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Pattie Lovett-Reid

Chief Financial Commentator, CTV


You may not manage billions of dollars but that doesn’t mean you shouldn’t invest like a pro, or even a pension fund, when it comes to your retirement savings plan.

The Canada Pension Plan Investment Board, which manages the country’s national pension fund and invests on behalf of 20 million Canadians, reported results Thursday and they were impressive. Thanks to their investment strategy, CPPIB posted a return of nearly 12 per cent this past year, adding nearly $37 billion in investment income bringing the total to a staggering figure of more than $356 billion.

For present and future retirees, the good news is the plan is fully funded — but what about the balance of your retirement savings?

Invest your retirement money like the pros, and follow these steps:

The best place to begin is with an investment policy statement. This is your road map. Regulators require every pension plan to have a formal investment policy statement, yet very few retail investors have one. This document will outline your goals, objectives, time horizon, risk tolerance, asset allocation and investment strategy. This statement changes only when a significant, life-changing event happens such as a death of a loved one, birth, changes to the tax code, a windfall or even getting out of debt.

The next step is to be realistic about your timeline and your tolerance for risk. That, in turn, will drive your asset allocation. Pension funds have funding commitments for the next 100 years, which is certainly a different perspective for long-term investing. If you ask a retail investor what they consider to be long term, you might hear how their stocks have performed during the past quarter.

Asset allocation refers to the distribution of your money over cash, stocks, bonds, real estate, infrastructure and other assets. Concentration risk can be a concern, and a way to manage that risk is to limit exposure and keep investments to a maximum of five per cent in one holding. For some, even five per cent may be a stretch, depending on the size of your portfolio.

Your timeline should always be longer than you think. If you are 60 you may think 20 years is reasonable; I would argue your time horizon should be 40 years because no one wants to run the risk of outliving their money. Pension funds are investing today for liabilities many years down the road.

And finally when it comes to diversification, get out of Canada. Canada only represents roughly four per cent of the global equity market. There is simply too much opportunity outside of Canada to ignore. In fact, the CPP has a goal to allocate one-third of its investments in the fastest-growing economies by 2025 and that means exposure to emerging markets.

A few basic principles can help you weather the market’s ups and downs like the pros.