Diversify Your Investments, Avoid Market Risk During Retirement

As we approach retirement, it’s important to think about how we can best protect our hard-earned savings. While there are many different ways to do this, one key strategy is to diversify your investments. By spreading your money across a range of different asset classes, you can help reduce the overall risk of your portfolio and keep your nest egg safe.

In this post, we’ll look at some of the best ways to achieve this diversification and why it’s so important for retirees.

What is asset allocation and why is it important for retirement planning?

Asset allocation is an important concept to understand in retirement planning. It is the practice of dividing an investment portfolio across different asset classes such as stocks, bonds, and cash equivalents with the goal of reaching maximum return while managing risk. The value of these assets is determined by their characteristics and performance in the marketplace. Don’t put all your eggs in one basket.

Retirement planning involves multiplying time horizon with investment strategy to create a plan that should provide sustainable income when you reach retirement age. Asset allocation helps to determine how much money to allocate for different investments, thereby further mitigating overall risk and increasing the chances for desirable returns. It also can help align portfolios to long-term goals since its primary purpose during retirement planning is to diversify investments and guard against wild fluctuations in markets. Don’t lose your money.

The different types of assets you can include in your portfolio

As a Canadian planning for your retirement, you should look at different types of assets that can be included in your portfolio. A good portfolio emphasizes diversification and includes stocks, bonds, mutual funds and ETFs (exchange-traded funds).

Stocks represent ownership of corporations or businesses and tend to have higher levels of risk, but also offer the potential for greater returns.

Bonds are another asset you might want to consider – these investments involve loaning money to the issuers like governments or large companies in exchange for interest payments.

Investment funds are professionally managed portfolios of investments pooled together from a variety of people.

Finally, ETFs are similar to mutual funds but instead trade on the stock exchange giving them unique liquidity advantages.

Gaining an understanding of each asset is important before investing as part of your retirement plan so that you can decide which ones meet your personal objectives. If you’re uncomfortable investing, you likely want to hire a financial advisor.

Why you should diversify your investments across different asset classes

Investing your money can be a great way to ultimately grow your capital and financial future. However, it’s important to understand the importance of diversifying investments across different asset classes.

Take stocks, for example: while they are commonly viewed as favorable investments due to the potential for high returns and growth, they can be volatile and expose you to certain market risks. On the other hand, bonds are more predictable but typically provide lower returns than stocks on average.

To ensure you’re protecting yourself from risk while maintaining potential for positive financial outcomes in the future, it pays to invest in both stocks and bonds at the same time; this top down approach is known as diversification. By diversifying investments across different asset classes, you will spread out risk and mitigate any associated losses. Ultimately, this could lead to greater earning potential for long-term investment objectives such as buying a recreational property or achieving retirement goals.

What about taxes? Yes, it’s important to keep your hard earned money rather than ship it to Ottawa. One attractive asset class is dividend paying stock. Two reasons: first of all, dividend paying companies are large and normally stable. Secondly, dividends are taxed at about 1/2 the rate of interest income. It’s a longer story than that, but definitely look into dividends for your open, non RRIF investments.

How to rebalance your portfolio to maintain your desired asset allocation mix

Properly rebalancing your portfolio can be extremely beneficial in helping you stay on track with reaching your investment goals. While different asset allocations will work to meet different goals and needs, it’s important to establish a specific target asset allocation that best suits you from the onset. The classic asset allocation, AA, is 60/40: 60% stock & 40% bond or fixed income.

To maintain this desired asset allocation mix, one must consistently monitor their current asset balance. If any discrepancies or changes occur between the target allocation mix and what currently exists within the portfolio, then the investor should make necessary adjustments based on how much assets have shifted away from their objectives. This process is referred to as rebalancing and should be conducted at regular intervals in order to maintain steady gains while reducing any potential risks.

It’s also important to note that one could also use a combination of stocks, bonds and cash equivalents to better balance out their portfolio over time.

An investment fund will automatically rebalance the AA. Look at the definition of the fund, i.e. it’s promised or objective asset mix. The fund manager cannot go outside his stated objective. For example, if your fund manager or portfolio manager, PM, states that his / her fund will hold 60% equity, he / she must not stray too far. There is some latitude, but cannot go to 90% equity.

The benefits of dollar-cost averaging when investing in retirement accounts

Dollar-cost averaging, otherwise known as DCA, is a simple yet effective method for investing in retirement accounts. This strategy is advantageous because it mitigates risk by stepping up investments over time through regular periodic purchases. By taking into account market volatility and smoothing out transactions over a longer period of multiple purchases, DCA can help investors spread out the cost of their investments instead of buying all at once just before prices go up or down drastically.

The potential outcome with DCA is that in the event of a market downturn, less capital will be impacted and more significant yields can be expected during recovery periods. Dollar-cost averaging helps to ensure that retirement accounts are properly diversified while growing steadily over time.

Think about this: you sell your home. You have $1 million. If you dump all that into a fund on day 1, then the market drops 10% on day 2, you get scared. But, if you buy that investment fund over 6 months, you are saved from a drop in the market. Right? Yes, you could miss a rising bull market. But, what’s best? Miss a bit of rise OR get scared by a drop? Your answer here:_____________.

Tips for avoiding market risk during retirement

Managing market risk during retirement is a crucial way to ensure a secure financial future. The most important tip for retirees is to diversify their investments, so that no single stock or sector makes up the majority of their portfolio. Allocating assets across stocks and bonds, as well as within sectors and industries, can help mitigate risk.

Retirement savers should also consider index funds or target-date funds to keep investments on track, since these types of funds provide greater balance than individual stocks.

Additionally, it’s important for retirees to periodically review their portfolios to make sure they are happy with the return on investment and risk rewards that are associated with their holdings. Making sure investments are performing up to expectations and changing allocations when necessary can help maintain retirement savings and ensure long-term financial stability.

Reach Out To A Financial Planner

If you are feeling overwhelmed or have questions about how to create an investment strategy that best suits your financial goals and needs, then you should consider reaching out to a professional financial advisor. They can provide guidance on creating an appropriate portfolio and help with selecting investments that align with individual objectives.

Certified Financial Planners (CFPs) can also help with retirement planning, asset allocation, and estate planning. They can provide objective advice on how to reduce market risk and diversify investments in order to achieve long-term financial success.

At Pension Solutions Canada, we offer a full range of services and advice to help you create an investment portfolio that works for your particular financial situation. Our experts can provide guidance on asset allocation, dollar-cost averaging strategies, investment selection and more.


In conclusion, it is important to understand asset allocation and how different types of investments can work together to help ensure a successful retirement plan. No matter your risk tolerance, you should strive to create a balanced portfolio with a mix of stocks, bonds, and other assets that suit your individual goals. By rebalancing on a regular basis and employing strategies such as dollar-cost averaging, you will have greater peace of mind knowing that your investments are protected from market fluctuations. Additionally, implementing diversification strategies such as replacing some of your concentrated stock holdings will help safeguard against large losses. Taking these steps now can help make sure that your financial future is secure no matter what the market does!

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