Revisit Your Target Asset Mix

Periodically review your investment asset mix. An approaching retirement is the most common trigger for reallocation of your target asset mix/investor profile because it entails a fundamental change in life and financial circumstances. Today, you may have a retirement portfolio with an asset mix that promotes growth. However, as you approach retirement, that portfolio might need to have an asset allocation that generates retirement income and is more sensitive to capital preservation.

Is it time to reallocate? Reallocation is the process of altering the mix of asset classes in your portfolio to adjust for new investment priorities. Your income needs, risk tolerance and capacity to withstand market volatility will continue to change throughout your retirement years. This should be reflected in the percentage of investments held between cash, fixed income, and equities. 

You may want to start the reallocation process when you are ten years or less from your retirement date. As you do so, consider the following steps.

  • Complete an asset allocation tool/investor profile questionnaire or work with a professional advisor to reallocate your asset mix.
  • Calculate what the target asset mix should be in year one of your retirement. Compare it to what you have today.
  • Assess how much and when your portfolio will be required to generate income. Estimate the amount of your retirement income that will be drawn from your investments.
  • Map out a timeline to reallocate today’s target asset mix/investor profile to the retirement one, ideally over a period of five to seven years prior to retirement.

Other Factors

Many factors need to be considered when determining an investment asset mix. An 85-year-old widow with mainly annuity income may choose a balanced portfolio with 60% in equities, because she doesn’t need the income and wants to keep her taxes down. Conversely, a 60-year-old couple may find that an asset mix of 40% equities and 60% fixed income better suits their need for ongoing income coupled with modest long-term growth. Individuals need to assess and review their investor profile as they age, but age is not the only criteria.

What other income sources will be available during retirement? Will you or your partner continue to work? Do you have farm or rental income? What about a company pension plan? Determine how much of your desired income will need to be generated by your investment portfolio. Do complete a Retirement Income Timeline for each stage, including partial retirement, full retirement and when government income programs, such as CPP/QPP, OAS, start.

Rebalance vs. Reallocate

Reallocate or rebalance: can you tell the difference? Find out. Take the quiz.

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Today, you may have a retirement portfolio with an asset mix that promotes growth. However, as you approach retirement, that portfolio might need to have an asset allocation that generates retirement income and is more sensitive to capital preservation.