In volatile times, portfolio balance helps temper risk

Few investors have escaped the carnage on the stock markets this year as the bears have taken over the Toronto exchange.

But for those closing in on retirement and those already there, the downturn may be even more frightening as the value in Canadian investment portfolios invested in stocks have taken a beating.

Pace Sturdevant, a retiree in Ottawa, says “it’s been depressing.”

“They’ve lost so much value that’s basically the only thing to do is sit tight and wait,” he said of his portfolio of stocks.

Sturdevant, 67, is keeping a close watch for any dividend cuts by companies in his portfolio of mostly dividend-paying stocks.

“It hasn’t happened so f ar,” he said.

The S&P/TSX composite is down about 20 per cent from the highs of last year, putting it in bear market territory.

Sturdevant knows he hopefully has another couple of decades of retirement to pay for, so he has time on his side. That doesn’t make the losses any easier to take, however.

“I sold one stock that was a strong sell and I bought some stocks that have tanked,” he said.

The turmoil on the markets has amounted to a painful lesson for those close to retirement about the importance of balancing risk i n their portfolios.

Peter Bowen, vice-president of tax and retirement research and solutions at Fidelity Investments, says investors need to start by asking themselves why they’re investing.

“If it’s for a house, that gives you a different answer than if it’s for retirement,” he said.

“The investment time horizon is one of those key inputs to the strategy, in addition to the individual’s goals and their tolerance for risk.”

Bowen says bear markets can serve as a litmus test for investors and their risk tolerance.

Generally, the closer you are to spending your investments, the more conservative your portfolio should be.

Brent Vandermeer, portfolio manager at Hollis-Wealth, says that while most of his clients have balanced portfolios, they span the spectrum from 100 per cent in fixed income to a handful fully invested in stocks. “If it is the right thing for the client and we’ve really talked and walked through it, that’s what I think my role is.”