Demographic trends can be extremely interesting. Demographic trends can influence a lot of things, they can impact voting and public policy, they can impact consumer trends, they can impact the consumption of goods and services.
The interesting thing about demographic trends is that they’re (somewhat) predictable. The way our population looks today will directly translate to how it looks in the future. Factors like immigration and advances in health care can change these trends slightly, but in general, the way people age is fairly predictable.
What is interesting about demographics is that as people age they do things differently, their behavior changes, their lifestyle changes, they consume different things.
Over the last 60+ years there have been two huge demographic waves, the first was the “baby boomers” and the second was their “echo”. These two groups are very noticeable when looking at population by age group. Demographic charts clearly show two huge population waves with troughs in-between.
Now, I’d like to preface this post with the fact that I hate predictions and forecasts. In my opinion, a good financial plan shouldn’t rely on predictions or forecasts to be successful. A good financial plan will prepare for various future events and still have a high chance of success. It’s important to anticipate possible risks and how they may impact a financial plan.
Typically, when we talk about risk we talk about investment risk and inflation rate risk. A good plan will still be successful even with changing investment returns and changing inflation rates. But what about real estate values? What about housing?
For two groups of people, the variability in real estate values should be a big concern when doing a financial plan. One group is real estate investors, people with rental properties that make up a large % of their assets. The second group is future downsizers, people who have made downsizing to a smaller home a key part of their future financial plan.
For these two groups of people it’s important to understand that real estate growth rates can vary and this creates risk. Simply assuming inflation, or inflation + xx%, is not a great strategy.
In this post we’ll look at how demographics may impact future housing demand and why a good financial plan should be prepared for different rates of real estate appreciation.
With investments values moving up and down 5% to 10% per day this investment volatility can feel like a roller coaster both financially and emotionally. If you’ve been watching your investment portfolio day-to-day you may be feeling a bit nauseated by now.
Thankfully there is a fool proof way to manage this investment volatility, just don’t look.
Not looking at your investment portfolio is simpler said then done of course, but it’s the best way to manage investment volatility.
It’s been proven that we put more weight on negative experiences than positive experiences. We feel the impact of negatives more than we feel positives.
Even when they’re the same size, a loss feels worse than a gain. Losing $50 feels worse than gaining $50.
So with markets jumping up and down 5-10% per day this can lead to some VERY negative emotions. The positives just don’t out weight the negatives and we end up feeling worse and worse with each rise and fall.
But not looking at your investment portfolio can be surprisingly hard to do. So what can the average investor do to help themselves feel better during a market correction? What strategies can they use to avoid looking at their investment portfolio? What routines can they implement?
This post looks at a few different ways to help you manage the emotional impact of investment volatility.
They say the best time to plant a tree was 20-years ago but the second best time is now.
The same goes for financial planning. The best time to build a plan is before a crisis/recession/depression but the second best time is today. A good financial plan will help ensure that you’re prepared for a recession or financial emergency.
Having a financial plan provides an incredible amount of peace of mind. A good financial plan will already have anticipated a scenario like this and will ensure you’re still successful. It will highlight how to prepare for a recession and what changes you need to make to ensure you are successful over the long-term.
There are a few best practices that can help improve the ‘robustness’ of a financial plan. These are practices you can start using right away, even if they weren’t previously part of your plan.
Some of these best practices focus on behavior. They help manage your financial routine during emotional periods like this. Some focus on flexibility. They ensure that you have room in your plan to absorb the unexpected, whether that be changes in income, changes in expenses, or changes in investment returns.
It doesn’t matter if you’re in retirement, starting a family, or just starting to save and invest, there are a number of ways that you can prepare for a recession that will help you feel better about your finances and your long-term plan.
This post will touch on many of these best practices. These are best practices that we’ve covered in previous posts, so we’ll cover the basics here and link to past posts for more detail.
Should anything change when investing after retirement? Are there specific investment options for after retirement? Should you change your asset allocation after you’ve retired?
For the average retiree their investment portfolio will make up a significant portion of their retirement income. Most of us will receive some government pension from CPP and OAS. Some of us may also receive retirement income from a defined benefit pension as well. But even in those situations we’re probably still creating some retirement income from an investment portfolio each year and this income is critical to help us reach our spending goals.
Given investment income is such an important part of most retirement plans, should anything change when investing after retirement?
For some people the answer might be yes. But for most of us the answer is probably no.
There are a few important factors to consider when investing after retirement and the three big ones are asset allocation, investment fees, and complexity.
These three factors are important to consider when investing after retirement. Depending on how your investment portfolio currently stands against these three factors it may warrant making some changes before entering retirement.
At some point in their life many investors are faced with deciding how to invest a large sum of money. This large sum of money could be from something like an unexpected bonus, or the proceeds from downsizing a home, or from something unfortunate like the passing of a family member.
Investing a lump-sum can be a daunting experience for even the most experienced investor. There can be a lot of fear and worry when it comes to investing a large lump-sum. Fear of what could happen if the market drops right after you invest.
Often this fear and worry can cause delays. Sometimes these delays can extend for months or even years, with large piles of cash sitting in a savings account waiting for the “right time” to invest.
These fears are understandable. There is a fairly good chance when investing a lump-sum that you could see the balance drop in the future. In the example below you’ll see that during approximately 67.3% of historical periods investing all at once is the better financial decision, but that means 32.7% of the time it is not.
There are two main methods when it comes to investing a lump-sum. Which method you choose will depend on how you’re feeling. Are you worried about what might happen if you invest a lump-sum all at once? Or are you ok with the risk because there is a good chance of higher financial gain?
When deciding how to invest a large lump-sum there are two common methods. One method is to invest the entire lump-sum all at once. This is mathematically the best option. The other is to dollar cost average smaller amounts into the market over time. This is psychologically often the best option.
Psychology is one consideration when choosing how to invest a large sum of money. Probability and expected return is another consideration. These are two important considerations when choosing how to invest a lump-sum.
When it comes to retirement planning, one of the biggest fears is often the risk of running out of money. It can be worrisome to think about what could happen if you’re unable to support your expenses in the future.
Sometimes these fears can lead to people choosing a more conservative risk profile, or holding a lot of cash, but taking these defensive measures can often increase the risk of running out of money in the future.
A more conservative asset allocation decreases market risk, the risk we take on when we invest in the stock market. But a conservative asset allocation actually increases other types of risk, like the risk of running out of money, or the risk of being impacted by high inflation rates.
A more conservative asset allocation can actually increase risk in retirement, especially for longer retirement periods. Your typical 30-40 something couple has a very good chance of either one making it to age 100+ in the future. There is a 25% chance that one of them will make it to age 98 and a 10% chance that one of them will make it to age 101!
Without making other changes, like a lower withdrawal rate, more flexibility with spending, part-time income etc, being more conservative can actually lead to a much higher probability of running out of money before age 100.
Let’s explore why this is the case and what you need to consider when creating your retirement plan…