While most of us have been enjoying the historically low interest rates on our Toronto mortgages or home equity loans, there’s one group that’s not nearly as thrilled about them: retirees who are looking to invest in their future.
The problem is that while investments such as bonds and GICs used to be the investment tool of choice for retirees that were looking for high yields in a relatively short time, and at a time when they needed them the most – when they no longer had any income coming in. But now, with interest rates so low, investors and retirees are seeing almost no yields on their investments, and definitely not the huge ROIs that their parents or grandparents may have told them about.
Serge Pepin, vice president of investment strategy with BMO’s Globel Assessment Management says, “It is getting more and more challenging, and it has been for the past two or three years now and more than likely will remain challenging for investors, especially those going into retirement or already in retirement.”
So it’s a difficult situation, but what’s the answer? Mr De Goey, vice president and associate portfolio manager for Burgeonvest Bick Securities, gives four options. He says that Canadian retirees can either: save more before and during retirement; invest more while taking on more risk; live on less money and have a different retirement than planned for; or work longer and push back retirement date.
“My experience is that most people will not save more and people’s tolerance for risk will not change,” he said. “That leaves the last two: either work longer, or retire when you wanted to and accept a lower quality of life.”
Mr. Pepin has his own answer, saying that when inflation is high and returns are low, “Investors really have to look beyond bonds, beyond GICs. They should still be an important part of your portfolio, but definitely look for opportunities such as dividend paying stocks, preferred shares as well as REITs and energy trusts should probably be part of your portfolio as well.”
But one more expert, Toronto accountant and author, David Trahair, offers one more solution. “I don’t think inflation should have anything to do with what to invest in,” he says. “The problem that I have is that many people who try to push the stock market use inflation as an argument that people should take on more risk on their investments.”
“On average it is close to ten per cent a year, Mr. Trahair continues. “The problem is that most people get nowhere near that. My rate of return was pathetic. Even if I switched investment advisers and all of a sudden I was going to start making eight to ten per cent a year, I determined that getting out of debt was my number one priority.”
What do you think is the best strategy for retirees that are trying to find the best investment – with the lowest interest rates possible?
