Smith: How to avoid losing money in equity markets

Roller coaster market ride conditions still prevalent.

As I write this  column, the equity markets continue on a roller coaster ride in 2011. Whether you own individual stocks or mutual funds, it has been a year of highs and lows.

Investors want to accumulate wealth, but when they see the value of their investments decrease on paper, the reaction may be to sell.

It is bad timing to sell at a loss due to market volatility. The psychology of investing does strange things at the peaks or troughs of market cycles.

Human emotions often influence investors to make misguided decisions.  If the markets make you nervous, or if you sell out of the equity markets to retreat into the safety of GICs, be careful of what you wish for.

This is a newer breed of retirement planning.

GMWBs are designed to provide a guaranteed income stream for life, and also have additional features. In pre-retirement you can earn an income bonus each year that no withdrawal is taken, regardless of market conditions.

These bonuses are not cash deposits. They increase the basis for calculating the amount taken as retirement income in the future. You also have an opportunity to increase your income guarantee when equity markets perform better than anticipated. The longer you can wait to start the withdrawal process in retirement; the payout percentage will increase. There is a survivor pension for your spouse after your death, similar to company owned pension plans.

In the event of death, a minimum of 100 per cent of the investment (proportionally reduced for any withdrawal) would be guaranteed to be paid to the named beneficiary.

This also eliminates the risk of market volatility, when death occurs during a low point in the equity markets.

A GIC investment pays one to three per cent  per year based on today’s low interest rates.

A RRIF minimal withdrawal payment at age 71 is 7.38 per cent. At age 77, the withdrawal payment is 8.15 per cent.

The RRIF minimal withdrawal payment increases each year to max out at age 94 with the mandatory withdrawal payment of 20 per cent.

When you do the math, the calculation will show you that your GIC principal decreases each year by about five to seven per cent.

A RRIF quickly depletes when the annual mandatory RRIF income increases each year, while the GIC interest income pays less than 1/2 of the revenue income required.

A GIC investment /savings strategy will guarantee you run out of money if you live long enough.

You should convert the necessary amount of retirement income into a guaranteed income for life investment strategy to ensure you do not run out of money in retirement.

If you are responsible for your own retirement, and your own personal pension, you should think and act like the large pension companies in Canada.

Pensionize your own nest egg. The No. 1 fear after you accumulate wealth is the pervasive fear of losing your accumulation of wealth.  You need to build a solid financial foundation to guarantee your income stream in retirement, to ensure your money does not run out during your lifetime.

Doreen Smith is a Certified Financial Planner with Capri Wealth Management Inc. and Manulife Securities Investment Services Inc. The opinions expressed are those of the author and may not reflect those of Manulife Securities Investment Services Inc.

 

www.DoreenSmithCFP.com

 

 

Kelowna Capital News

Just Posted

A GoFundMe page has been launched to alleviate the financial burden for “Captain” Kelly, a former Peachland School District bus driver who was recently diagnosed with stage three lung and lymphatic cancer. (GoFundMe.com)
Fundraiser launched for former Peachland school bus driver diagnosed with cancer

“Captain” Kelly was recently diagnosed with stage three lung and lymphatic cancer

Brenda Ware. (RCMP)
Murder charge laid against man in Kootenay National Park homicide

Philip Toner was located in Lake Country on May 11

Michelle St. Pierre, UBCO’s 2021 graduate student researcher of the year, is hoping to change the discussion surrounding the therapeutic use of psychedelic drugs. (UBCO photo)
UBCO researcher examining therapeutic use of psychedelic drugs

Michelle St. Pierre has been researching the use of psychedelics since 2015

The community is rallying around Phil Hotzon who needs a new electric tricycle. (Contributed)
Tricycle for Phil: Support pours in for Kelowna man with traumatic brain injury

Phil Hotzon lost his electric tricycle after falling into Mill Creek, fundraiser aims to replace it

B.C. Labour Minister Harry Bains in the B.C. legislature, May 13, 2019. (Hansard TV)
VIDEO: B.C. to provide 3 days of sick pay for COVID-19 absences

Province will support employers on cost, labour minister says

Have you seen David Melanson?
Kamloops RCMP searching for missing Vernon area man

David Melanson was last seen in the Kamloops area

Brad MacKenzie, advocacy chair for the ALS Society of B.C., says having research projects in the province allows people here to have access to cutting-edge treatments now being developed. (B.C. government video)
B.C. funds research chair for Lou Gehrig’s disease at UBC

Pandemic has cut off patient access to international projects

In this Monday, March 15, 2021 file photo a vial of AstraZeneca vaccine is pictured in a pharmacy in Boulogne Billancourt, outside Paris. Questions remained Wednesday about the future of the Oxford-AstraZeneca vaccine in Canada, as Manitoba limited use of the shot and Ontario announced it planned to save an incoming shipment to use as second doses. THE CANADIAN PRESS/AP/Christophe Ena, File
Questions remain about the future of the Oxford-AstraZeneca shot in Canada

More than two million Canadians have received AstraZeneca and 17 have been confirmed to have VITT

Cannabis bought in British Columbia (Ashley Wadhwani/Black Press Media)
Is it time to start thinking about greener ways to package cannabis?

Packaging suppliers are still figuring eco-friendly and affordable packaging options that fit the mandates of Cannabis Regulations

A Mountie issued B.C. RCMP’s first ticket for non-essential travel May 1. (Black Press Media files)
Driver ticketed, told to ‘return to Lower Mainland immediately’ by Vancouver Island police

The motorist was originally pulled over for driving-related offences May 1

Children walk back to their classroom while wearing masks and physical distancing at St. Barnabas Catholic School in Scarborough, Ont., in October, 2020. A group of B.C. teachers has issued an open letter calling for the relaxation of non-pharmaceutical interventions for children in B.C. schools. (Nathan Denette/The Canadian Press)
Group of B.C. teachers calls for easing of pandemic measures for students

Teacher group says ‘response to COVID is out of balance to the cost our youth are paying’

Most Read