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Until an investment adviser mentioned that I could be taking on unnecessary risk in such passive investing with the current volatility in the markets. I could be missing out on sectoral buy and sell opportunities as market trends and cycles change.

I am now conflicted. What do you all think? Is your investment philosophy these days leaning towards buy and hold or watchful and active trading? Appreciate your input.

I would not describe passive investing as "taking on unnecessary risk". To me, trying to guess which sectors will be gainers and which will be losers is more risky than staying diversified. Your advisor is trying to convince you that you are "missing opportunites", and there is some truth to that. But chasing those opportunities requires a good knowledge of markets, the time and interest to follow them closely, and higher risk tolerance IMHO. Sector funds are much more volatile than broad-based market indexes, so trying to argue that you should move into sector funds because of the "current volatility in the markets" makes no sense at all.

An investment advisor has a self-interest in encouraging "active trading", because he figures you are either going to come to him for paid advice on what to buy and sell, or at least give his company more service fees for trading, or by buying sector funds that have higher MERs. I would take the advice with a large grain of salt.

The past year has been pretty scary for all investors, but if you are still 3-5 years away from retirement, your portfolio should at least recover if not gain.

Do some studying on what your cash-flow needs will be, and tweak your portfolio towards a mix of income and conservative equity if needed. But I would think it too early to start reducing your equity - wait until the market recovers.

I would not rely on principal draw down to fund expected living costs. I would consider that principal untouchable for the inevitably very costly last 5 years of long-term care.

Whether or not you should be worried about drawing down capital depends on your total capital and estimated income needs. Because long-term care is subsidized in Canada, people of average incomes are often surprised to find it is not the financial hardship they expect. It's Seniors' residences that are getting very expensive in comparison.
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