Wealth Manager-When investing, time’s not always on your side

* Risk of outgrowing one’s nest egg should be considered

* Lots of cash still parked on the sidelines

* Balanced portfolios can help mitigate market risk

By John McCrank

TORONTO, April 13 (BestGrowthStock) – As retirement beckons, the
generation that embraced the Rolling Stones’ 1964 hit “Time Is
On My Side”, find themselves singing a different tune — more
along the lines of “Brother, Can You Spare a Dime?”

When the financial crisis struck, many baby boomers saw
their hard-earned nest eggs decimated by the market turmoil.
That led to a shift of assets out of the volatile stock market
and into the safer, but low-yielding money market.

While investors should always take market risk into
account, some in the investment industry are now warning that
longevity may represent the greatest risk.

“I don’t want to outlive my money and find that when I’m 90
years old my portfolio is down to zero and I have another five
years to go,” said Fred Pinto, managing director of
distribution services at Russell Investments’ Canadian unit.

A recent study done by Russell found that Canadian
investors over 50 had about C$3 billion ($3 billion) in cash
sitting on the sidelines at the end of last year. That was a
nine-year high, going back to the last market downturn.

Glen Gowland, chief executive of Scotia Asset Management,
said that as 2010 progresses, Scotiabank (BNS.TO: ) is seeing
more cash find its way back into longer-term investments.

“If we look even at last March (2009), in the industry you
would have seen net sales of around C$1 billion in money market
funds, whereas this March, money market funds were over C$2
billion net negative,” Gowland said.

“That said, there is no question that there is still a good
chunk of money on the sidelines.”

In the current low interest rate environment, people with
traditional fixed income investments are watching their
retirement savings stagnate.

If an average couple retires at 60 or 65 years old, there
is a strong likelihood, with lifespans getting longer, that one
of them will live to be 90, Pinto said.

“That’s a 30-year horizon where their assets need to grow
to generate income that they need in retirement.”

Pinto points to his firm’s so-called 10-30-60 rule, which
states that for every dollar of earnings generated in
retirement, 60 percent comes from the post-retirement earnings
on the investor’s portfolio. Pre-retirement investment earnings
make up 30 percent, and 10 percent comes from savings.

“So, while savings are important, if you become too
conservative in your retirement, you are actually not going to
generate the income that you need to last for the next 30 years
or so.”

Even those that have put enough away to live comfortably in
their golden years may still want to consider looking for
growth if they are concerned about leaving something for their
children, grandchildren, or a charitable cause.

HOW MUCH RISK IS TOO MUCH?

There are three balls in the air when considering
retirement, said Gowland: how much money do I have to invest,
how much risk am I willing to take, and how long am I willing
to leave it in those investments?

“If I decide I want to take less risk, I either need to
have more time or I need to be putting more money aside.”

So how much risk is too much?

“It really is dependent on a number of factors,” Gowland
said. “One part of the equation is how much income do I need to
meet my needs, but secondly and probably the bigger factor is
how much equity exposure or how much risk am I willing to take
and still be able to sleep at night?”

Gowland said so-called balanced funds that offer some
equity exposure along with fixed income are a good way to
mitigate risk, while getting growth.

The most popular investment products in the past month at
Scotia Asset Management, which has about C$23 billion in assets
under management, were its “INNOVA Portfolios” — five distinct
plans that offer more diversification and ongoing monitoring
and rebalancing.

The funds require a minimum C$50,000 investment. They made
up about a third of the firm’s March funds sales of C$370
million.

Pinto said he believes the optimal mix in retirement is a
portfolio that has roughly 35 percent in equities and 65
percent in fixed income.

“That portfolio allows an investor to get those earnings,
but also allows them the capital preservation they need,” he
said.

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($1=$1.00 Canadian)
(Reporting by John McCrank; editing by Peter Galloway)

Wealth Manager-When investing, time’s not always on your side