Dennis, 79, Is Worried About A Market Crash. Should He Move His Portfolio To 100% Income?

In an increasingly complex world, the Financial Post should be the first place you look for answers. Our FP Answers initiative puts readers in the driver’s seat: you submit questions and our reporters find answers not just for you, but for all our readers. Today, we answer a question from Dennis about a safe mix of assets given fears of a market correction.

Q. I am at a relatively healthy 79 years of age and my nest egg is still invested in equities to a 30 per cent range via mutual funds. The current standing of North American stock indexes in relation to current economic disparities, particularly in Canada, gives me considerable concern for the sustainability of these indices. Should I move 100 per cent to an income-based portfolio in anticipation of a market correction wherein the recovery period could exceed my monetary needs? Or is there a better solution? —Dennis

FP Answers: Dennis, as a person who has been concerned about high valuations (especially in the United States) for a few years now, I understand and share your discomfort. I’m going to quibble with the words “in anticipation of a correction.” In essence, what I’m saying is that there’s no reliable way of timing markets and most people should stay the course if their risk tolerance remains relatively stable. Has your tolerance changed for some non-market reason? If not, a 30 per cent allocation strikes me as being entirely reasonable and possibly even a bit low.

• Are GICs enough to keep Silvia’s nest egg going?
• How is the estate taxed when the last spouse dies?

Anyone who has been investing for 20 years or more could likely handle an allocation of at least 40 per cent equities. Furthermore, the folks at FP Canada insist that a spry 79-year-old like yourself likely has more than a decade left, so the need to reduce risk may not be as pressing as you think. Given the relatively high income component you already have, you could easily take the money you need from the remaining 70 per cent while waiting for the 30 per cent to recover if the drawdown we anticipate finally materializes.

There’s an old saying that markets can remain irrational longer than you can remain solvent. It’s a bit cheeky, but given your already prudent asset allocation and somewhat advanced age, I’m highly confident you will be in a position to disprove the adage in almost any scenario.

John De Goey is a portfolio manager with Designed Securities Ltd., regulated by the Canadian Investment Regulatory Organization and a member of the Canadian Investor Protection Fund.