Is an Age Based Investing Strategy Right for Me?

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The common advice tells us to “invest according to age” but this is not always right for you.

The idea is that at the age of 40, your investment portfolio should apparently be 40% bonds and 60% stocks, and at the age of 80, it should be 80% bonds and 20% stocks. The idea is that the bond portion of your portfolio should equal your age, as bonds are less volatile. As you get older, your time horizon shortens and you want more stability.

But this is not always smart.

Because everybody is different, with different financial circumstances, here are six questions to determine if you should invest according to age:

1) What does the rest of your financial world look like? If you are going to have a defined benefit pension plan and government pensions that cover most of your expenses each month – then your personal investment account should probably be much more aggressive, regardless of your age.

2) What are bond yields? Where are interest rates going? Currently, it is a poor point in the cycle with bonds offering very low yields and carrying interest rate risks, so even if you are 80 years old, you might not want to hold too much of your portfolio in bonds.

3) Who is actually going to use the money? We work with many older clients who will likely never use half their portfolio. We can be very conservative with the “needed” part of the portfolio, but why do so with the other funds? Those assets are earmarked for their kids. Even if you are 75, it is the children’s appropriate asset mix that should apply to that part of the portfolio.


4) How much risk do you need to take? If you are 55 and trying to “catch up” to your financial plan, it might be necessary to have a more aggressive growth strategy (weighted more towards stocks), but if you are already in a great financial position, you might not want to worry about the investment markets at all.

5) What if  you don’t want to generate taxable investment income? What if owning GICs, government bonds and cash is the least tax-efficient investment for you? Even at an older age, you might then consider a heavier weighting towards stocks in your portfolio.

6) Are you likely going to be around at age 95 or does your health suggest that you may not make it past 65? Clearly, a 60 year old in great health should have a different portfolio than a 60 year old who is battling a terminal illness.

The key here is that your investment portfolio should be tailored to fit your personal needs, and not based on a “life cycle” investing strategy.  Take a look at my Globe and Mail personal finance column, where this article first appeared.

The Benefits of Segregated Funds for Older Investors


For older investors, segregated funds provide the benefits of a low-risk option with good returns.

What are segregated funds?

Sold by Canadian insurance funds and advisors, segregated funds are a type of investment vehicle that allows your money to grow, while providing certain guarantees such as reimbursement of capital upon death. Put simply, segregated funds offer you the growth potential of a mutual fund with the guarantees of life insurance.

While those interested in avoiding market risks used to focus on GICs and short term bonds, particular segregrated funds now allow older Canadians the full ability to take advantage of the upside of investments with protection against losses!

Advantages of Segregated Funds

a) If you are under the age of 70 as a new investor, most segregated funds guarantee 75% or 100% of your principal investment over 10 years OR when an investor dies, as long as you are under the age 0f 70. For older investors, Empire Life, a large Canadian insurance company, now has a great segregated fund offer with 100% guarantee for all clients who are under 80. This 100% death guarantee has some real value if you are 70+. This benefit becomes very valuable for an individual who is not in great health (there is no physical health check required). This ability for an older investor to still have a 100% death benefit guarantee is crucial to this opportunity as it means that the guarantee might kick in over a much shorter period than the traditional 10 years.

b) Because it is considered an insurance product, the proceeds (on death) for non-registered money will pass directly to your beneficiaries’ tax free and without probate.Segregated-Funds-Benefits

c) Segregated funds are not only offered as Balanced or Income funds. Traditional “higher risk, higher reward” asset class funds are also available. For example, Empire Life’s Elite Equity Fund has an annualized return of 10% going back to 1969.

d) Unlike mutual funds, the segregated funds can be reset up to twice a year. If the value of your funds increase, you get to lock in a higher floor value.

e) As an example, Empire Life only charge fees in the 2.5% to 2.75% range. While this would seem high in comparison to an ETF or index fund, the principal guarantees, reset features, and avoidance of probate fees make this investment significantly more valuable for older investors.

If this article was of interest to you, read about why an age-based investing strategy might not be right for you!