Close to retirement? How Boomers can ride out the volatility

It seems like wildly volatile markets have become the new normal, and as Baby Boomers approach retirement age, they may be looking at their retirement nest egg with increased concern.

Sixty-one per cent of Canadians are worried about having enough money for the lifestyle they want in retirement, according to the "TD Age of Retirement Report," while more than one-third (37 per cent) are concerned they will outlive their savings.

Since 2000 we've endured two of the worst stock market downturns since the Great Depression, says Bob Gorman, chief portfolio strategist, TD Waterhouse in Toronto. That in-turn has made people gun shy with respect to investing, opting for more conservative, fixed-income-type vehicles over equities.

"There's an inherent conservatism that goes along with retirement savings," Gorman says. "While that's fine to a degree, if you're investing for a long time — this is a pension plan and you should think of it that way with a long investment horizon. A lot of folks have been very conservative and that's been reinforced by what's gone on in the past decade."

Typical investment planning suggests the longer your time horizon the more risk one should take as volatility will eventually smooth out over the course of a couple decades.

But as the markets gyrate, Canadians are becoming more entrenched in their conservative investing style, prompting them to hold on to more cash, which could affect their overall returns.

"High cash levels over time will underperform," he warns. "That's what it boils down to in terms of market turbulence and the impact on the street."

Want to know how to ride out the wild ride? TD's tips to help build an industrial strength portfolio include:

Don't flee from the markets because you're worried about volatility
Investing is still one of the best ways to plan and save for retirement. There are a number of available investments and savings products that offer good yields and returns that won't cause you to lose sleep at night.

Generate income in a low-interest rate world
Recent low interest rates have resulted in many Canadians facing shortfalls in their investment income. Take advantage of investment strategies that will tax-efficiently increase your income streams and offer inflation protection, without inordinate risk.

Consider your time horizon and risk tolerance
People often move to safer investments as they approach retirement because they have less time for the markets to correct in case of loss. However, since riskier investments may offer higher returns, many investors find it hard to determine the right balance between risk and potential for reward.

Taking into consideration the challenge of balancing investing for a greater return and the risk involved, Gorman adds it'll vary depending upon the person. Often times, he'll begin that discussion with someone by suggesting that they think of themselves as a pension plan.

"Pension plans in Canada will generally have equity exposure that's about 55 per cent to 60 per cent on average (with the rest being fixed income investments)," he says. "They're structured that way as the objective is to invest for the long-term benefit of the plan holders to get good returns without stomach-turning volatility.

Most people are looking for more or less the same thing: A good return over time but with volatility that they can live with.

"I'm generalizing but most people would be well-advised to have a pension fund type of mix with 55 to 60 per cent equity," he adds. "That will probably help them achieve the retirement objectives without so much risk that it makes it tough to sleep at night."