If you cannot tolerate stock market risk on an emotional level don't invest in equities.
If you cannot tolerate a permanent loss of capital don't invest in equities.
Save with Government of Canada Real Return Bonds, you will beat inflation by ~ 2 % consistently without any risk. You could also add a 5 year ladder of guaranteed GICs.
For most people securing a life-long retirement income & maintaining their lifestyle is the purpose behind the investing.
You can and should do something about stock market risk and the other risks you face as an individual. You can export that risk.
For the distribution phase, people who want the risk free and hassle free utility of GICs and the inflation protection of RRBs would do well to consider an inflation-indexed life annuity instead. It works like your MP’s inflation-indexed pension plan and will provide a higher cash flow (retirement income) than you could draw from ladder of RRBs.
In retirement using an inflation-indexed life annuity to make-up any income shortfall is a simple, safe and appropriate strategy for anyone with a normal life expectancy. It is also guaranteed for life.
I believe an evolving mix of GIC’s, RRB's and later in life an inflation-indexed life annuity would be especially appropriate for anyone averse to taking stock market risk. In fact, I’ve come to believe most people should adopt this strategy, to protect themselves ... from themselves.
IMO, the main points are:
1. You don't have to take stock market risk with your savings. You can beat inflation by 2% with out any stock risk at all using RRBs. You can also do well with a 5 year ladder of GICs , especially if you pick-up better rates (typically 1% or more) by working with a Registered Deposit Broker .
2. Using stocks to finance your retirement is much riskier than you have been lead to believe.
You insure you home against very low probability events like fire because the consequences are so enormous. We need to think about retirement planning in the same way.
It's not about trying to be Warren Buffet, Ben Graham or John Bogle, at least it shouldn't be.
This is about safely "Living a life of Wealth", your ability to do what you want, when you want and how you want.
You have very focused needs that require safe, suitable and guaranteed solutions. You don't need nerves of steel, machine-like discipline, world class investing prowess or even luck.
During the distribution phase (retirement) individuals cannot assume the risks the way a pension fund does and be successful.
Be very careful, IMO the conventional wisdom is wrong.
www.yourwealthadvisor.ca/.../3860207-three-crucial-tips
http://www.yourwealthadvisor.ca/apps/videos/videos/view/3860143-i-love-the-stock-market
http://www.compositefinance.com/investmentprinciples.htm
In fact if you want to invest in equities you should actually save more than you would using using RRBs. Why, because the potential distribution of returns is so wide. Only after-the-fact will you be able to determine if you could have saved less employing equities. By that time if you are "unlucky" it will be too late to help yourself.
Graham Cook
Composite Finance Inc.