Risk Aversion May Be Putting Your Retirement at Risk

Canadians are renowned for being conservative; but a recent study by CIBC suggests that this conservative approach may be putting retirement dreams at risk when it comes to their finances.

The survey found that 57% of those asked were more interested in low risk, guaranteed or no-risk investments this year.  “For those invested in low risk instruments, such as GICs or T-Bills, the challenge at this particular time is that those instruments have never been lower-yielding,” says Steve Geist, president of CIBC Asset Management.  “There is a true cost to individuals in that low risk approach in that they are not really being rewarded.”

In the 1970s and 1980s investors could have earned a decent retirement income using Canada Savings Bonds, but those days are gone.  Investors are expected to return to equity markets once the European debt concerns and a sluggish U.S. recovery is behind us.  Unfortunately investors wait to see a 20% return on equity markets before jumping back in – the problem is they have missed the 20% gain.

It is really important to focus on the returns you expect to get from your investments, and realize the term ‘risk’ is not always a bad thing.

While avoiding risk, 45% of investors don’t even know what kind of returns they need to achieve their retirement goals.  Another ‘tragedy’ is that 44% of those surveyed; who planned on making an RRSP contribution last month weren’t even planning on seeking professional advice on how to invest their money.  Furthermore, 28% expect their 2012 return to be less than previous years.

What returns can you expect in 2012?  Geist offers some soft targets for investors.  Industry professionals agree North American equities are predicted to earn ‘high single digits’ in 2012, while emerging markets are expected to earn ‘low double digits returns’.

Bond yields should earn around 2% - 3%.  Although by adding investment grade corporate bonds to your fixed income portfolio you will achieve higher yields with relatively the same risk as government bonds.

Cash will earn 1% -1.25% in a high interest savings account, not a great return but better than a regular savings account.

The recommendation for having a well diversified portfolio never changes, but how that portfolio is balanced; depends on your individual needs and retirement goals.

To review your portfolio, or rethink where you invested that RRSP contribution, give me a call.

Have a great weekend,

Tracey

Source:  advisor.ca