It's Your Money  

Is fear your investor guide?

Is a fear of the stock markets going to ruin your retirement?  If you’re under the age of 40, it just might. 

Canadians at all stages of life can struggle to adequately prepare for retirement, but the younger generations are at particularly high risk right now; and if something isn’t done to change this soon, the retirement world in another couple of decades will be far worse than it is now. 

There are a lot of reasons why the Gen Xers and Millennials (those Canadians aged 18-40 right now) are falling behind in retirement planning including far fewer defined benefit pension plans being offered and more choosing to work freelance or start their own companies.

But the biggest reason of all may just be plain and simple fear. 

You see, the Baby Boomers retiring today have been through several stock market cycles and have become a little less phased by the ups and downs of market turmoil.

Those who stayed invested through 2008 have seen tremendous gains in the extended bull run that we’ve enjoyed since.  

The younger generations however began their investment careers shortly before 2008 or even just before the dot.com bubble burst in the spring of 2000. 

They experienced two “once in a century” market events inside of their first decade as an investor and many don’t have the stomach for it anymore.

Although many of these same younger investors may not have been seriously hurt in 2008, they were likely affected by their parent’s experiences and depressing economic news while they were beginning to launch their own careers and become financially independent. 

A study last fall found that 80 per cent of those aged 18-35 saved regularly, but only 47 per cent of them invested their savings. Many of those that were saving were putting their money into low risk vehicles like GICs and high interest savings accounts. 

Sure, a small group of these savers might put away enough on their own to retire, but the clear majority will need to rely on investment growth to fulfil their retirement needs. 

A 25-year-old investor putting away $500 per month until they reach 65 would have a nest egg of $1.31 million if they were able to average a seven per cent per year rate of return. 

That same 25-year-old would only have $463,000 at age 65 if they earned an average of three per cent per year. 

You really have two choices to make with your retirement savings. You can accept lower rates of return or you can adjust your risk tolerances to accept some level of market risks. 

There is a huge cost to not starting to invest your savings at a young age and the fear surrounding market volatilities is setting up the next generation of retirees for a big surprise.

The key of course is to build an investment strategy with a tolerable amount of market risk and volatility and not go into something that your fears will force you to sell out of at the wrong time.

Riding out the inevitable ups and downs and not investing in anything too high risk is a key component of a well-rounded retirement savings plan.          

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About the Author

Designated as a chartered investment manager and certified financial planner, Brett holds life insurance and investment licenses in B.C., Alberta and Ontario.

In addition to being the owner of Kelowna-based SPEIR Wealth Management Inc., Brett also serves as the vice-chair of the Financial Planning Standards Council of Canada’s board of directors. 

Brett has been writing a weekly financial planning column since 2012 and provides his readers with easy to understand explanations for the complex financial challenges that they face in every stage of life.

Enhancing the financial literacy of Canadian consumers is a top priority of Brett’s and his ongoing efforts as a finance writer and on the regulatory side through the FPSC board focus on this initiative.   

Please let Brett know if you have any topics that you’d like him to cover in future columns by emailing him at [email protected].

For more information or to see a database of previous columns, visit www.speirwealth.com.

The views expressed are strictly those of the author and not necessarily those of Castanet. Castanet does not warrant the contents.

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