Investing After 60

Investing after 60 doesn’t have to be the complex retirement puzzle the investment industry makes it out to be.

How can you invest your retirement portfolio in a simple way so that you can spend your time enjoying life rather than worrying about every red-flashing headline on the news?

 

The Bucketing Strategy

Let’s imagine you’re retired, and you need to draw funds out of your retirement portfolio to sustain your lifestyle.

We would look at creating three buckets.

The first bucket is the money that you are going to need over the next year. Since you’ll need this money right away, it should be invested in something that won’t fluctuate in value, like a savings account.

The second bucket is the money that you’ll need from your portfolio over, say, the next 5 years. Since you’ll need this money relatively soon, it should also be invested conservatively in something that’s secure. You don’t want to invest it in anything that can fluctuate too much in value because you might put yourself in a position where you are forced to make withdrawals while your account is down.

The third bucket is the money that you won’t need to touch for at least 5 years. Since you won’t need it right away, this part of the portfolio can be invested in the stock market.

After every year, funds flow from the second to the first bucket. If the market had a good year, you would also flow down from the third to the second bucket. If the market had a bad year, you wouldn’t flow anything down from the third bucket; you would wait until the market recovered.

So, let’s zero in on that third bucket: how can investing after 60 be simplified to ensure your best odds of success?

 

Active vs. Passive

When it comes to investing after 60 and investing in general, there are two primary approaches you can take.

You can be active or passive.

Active investing involves buying and selling stock with the goal of outperforming the overall market. For example, I’m going to sell ABC Company and buy XYZ Company because I think it will perform better moving forward.

There are a few ways that you can do this.

  1. You can research the stock market and do it yourself.
  2. You can hire an advisor to do this on your behalf.
  3. You can buy an active mutual fund. An active mutual fund will have managers who will do this for you.

As mentioned, the goal of this approach is to outperform the overall market.

This brings us to the passive approach to investing.

Rather than worrying about which stocks to buy and sell, a passive investor will buy an exchange-traded Fund or ETF for short that just tracks how the market is performing.

Let’s take the Canadian stock market as an example.

An active investor will try to buy and sell the right Canadian stocks at the right time to perform better than the Canadian stock market. You can see how the Canadian stock market performs every night when you watch the news and they say the TSX is up or down X many points on the day.

A passive investor will simply invest in an ETF that tracks how the TSX is performing.

 

Which is better?

Most advisors or mutual funds will have you believe that they have the secret sauce to outperformance, but when we look at the data, it’s actually very hard to beat the market.

When we look at how mutual funds invested in Canadian stocks have performed, the results aren’t very pretty.

SPIVA Canada Mid-Year 2023 Scorecard (spglobal.com)

Over the last year (as of June 30, 2023), 78% of funds have underperformed their benchmarks. If we stretch that out over ten years, over 94% of funds have outperformed.

The results are similar if you invest in US, international, or global stocks as well.

It turns out that only a small percentage of active investors outperform their benchmarks in the long run. Rather than trying to find these hidden gems, most investors are better off using a passive approach.

 

Why is it so hard for active managers to outperform?

In my opinion, there are two reasons.

  1. It’s hard to time these decisions. You have to be right when you sell a stock, and then you also have to be right when you use those proceeds to buy a different stock.
  2. Fees: these managers aren’t doing this for free, so you’re immediately starting at a disadvantage.

Navigating retirement investing after 60 doesn’t have to be the complex puzzle that the financial industry makes it out to be. Embracing a bucketing approach and a passive investment strategy is a great place to start.

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Marc Sabourin is a Winnipeg-based Financial Advisor and Retirement Specialist with Harbourfront Wealth Management. His specialty is working with pre-retirees and retirees who are looking for retirement, investment, & tax advice. 

Disclaimer: The views expressed are those of Marc Sabourin, Certified Financial Planner, and Investment Advisor, and not necessarily those of Harbourfront Wealth Management Inc., a member of the Canadian Investor Protection Fund