ian McGugan’s column in the Globe and Mail suggests Five things to do if you’re nearing or in retirement and fearing a market pullback. He cites several takeaways from Wade Pfau, an economist at American College in Philadelphia:

1. If you’ve won, stop gambling.
2. Plan for lower returns.
3. Think safety, not wealth.
4. Consider alternatives such as annuities.

Pfau also recommends you ask yourself two questions if you are in doubt whether to stay heavily invested in the stock market: “How would you feel if your wealth doubled? How would you feel if your wealth fell in half? “Most people find the prospect of losing a substantial part of their portfolio far outweighs the possible pleasure of having substantially more,” he said.

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Written by Sheryl Smolkin
	Sheryl Smolkin LLB., LLM is a retired pension lawyer and President of Sheryl Smolkin & Associates Ltd. For over a decade, she has enjoyed a successful encore career as a freelance writer specializing in retirement, employee benefits and workplace issues. Sheryl and her husband Joel are empty-nesters, residing in Toronto with their cockapoo Rufus.

By Sheryl Smolkin

With Brexit, the election of Donald Trump and the stock market’s long bull run in 2016, the big question everyone is asking is what is in store for the Canadian economy in 2017?

Well, it depends who you ask and on what day. Here are a few recent predictions in the mainstream media, which may or may not pan out. You be the judge.

Not surprisingly, there’s one risk that “Trumps” them all for Canada’s economy in 2017, said Royal Bank Chief Economist Craig Wright in early January at the Economic Outlook 2017 event in Toronto.

The impact of U.S. growth on Canada depends on the policies that are put in place across the border under President-elect Donald Trump, but at a minimum Wright noted the U.S. is headed in a more competitive direction, while Canada seems to be moving the other way. “So it’s not yet clear whether Canada will see a ‘Trump bump’ or perhaps a ‘Trump slump,'” he told iPolitic reporter Ainslie Cruickshank.

The Financial Post reports that the best loonie forecaster in the world believes the Canadian dollar will beat all its G10 peers this year. The loonie will nudge an additional 0.75 per cent higher to 75.75 US cents by the end of the year, according to Konrad Bialas, chief economist at Warsaw-based foreign-exchange broker Dom Maklerski TMS Brokers SA, who topped a Bloomberg ranking of Canadian dollar forecasters in the fourth quarter. That would extend the loonie’s three percent gain from last year, which made it the best performer among its Group-of-10 peers.

In the Globe and Mail economist Todd Hirsch makes a series of bold (and some not-so-bold) predictions for Canada’s economy in 2017 and beyond. For example:

1. Canada-U.S. trade disputes will intensify.
2. The Canadian dollar will dip below 70 cents early in the year, but finish 2017 at 78 cents.
3. The Keystone XL pipeline will get Washington’s approval.
4. And for sports fans, Montreal will win the Stanley Cup; University of Calgary Dinos will win the Vanier Cup; and, the Winnipeg Blue Bombers will win the Grey Cup.

On CBC News, Paul Evans offers the following  five reasons why Canada’s economy is looking up in 2017.

1. The job market is recovering.
2. Oil could be headed higher – finally.
3. Despite of predictions to the contrary, the loonie could be headed higher.
4. Trade is picking up.
5. The TSX is near an all-time high.

Nevertheless, analysis from the Centre for Economics and Business Research (a UK think tank), published in co-operation with Global Construction Perspectives says Canadawill have the world’s 10th largest economy in 2017, but will be overtaken in a few years by South Korea.

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By Sheryl Smolkin

Today I’m interviewing accountant Dave Trahair for savewithspp.com. Dave operates his own personal finance training firm, and he is also the author of five personal finance books. He offers seminars based on his books to organizations, including CPA Canada and its provincial accounting affiliates. His most recent book is The Procrastinator’s Guide to Retirement: How YOU can retire in 10 years or less, and that’s what we’re going to talk about today.

Q: What portion of the population do you think is 10 years or more out from retirement and not saving enough?
A: It’s hard to pin it down to a specific percentage, but I would say the vast majority of people who don’t have defined benefit pension plans are in that boat. Unfortunately, this type of plan is going the way of the dodo bird, because with the low interest rate environment and what’s happening in the stock market, the people running those kinds of pension plans can’t save enough to fulfill their promise. It’s hard to come up with a precise number, but I bet you 80% of people without a defined benefit pension plan are nowhere near ready, financially, to fund their retirement.

Q: Why do you think so many people procrastinate when it comes to planning and saving for retirement?
A: Well, I think for some, it’s just that they’re bad with money, and they spend more than they make. They run on credit card debt, and they’re never really even thinking about getting their lives under control, financially. For many of the rest of us, even if we aren’t fiscally irresponsible, it’s just that life is expensive.

Think of people in their 20s who have just graduated from university. Many of them are saddled with student loan debt and they are having problems trying to find a full-time job in their field. Forget retirement savings. That’s so far down the road. They’ve got more pressing concerns at that stage in their life.

People in their 30s and 40s tend to do things like get married, have kids, and buy a house. These kinds of activities are very costly and therefore, many people find that there simply isn’t any money, at the end of the day to save for retirement. It’s not because they’re wasteful spenders.

Q: Continuing with the same theme, if you ask most people, they’ll probably tell you they’re tapped out. They don’t have extra money left over at the end of the month. Where can these people find the money to save?
A: That’s a very good question, and one of the key concepts in the book. I always tell people when I’m asked, “What’s the first thing you can do to help get your finances under control?” The answer is to somehow track your personal spending.

For effective financial planning you have to start with what’s happened in the past. That is your personal spending. Once you have a handle on where all the money went in the past, then you can take proactive steps to get your finances under control and probably find some areas where you could cut back and free up some spare cash for your retirement savings.

One of the big problems out there is revolving credit card debt. According to the Canadian Bankers Association, only about 60% of Canadians pay off their credit cards each and every month and, therefore, don’t incur interest charges. That means about 40% of Canadians can’t even pay off their credit cards, which means, essentially, that they’re spending more than they make.

Q: My first thought when I got your book was that it’s a great road map for saving in the last ten years before retirement, but the information is quite similar to most of the personal finance books I’ve read. What’s different about your book? What makes it a must-read for all Canadians and, in particular, those who are only a decade from retirement?
A: Yes, fair question. The first point that I’d make in response is that there is no magic bullet when it comes to personal finance. It’s really pretty basic. You could sum it up in one sentence.

All you have to do is live your life, spend less than you make, and do something positive with the excess money. The problem is most people aren’t doing that. There are books out there that play upon peoples’ wish to get ahead financially, easily or automatically. That’s just taking advantage of readers. The really good personal finance books out there, attack the root of the matter (as my book does) which is that your spending has to be less than your income.

What makes my books different — this one and the other ones I’ve written — is that I give away Microsoft Excel spreadsheets people can actually apply to their own situations. I use the spreadsheets as examples in the book, and then I say, “Look, go to the next step. Download the free spreadsheet, punch in your own numbers, and see what conclusion you come to about your life.”

Q: If readers are approaching retirement with consumer debt and a mortgage, where should they put their money first? Should they hold off on making RRSP contributions until they are completely debt free?
A: Good questions. I would say that it depends on the type of debt. If we believe the Canadian Bankers Association that at least 40% of Canadians have ugly credit card debt, the only thing these people should be thinking about is trying to get rid of that obligation. Forget paying down the mortgage. Forget making RRSP contributions. Even if there is a tax refund on RRSP contributions, they are effectively financing it at a very high interest rate because the alternative would be to pay down their credit cards.

There’s a chapter in the book on four people in that situation, which basically lays out the different options for getting rid of credit card debt. The problem is that it really requires a mind shift. It requires people to change their basic habits and it is really, really difficult to get them to do this.

Once a family has paid off their credit cards, the decision becomes “contribute to an RRSP or pay down the mortgage.” The first observation I would make in that case is that either option is a good alternative. You’ve got extra money, whether you pay down the mortgage or make an RRSP contribution, you can’t lose in either case.

However, with the ultra-low interest rate environment right now and assuming the person we’re talking about is in a reasonably high tax bracket, making $80,000 or $100,000 or more, it’s difficult to beat the huge economic benefit of a tax refund.

Q: To what extent should Canadians planning for retirement take future health and long-term care costs into consideration, and how can they quantify these amounts, for budgeting purposes?
A: That’s a very difficult question to answer and a very challenging thing for many people. We have provincial health plans in Canada, so we’re a lot further ahead than our neighbors to the south. The government plans aren’t perfect, but they’re a good basis for covering many of your health costs.

However, some other areas related to healthcare are not covered by the provincial plans, and this becomes a big problem for couples, say, when one of them has an ailment that requires him/her to go into a long-term care facility or nursing home. That can be very, very expensive. This is when people get into trouble with their finances due to health costs. In a lot of cases, it will be one of the spouses who needs long-term care and the other one is still living in the house, so it essentially almost doubles the family’s living costs.

Many people are able to cover the high costs of long-term care because they bought their home and own it out right. That is why I always encourage people who can afford a home to buy it and pay off the mortgage. Then you’ve got something worth significant money so you could sell and downsize or even take out a home equity line of credit to finance costs related to long-term care.

It really is an individual thing that requires a lot of thought and is difficult to pin down. It’s difficult to budget for retiree health care costs and yet the expenses can be onerous if you’re not prepared.

Q: I noticed you were recently interviewed for the “Me and My Money” column in The Globe and Mail. Your investments are very conservative – a high-interest savings account and guaranteed investment certificates. This is very contrary to what even independent financial advisors usually recommend. Why don’t you hold any equities?
A: I have no exposure to the stock market. That’s because I’m a very conservative accountant. I don’t like losses. I have spent a lot of time studying the stock market. I wrote a book on it called Enough Bull a couple of years ago.

If you look at long-term historical rates of returns, say, for the Canadian stock market, the S&P/TSX composite total return index which includes reinvested dividends, has done fantastically well —  9% per year. The problem is, for many reasons, most people come nowhere near what the ideal index has made.

That’s because they get emotional when the stock market crashes. They panic and sell at the wrong time. They sell low and buy high, which is the opposite of what you’re supposed to do. The other issue is that when it comes to personal finance, who has fifty years to go to retirement? You can’t assume that you’re going to earn the long-term, fifty year historical average rate.

I love fixed income products like GICs because they’re easy to understand; they’re guaranteed if you buy them from a financial institution, like any of the big six banks that are members of the CDIC (Canada Deposit Insurance Corporation); and, you can’t lose your money. The downside of course is they’re not paying very much interest. You’d be lucky to get about a two percent average rate of return.

The problem is most people using the recommended strategy of an investment advisor have a lot of exposure to the stock market. They think they’re making six or eight percent after fees and, therefore, laugh at GICs making two percent, but in many cases, they aren’t earning what they think they are.

Q: At age fifty-seven, you’re less than ten years from the normal retirement date of age sixty-five. Do you have a planned retirement date in mind?
A: I don’t really have a retirement date in mind. I mean, I love most of what I do. My plan is to slow down, do less hours, hopefully do some of the things I currently do, like writing and giving seminars, and earn some money doing that. I plan to slow down but I really don’t have any dreams about stopping work at sixty or even sixty-five, so again, that’s an individual choice.

Q: In closing, if you had one piece of advice for people who are ten years out from retirement, what would it be?
A: Well, first of all, I would say you have got to track your spending. I know it’s boring. I know it’s time consuming. I know not everybody is a specialist or likes dealing with spreadsheets. But that’s the most powerful information you can get because it’s personal. That’s what you need to start with: your family’s personal spending.

Q: Thank you, Dave. It’s a pleasure to talk to you today.
A: Thanks for having me, Sheryl.

 

 

 

 

 

 

 

David Tahair, author of
The Procrastinator’s Guide to Retirement: How to Retire in 10 Years or Less