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Dale Jackson

Personal Finance Columnist, Payback Time


Imagine having the ability to go back in time to a point when stock markets peaked right before a massive plunge. Time travel is still a fantasy, but investors who watched their life savings dwindle in the wake of February’s pandemic plunge are getting a reset.

Broader equity markets are back near pre-pandemic highs. They could surge higher, but they might also be on a cliff overlooking a murky chasm of new risks heading into autumn. 

The threat of a pandemic resurgence is rising as political leaders around the globe fumble to get children and staff back to school, and the resilience of the economy is being tested as government financial aid dwindles.

Adding uncertainty to uncertainty is this November’s presidential election in the United States. For whatever reasons, a political anomaly has turned some of the population to act against its own best interests by shunning scientifically-established measures to contain the pandemic. The search for a vaccine or cure has been politicized to the point where some of the population and markets may be suspicious of a legitimate treatment.

There’s not much average investors can do get a clearer view of what is moving the markets, but there are ways to ensure their portfolios are hedged against whatever lies ahead. That could mean banking up enough cash and fixed income to weather a long downturn, and a review of the equity portion that needs to grow to meet your retirement goals. You might choose to do it on your own, but a qualified financial advisor should have the experience and know-how. 

First, be sure you have enough cash to cushion the blow from a market downturn and take advantage of opportunities that arise from any broad selloff. Advisors generally recommend a 10- per-cent weighting in cash but you might sleep better at night with more. 

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If you are retired or nearing retirement, make sure you have enough cash for living expenses for the near future. If last February’s market plunge made you nervous, the current recovery is the reset that could open a window to make it right. If you’re forced to sell stocks when they are down, there will be less money invested and growing for future retirement needs.  

A significant weighting in fixed income will further cushion the blow from a market downturn. Good advisors recommend a portion based on the individual investor’s comfort level regardless of the equity market climate, but now may be the time to boost your stake.

They also recommend a portion of fixed income regardless of yields, which are miserably low. Yields are based on interest rates and tapped-out central banks around the world have vowed to keep them low for a very long time. Safe government bonds and guaranteed investment certificates (GICs) only pay out about one per cent each year. But keep in mind even at zero, fixed income could be your best performing asset class if equity markets tank.

When you review the equity portion of your portfolio remember the old ‘buy low, sell high’ adage. Equity markets are relatively high right now and that brings an opportunity to trim some of the better performers that are taking up a larger portion of your portfolio, and use the profits to add to cash or fixed income holdings.

Stocks also have the ability to generate the income that is lacking in fixed income through dividends. Large companies with strong track records for dividend payouts can exceed bond yields even when their stocks prices are down.

A certain element of risk is necessary in the equity portion of your portfolio if you want it to grow. One way to lock in gains and limit losses is by setting 'trailing stops' that trigger a sell if the stock price falls below a predetermined level below the current price.  

Once again, markets could move higher in the next few months despite all the risks. But if your retirement savings are on the line, it’s always good to be prepared.

Payback Time is a weekly column by personal finance columnist Dale Jackson about how to prepare your finances for retirement. Have a question you want answered? Email