Have you ever been to a Jets game and heard the person next to you yell that they could do a better job than the coach? How difficult could it be when you have great players on your team like Wheeler and Schiefele? Like most things, it’s probably a lot tougher than it looks, but today we’ll go over how you can build your retirement portfolio just like you would build your lineup as the coach of the Jets.
Let’s meet Bill
Bill is 65 years old and has a $1,000,000 portfolio. Now that he’s retired, he will need $50,000 per year from his portfolio to sustain his lifestyle. Bill has heard that you should become more conservative with your investments in retirement, but he’s concerned the available rates for savings accounts and GICs won’t cut it after taxes and taking inflation into account. How can Bill have a portfolio that gives him the same piece of mind offered by a GIC but with more growth to ensure his portfolio lasts through his retirement?
It starts between the pipes
Ask any hockey coach, and he’ll tell you that the team is only as good as the goalie. You need a brick wall in your crease, and it’s the same when it comes to your portfolio. Bill needs to find his Hellebuyck and put away one years’ worth of income into this goalie-like investment. Based on his $50,000 annual income requirement, he would need to invest $50,000 in his goalie. As this is the team’s last line of defense, it will need to be invested conservatively into a GIC or savings account. Bill will be withdrawing his yearly income from this portion of his portfolio, so he can’t afford to have any fluctuations in the value of his account.
Building out the back end
Bill’s goalie will take care of his short term income requirements, but he now needs to build out the rest of his team to provide him with an income further down the road. After all, he won’t be winning many games if he only starts a goaltender. When it comes to constructing Bill’s blue line, he’ll still want to be somewhat conservative as he’ll need to start drawing on this income after one year, which isn’t far away. To build his team like the Jets, he will need to put away another 9 years’ worth of his income ($450,000) into his defensemen. In the investment world, bonds are considered your defensemen. They will generally earn you a higher rate of return than a GIC but will have some fluctuation in their value. There are different types of bonds available, which vary between conservative and aggressive. Bill will have to determine if he’s comfortable having a stay-at-home defenseman like Morrissey in his lineup or someone like Big Buff who’s willing to take more risk to make a play but will occasionally get burned.
Picking the scorers
Bill’s defensemen and goalie will take care of his income requirement for the first 10 years of his retirement. That means he still has $500,000 that he won’t be touching for some time. Since Bill won’t need these funds immediately, he doesn’t need to be as conservative with these investments. Time is on his side so these remaining funds can be deployed into the stock market. Just like choosing a defenseman, Bill has many options available to him. He can invest in a player like Schiefele who has an all-around game, also known as a well-diversified investment. He can also invest in a player such as Laine, who can really score when he’s hot but is also a turnover machine when he’s not. The investment equivalent of Laine would be a high-growth investment such as tech stocks. They will shoot the lights out when things are going well but will also burn a hole in your pocket when things are bad. Lastly, Bill can invest in a player like Wheeler. You know you’re going to get a consistent effort every night and when the team isn’t doing well, you can count on Wheels to pick up the pieces – like a defensive investment.
Just like his defensemen, Bill will have to choose a line combination that he’s comfortable with. When the boys are on a hot streak and really putting the puck in the net, he can use those “gains” to re-sign his defensemen and goalie. When Bill’s forwards aren’t scoring and have “losses”, he simply has to wait until they get back on track. Since Bill won’t need any income from his forwards for at least 10 years, he can afford to be patient if they don’t score right away.
Do you have a winning strategy?
By building his portfolio like the Jets, Bill will have the peace of mind that his $50,000 yearly income requirement is always available to him in a conservative investment. Anytime his players score, he can use those gains to re-sign Hellebuyck.
He will also have the peace of mind that his overall portfolio will grow at a higher long-term rate compared to investing all his money into a goalie. This will minimize the long-term impacts of inflation and ensure that Bill’s portfolio lasts him throughout his retirement.
Is it worth a chat?
Whether you’re saving for retirement or already enjoying the good life, it’s essential to have a strategy for your portfolio. Any coach can throw random players on the ice, but by building a lineup that works well together, you’ll have the opportunity to hoist the Stanley Cup. If you’re unsure of the strength of your lineup of investments, I’d be happy to review your game plan with you.
Marc Sabourin is a Winnipeg based Financial Advisor and Retirement Specialist with Harbourfront Wealth Management. His focus is on helping pensioned employees achieve their retirement goals. He draws on his real-life experiences to explain strategies that are often presented as intricate. He believes financial literacy is an integral part of one’s financial well-being and his goal is to make learning about these topics fun and enjoyable.
Photo Credit: Elise Davy