The Learning Centre:
3 ways to get your investments ready for summer and beyond
(Reading time: 3:30)
It’s officially summertime—the time of year when you can finally catch up on life.
Because let’s face it, the 10 months of a school year (as rewarding as they can be) are typically all ‘work’ with little time for ‘play’, or anything else for that matter.
But that’s okay. Summer is your time and there are a million ways to spend it. You could pack up and head to the cottage or on a trip abroad; finally tackle those projects around the house; or perhaps you could simply do a whole lot of nothing.
If you’re an investor, summer might also be a time when you take a break from closely managing your investments.
For years, the sayings ‘sell in May and go away’ and ‘summer stock market doldrums’ have been ubiquitous in the investing world. However, just because history shows the stock market seems to generate most of its profits from October to May, doesn’t mean you can truly ‘time the market’—or take a break from paying attention to it for that matter. As an education member, summer is actually the time of year when you can (and should) be spending some quality time ensuring your investment strategy is on track for the months and years ahead.
So here are 3 ways you can easily get your investment portfolio ready for summer and beyond:
If buying the perfect home is all about ‘location, location, location’, building the right investment strategy is all about ‘diversification, diversification, diversification’—particularly if you’re looking to navigate your portfolio through the summer doldrums.
What makes diversification so important is that it aims to put your portfolio in the best possible position to maximize returns, no matter what the market throws at it. This is done by investing in different areas that would each react differently to the same event.
What does that mean, exactly? Well, let’s take interest rates for example.
When interest rates rise, bond prices tend to fall—while most other types of investments typically rise. That’s why it makes sense to spread your portfolio across a wide range of vehicles. Although diversification is by no means a guarantee against loss, it will minimize risk by ensuring your portfolio is not heavy in just one type of investment. This will keep you on track to achieve your long-term investment goals.
#2: Re-evaluate and rebalance.
Getting married. Having kids. Getting divorced. Retiring. A lot can happen in a year.
With an education member’s busiest time of year typically running from September to June, summer is the optimal time to ensure that your portfolio reflects any recent changes to your personal or financial situation.
This means making any necessary updates to your investment profile, such as your time horizon.
For instance, let’s say you had a goal of ‘taking a dream summer vacation in the next 5 years’, but found yourself unexpectedly welcoming a new addition to the family this past year. Depending on where you are on the pay grid, perhaps that goal needs to be re-evaluated and new goals (like contributing to an RESP) added.
If you’re still several years away from reaching your 85 or 90 Factor, you may be investing with a higher tolerance for risk (since you’ll have more time to recover from any market corrections).
Then there’s your risk tolerance.
Unlike the previous scenario, if you’re rapidly approaching retirement, you may want to look into reducing the overall risk of your investments in order to provide for what matters most: your goal of continuing a certain lifestyle in retirement with the many years of savings and growth you’ve earned.
This is where rebalancing your portfolio can be used to keep your long-term goals on track.
Since emotional reactions during periods of volatility could lead to making the wrong decisions, summer provides you with the time and mental space to calmly re-evaluate your portfolio and then rebalance if necessary.
#3: Review (and utilize) tax minimization strategies.
Just as taking the summer months to learn new skills and earn new certifications can help you move up the pay grid, brushing up on tax-minimization strategies for your portfolio can ensure you maximize any gains. One such strategy is to hold high-tax investments, such as interest-bearing vehicles like GICs, HISAs, and PPNs, in a TFSA so the interest can compound without taxation.
Next, look for investments where most of the return is through capital gains (e.g. stocks, mutual funds, and ETFs), since these receive the lowest tax rates.
Another area which could always use some tax planning is in regards to your estate, which can be subject to significant taxes. This should also include planning for contingencies in the event that your spouse passes away earlier than you.
If you’re happily retired, pension income splitting is a smart tax-minimizing option. By splitting income, the family income tax bracket is kept at a lower level—giving you the possibility to maximize your family Old Age Security government benefit (if split properly). If you’re retiring soon, your financial advisor can explore your available options with you.
So there you have it. But before you make any decisions regarding your portfolio this summer, make sure to enlist the professional advice of a Certified Financial Planner professional or Senior Financial Advisor with an educator-specific point of view.
Having served education members since 1975, Educators Financial Group knows all the elements that make up your financial world. We have a unique understanding of your finances, which means that whether you’re working or retired, we can provide you with the right investment strategy to keep you on track to achieving your goals.
Have one of our financial specialists contact you about scheduling a summer portfolio review.
The information provided is general in nature and is provided with the understanding that it may not be relied upon as, nor considered to be, the rendering of tax, legal, accounting or professional advice. Please ensure to consult your accountant and/or legal advisor for specific advice related to your circumstances. Educators Financial Group will not be held responsible or liable for any losses, costs, damages or expenses incurred by reason of reliance as a result of the aforementioned information. The information presented was obtained from sources that are believed to be reliable. However, Educators Financial Group cannot guarantee their completeness or accuracy. Commissions, trailing commissions, management fees, and expenses mall all be associated with mutual funds. Please read the prospectus before investing. Mutual funds are not guaranteed—their values change frequently and past performance may not be repeated.