Q: As a retiree, I am mostly invested in bonds and GICs. I am a conservative investor, but I’m beginning to get concerned over the low rates my investments are paying. Should I be worried?

A: Conservative investors, such as yourself, typically gravitate toward ‘safe’ investments, usually fixed-income investments. But with interest rates still hovering at historic lows, many are concerned about whether their fixed-income investments will keep up with rising inflation levels or unexpected life events and adequately fund their retirement years. And those are valid concerns.

Conservative investors like fixed-income securities such as bonds, GICs, and savings accounts because they have a reputation for reliability, stability, and security – and they do have an important place in a well-diversified portfolio. Some investors turn to them because they have been “burnt” by the stock market in the past, or are simply making their decisions based on fear. The problem is that most individual investors make their investment decisions through the rear-view mirror instead of through the windshield. This is human nature if you’ve had a bad experience in the past, but it’s usually what gets most individual investors into trouble. It’s after the stock markets have experienced a bad period that they are most likely to produce good returns in the years ahead. So make sure you look forward in your investment decisions to ensure you don’t miss opportunities to keep your retirement income at pace with inflation and your lifestyle needs.

The key is to always have a well-balanced portfolio tailored precisely to your expectations for growth, tolerance for risk, and life/retirement objectives. But well-balanced today doesn’t necessarily mean well-balanced tomorrow.

Interest and inflation rates go up and down
Markets and the economy go up and down
Your life changes – maybe you are now taking care of an adult child or have additional health care costs
You revise your retirement dreams – adding more travel or deciding to downsize earlier rather than later

That’s why reassessing your financial life and plans are critical to ensuring a well-funded retirement. Your initial plan provided guidance on your goals at that time and how to invest to achieve them. But, as time goes by, the actual returns on your investments may be different than anticipated, or your retirement objectives may have changed – so you need to re-evaluate … and the best way to do that is through an annual review of your current portfolio and retirement plans to ensure your investment plan and retirement income measure up to your expectations.

By consistently evaluating your investments based on the potential for changes in the economy and your personal life, you can help ensure you are prepared to cope with the challenges while continuing to financially prepare to achieve your retirement dreams. Your professional financial planner can work with you to determine the right diversification based on both personal and external factors.

Lynn MacNeil, Pl.Fin. is a licensed Financial Planner with Investors Group Financial Services Inc., specializing in retirement, tax & estate planning for retirees. This column is presented as a general source of information only and is not intended as a solicitation to buy or sell investments, nor is it intended to provide legal advice. For more information on this topic or on any other investment or financial matter, please contact Lynn MacNeil at (514) 693-3384 or [email protected]

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