“Welcome to the PlanEasy blog! We make personal finance easy.

Thanks for visiting.”

– Owen

The Biggest Risk In Retirement Is… Sequence Of Returns Risk

The Biggest Risk In Retirement Is… Sequence Of Returns Risk

There are a lot of risks that we face in retirement (including early retirement). When you enter retirement, there are lots of changes happening all at once. Along with big personal changes, and lifestyle changes, there are also big changes happening to your finances. After you enter retirement one of the biggest financial changes you’ll face is a shift from a regular income source (eg. employment) to an income source based entirely on your own savings and pension. Making this switch can create a few risks, one of those risks is the risk of running out of money.

One of the biggest risks facing retirees is something called sequence of returns risk. When a good portion of your retirement income comes from your own savings this is the biggest risk a retiree can face. But what does “sequence of returns risk” mean exactly?

Before we talk about sequence of returns risk it’s important to understand that most retirement plans are based on an assumed (and constant) investment return each year. This investment return is usually assumed to happen in a straight line with the same percentage return each year. An assumed return of return of 5% would be 5% per year starting on the day you retire, but in reality your investment return is going to fluctuate from year to year, and this is where the risk comes from.

Over the short-term you will probably see your investment return fluctuate greatly from year to year. Instead of seeing investment returns of +5%, +5%, +5%, +5%, +5%, you might see +20%, +2%, -10%, +15%, +1%. In this case the average return is still +5%, but there were some huge swings from year to year. “Sequence of returns risk” refers to this sequence, the actual investment returns you see year after year.

The big risk for retirees happens when the sequence is negative for a few years in a row. Even if average investment returns recover over the long-term, that short period of negative returns can have a devastating effect on a retiree’s portfolio.

read more
Rebalancing Your Investment Portfolio: Buy-low and Sell-high

Rebalancing Your Investment Portfolio: Buy-low and Sell-high

Rebalancing is one of those simple things that investors should do at least once per year. Rebalancing your investment portfolio can have a really positive impact on your long-term returns. Not rebalancing your portfolio can lead to some nasty consequences that we definitely want to avoid.

Rebalancing regularly will keep your portfolio’s risk level on target. Rebalancing can also help you avoid a lot of behavioural biases that can impact investor returns. And good rebalancing rules will help you buy-low and sell-high (which is exactly what we want right?!)

For small, medium, or large portfolio’s rebalancing should happen at least once per year. We rebalance three times per year in January, May and September. We do this as part of our tri-annual financial check-in. It’s easy to do and very beneficial. Rebalancing your portfolio can help increase your long-term investment returns and at the same time decrease your risk.

We’ve had two major rebalances in the last 5 years. During the last large decrease in Canadian equities we had to sell bonds to buy Canadian stocks. And more recently, after a big increase in stock market values, we had to sell equities to buy more bonds. Now after the recent changes in the market we will probably need to rebalance our portfolio again.

Rebalancing is something we look forward to, we know that rebalancing is a good thing for the reasons listed below. When we rebalance it means our investment plan is working the way it should and it’s a good indication that we’re on track for our long-term plan.

read more
10 Day Routine To Kick Start Your Finances This New Year

10 Day Routine To Kick Start Your Finances This New Year

It’s the new year! Time to kick start your finances!

This ten day routine will help you shift your finances into high gear. This routine is aggressive, ambitious, and a bit challenging. This routine will cover all the basics of a good financial routine. Having a routine for your money is one of the best ways to improve your finances this year.

If ten days seems like too much (and it probably is!) then consider spreading these steps over ten weeks or even ten months to make things a bit easier. The key is to find a pace that works for you. It’s better to take a bit more time if it means you’ll stick to your new routine.

If it seems daunting then consider pairing up with a friend, co-worker, or getting the help of a financial coach. At PlanEasy we offer custom financial coaching & advice for our clients. As a new client, we’ll create a 12-month program tailored specifically to you and your goals. If you struggle with your financial routine then a bit of coaching & advice might be exactly what you need to improve your finances this year.

read more
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Owen Winkelmolen

Fee-for-service financial planner and founder of PlanEasy.ca

“Welcome to the PlanEasy blog! We make personal finance easy.

Thanks for visiting.”

– Owen

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

The Biggest Risk In Retirement Is… Sequence Of Returns Risk

The Biggest Risk In Retirement Is… Sequence Of Returns Risk

There are a lot of risks that we face in retirement (including early retirement). When you enter retirement, there are lots of changes happening all at once. Along with big personal changes, and lifestyle changes, there are also big changes happening to your finances. After you enter retirement one of the biggest financial changes you’ll face is a shift from a regular income source (eg. employment) to an income source based entirely on your own savings and pension. Making this switch can create a few risks, one of those risks is the risk of running out of money.

One of the biggest risks facing retirees is something called sequence of returns risk. When a good portion of your retirement income comes from your own savings this is the biggest risk a retiree can face. But what does “sequence of returns risk” mean exactly?

Before we talk about sequence of returns risk it’s important to understand that most retirement plans are based on an assumed (and constant) investment return each year. This investment return is usually assumed to happen in a straight line with the same percentage return each year. An assumed return of return of 5% would be 5% per year starting on the day you retire, but in reality your investment return is going to fluctuate from year to year, and this is where the risk comes from.

Over the short-term you will probably see your investment return fluctuate greatly from year to year. Instead of seeing investment returns of +5%, +5%, +5%, +5%, +5%, you might see +20%, +2%, -10%, +15%, +1%. In this case the average return is still +5%, but there were some huge swings from year to year. “Sequence of returns risk” refers to this sequence, the actual investment returns you see year after year.

The big risk for retirees happens when the sequence is negative for a few years in a row. Even if average investment returns recover over the long-term, that short period of negative returns can have a devastating effect on a retiree’s portfolio.

read more
Rebalancing Your Investment Portfolio: Buy-low and Sell-high

Rebalancing Your Investment Portfolio: Buy-low and Sell-high

Rebalancing is one of those simple things that investors should do at least once per year. Rebalancing your investment portfolio can have a really positive impact on your long-term returns. Not rebalancing your portfolio can lead to some nasty consequences that we definitely want to avoid.

Rebalancing regularly will keep your portfolio’s risk level on target. Rebalancing can also help you avoid a lot of behavioural biases that can impact investor returns. And good rebalancing rules will help you buy-low and sell-high (which is exactly what we want right?!)

For small, medium, or large portfolio’s rebalancing should happen at least once per year. We rebalance three times per year in January, May and September. We do this as part of our tri-annual financial check-in. It’s easy to do and very beneficial. Rebalancing your portfolio can help increase your long-term investment returns and at the same time decrease your risk.

We’ve had two major rebalances in the last 5 years. During the last large decrease in Canadian equities we had to sell bonds to buy Canadian stocks. And more recently, after a big increase in stock market values, we had to sell equities to buy more bonds. Now after the recent changes in the market we will probably need to rebalance our portfolio again.

Rebalancing is something we look forward to, we know that rebalancing is a good thing for the reasons listed below. When we rebalance it means our investment plan is working the way it should and it’s a good indication that we’re on track for our long-term plan.

read more
10 Day Routine To Kick Start Your Finances This New Year

10 Day Routine To Kick Start Your Finances This New Year

It’s the new year! Time to kick start your finances!

This ten day routine will help you shift your finances into high gear. This routine is aggressive, ambitious, and a bit challenging. This routine will cover all the basics of a good financial routine. Having a routine for your money is one of the best ways to improve your finances this year.

If ten days seems like too much (and it probably is!) then consider spreading these steps over ten weeks or even ten months to make things a bit easier. The key is to find a pace that works for you. It’s better to take a bit more time if it means you’ll stick to your new routine.

If it seems daunting then consider pairing up with a friend, co-worker, or getting the help of a financial coach. At PlanEasy we offer custom financial coaching & advice for our clients. As a new client, we’ll create a 12-month program tailored specifically to you and your goals. If you struggle with your financial routine then a bit of coaching & advice might be exactly what you need to improve your finances this year.

read more
Page 4 of 35...23456...

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

New blog posts weekly!

Tax planning, benefit optimization, budgeting, family planning, retirement planning and more...

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