As Canadian Baby Boomers look to enter retirement, being a bit more strategic with the investing game plan could make more sense, especially as the risk/reward shifts across asset classes, while the threat of higher inflation might raise the bar a bit on opportunities to hold cash or “safe haven” assets that may no longer be the same wealth builders they once were.
Indeed, I’m sure you’ve heard about the 60/40 portfolio (that’s a portfolio with a 60% equity, 40% bond allocation) and how it’s probably “dead” in this new environment. Indeed, stocks and bonds are not guaranteed to go in different directions anymore.
They could go down together and up together. And with added macro risks as well as the uncertainty of a new Federal Reserve chair in the U.S. to be seated soon, questions linger as to whether it’s time to think beyond the 60/40 rule of thumb. Indeed, there is more than one way to go about it, especially as wealthier Baby Boomer retirees look to alternative asset classes and stores of value.
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Embracing other asset classes could make sense for retirees
Whether retirees choose to embrace private equity, private credit, real estate (which includes higher-yielding REITs), precious metals, royalty-generating firms, infrastructure, or something else entirely (perhaps not cryptocurrencies, given the volatility), I do think that there is a lot more to look forward to other than fixed-income products, many of which might be less safe than they seem.
For those who want to keep things a bit safer, there are great alternative products with lower risk profiles. Most notably, guaranteed investment certificates (GICs), commercial paper, money market funds, and ETFs.
Of course, with GICs, you’re getting the guarantee, but it comes at the cost of returns. And while commercial paper stands out as a nice middle ground that allows liquidity and far better rates than offered in a savings account, including higher-yielding savings accounts at your bank, investors must put in the homework to find the assets that make the most sense for them. If liquidity isn’t an issue, perhaps the added basis points from a GIC would make more sense than a money-market fund. Either way, there’s a world of assets that retirees should be informed about.
There’s more than just bonds out there!
It’s not all about bonds. There are steadier ships to preserve capital while keeping it ahead of inflation. And, at the same time, those retirees who are willing to take more risk for more lowly correlated (to the stock market) rewards, alternative assets are definitely worth careful consideration. Brookfield Corp. (TSX: BN) is a great diversified alternative asset play for investors to consider.
Whether you’re in it for the renewables exposure, the real estate, the asset management side of the business, the infrastructure (especially AI infrastructure), or private equity, Brookfield Corp. covers a lot of bases and could make for a compelling buy for those who aren’t unsettled by the higher degree of volatility we’ve witnessed lately (1.8 beta on the stock, which entails a choppier ride than the TSX Index).
Personally, I think the more diversification you have, the better. So, instead of asking whether it’s bonds, GICs, money market funds, alternative asset plays, defensive dividend stocks, bond proxies, gold, or silver that should be at the core of the non-equity side of the portfolio, perhaps it makes sense to understand what each asset brings to the table. And if it makes sense, perhaps sprinkling a bit of each in varying amounts could be the play for retirees.
