How much equity should you own in your portfolio?

With the current historically low interest rates, and investments such as GIC’s paying low returns, it has become difficult to generate returns from fixed income investments to meet retirement needs. It has created an environment in which investors are now questioning how much they should have in equity — or stocks — to make sure they have a rate of return that will be sufficient in retirement.

There has been a thought in planning circles for many years that the older you get the less equity exposure you should have in your portfolio. This thinking has been due to the fact that as much as equity creates growth, and in some cases good income through dividends, that it is more volatile and adds a level of risk to your portfolio that may not be suitable as you age. The basic rule was always your percentage of equity exposure in your portfolio should be the same as 100 per cent minus your age. That means if you are 70 years old, your equity exposure should be 100 per cent to 70 per cent or 30 per cent.

In light of the low interest rate environment many pension managers are looking at higher exposure to equities to make sure they continue to meet investment return requirements to meet their pension payment obligations. The same thinking may need to be had when it comes to individual investors.

If you are invested 100 per cent in fixed income — bonds or GIC’s — the net after-tax and after inflation returns at this point in fixed income are more than likely net negative.

If you are wondering how equities may benefit your portfolio and how much exposure, if any, you should have to meet your retirement needs, give us a call to discuss further.

A. Craig Elder, CFP, FMA, CIM, FCSI, is a Vice-President, Portfolio Manager and Wealth Advisor with RBC Dominion Securities Inc. in Medicine Hat. RBC Dominion Securities is a member of the Canadian Investor Protection Fund. Source material provided by RBC Wealth Management. For more information on this and other financial strategies, contact Craig at www.acelder.ca or 403-504-2723.