No investor is exempt from economic downturns, but the burden is heaviest on retirees. They do not have regular income but rely on investment income for sustenance.
A retiree’s primary concern is ensuring savings aren’t depleted and remain more than living expenses. Consider five retirement hacks to help you save or boost cash reserves to avoid or minimize the financial squeeze during a market crash.
1. Cut back on spending
The first step when cushioning against downturns is to revisit your budget. You might find your cash solution by reviewing your spending habits and cutting back or removing some expenses that aren’t necessary. Draw up a new budget with adjustments, then track your spending.
2. Rebalance your portfolio
If you have stock holdings for the past several years, don’t panic. Stay the course because, historically, returns from long-term investments outpace inflation. However, ensure your chosen stocks can endure the market turbulence and recover eventually. If not, ditch high volatile assets, rebalance your portfolio, and move to defensive stocks.
Fortis (TSX:FTS) in the utility sector is an example of a low-volatility, low-risk stock. Its underlying businesses produce stable cash flows regardless of economic conditions. More importantly, dividend payments are rock solid, and you’ll have income streams quarterly.
3. Always stay defensive
Fortis is Canada’s second Dividend King. Its dividend hike in 2023 marked 50 consecutive years of dividend increases. The $26.88 billion electric and gas utility company from St. John’s operates in Canada, the United States, and the Caribbean.
“The fundamentals of our North American regulated energy delivery businesses remain resilient despite volatility in the macroenvironment in which we operate,” said David Hutchens, president and chief executive officer of Fortis. Before the fourth quarter (Q4) of 2023, management announced a new $25 billion capital expenditure plan for 2024-2028.
According to Hutchens, the five-year capital plan is low-risk and highly executable as nearly 100% are regulated investments and 18% are major capital projects. Also, about 27% will be cleaner energy investments that connect renewables to the grid.
Fortis said the five-year capital plan supports the low-risk rate base growth ($49.4 billion by 2027). The company also reiterated its dividend-growth guidance of 4-6% through 2028. If you invest today ($55.04 per share), the dividend yield is 4.31%.
4. Reinvest dividends
If your finances allow or there’s no immediate financial need, consider reinvesting your dividends to realize the power of compounding. This strategy is proven to compound returns and realize portfolio growth over time. Some dividend-paying companies have a dividend-reinvestment plan that automatically reinvests dividends to purchase additional shares.
5. Diversify for protection
Some retirees protect their retirement money from market volatility by diversifying. They follow the usual advice of not putting your eggs in one basket. For example, your investment basket should have stocks from different sectors to counterbalance or mitigate risks.
If you’re uncomfortable with stocks alone, include other asset types like bonds, Guaranteed Investment Certificates, mutual funds, and exchange-traded funds in your portfolio mix.
Safeguard and cushion
Retirees need to be cautious and more conservative than their younger counterparts. The retirement hacks above are cushions against economic slumps and safeguards mainly against market crashes.
