Investing in your 50s

An investing roadmap is paramount in your peak earnings years – here are a few essential stops on the way to meeting your retirement goals

Andrew Willis 19 August, 2019 | 1:14AM
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Road going into horizon

Investors that are getting ready to retire have a horizon of freedom ahead, but still must pass the most crucial gateway to the golden years. In their 50s, investors need to navigate complex financial needs and life commitments, and that means repositioning portfolios for optimal return and risk levels.


But this takes time, which may be your number one nemesis when it comes to crossing the retirement finish line, says Kelly Gares, Investment Advisor, at BlueShore Financial. “At this stage people are generally in their peak earning years so they’re likely trying to balance a busy professional life with family commitments and hopefully trying to cram in some personal maintenance,” he says.

At the same time, these investors face increased financial complexity. “Workers at this life stage may be at their peak earnings level, and therefore may have more complex financial needs than their younger counterparts,” says Christine Benz, Morningstar’s Director of Personal Finance.

The first of these is where to forward your paycheques when you’re earning at your peak. “Should they be adding to their RRSP, Tax Free Savings Account, or possibly even an RESP if their children have yet to enroll in post-secondary?” asks Gares. At this stage, it is important to check in on the tax efficiency of your investments before moving on to your asset classes. With that out of the way, you can think about your returns.

“The rate of return that someone should be aiming for really depends on their objectives,” says Gares. Your life and financial situation are already complex enough, to be comparing them a broad market index return (and gets increasingly less relevant as you approach retirement). “Stock market indices are commonly used as reference points but if you’ve started to reduce equity exposure in your portfolio due to your proximity to retirement it’s probably not realistic to expect market returns,” he says.

Essential equities

Your financial and personal health situation are key determinants of your rate of return and asset selection. In general, however, your one commonality to consider is the time horizon ahead, and the implications for equities.

“Generally I would encourage clients in their 50s to have a bias towards equities, particularly if they’re saving for retirement and don’t plan to withdraw from the account for ten or more years,” says Gares, “That kind of time horizon should be more than sufficient to allow an investment portfolio to recover after a downturn inevitably takes place.”

There is still a reduction in equities as you enter your 50s, and as far as a reference point on your financial situation goes, he provides an example. “On average I would say that my clients in their 50s have accumulated savings of roughly $250K to $500K and have started to adjust to a more “balanced” allocation which consists of 60% equity and 40% fixed income, whereas they previously would have had as much as 75% in equities.”

And back to the tax considerations, Gares notes “The TFSAs are commonly an exception in this regard as clients tend to have little or no fixed income holdings within. The rationale for this is that the TFSAs would ideally be the last accounts that they withdraw from in retirement so on this basis they have a longer time horizon.”

Bonds + Health

Benz brings back the discussion on health, which can cut down that time horizon, “At the same time, people at this life stage may face serious life--and in turn financial--setbacks from which they never fully recover: a debilitating health condition that limits work, for example, or time away from work to care for aging parents.”

“By the time you reach your 50s, it's a good idea to begin holding a bit more in lower-volatility investment types, especially high-quality bonds. True, the return potential of bonds is apt to be lower than is the case for stocks. But bonds can serve as valuable shock absorbers for your portfolio, cushioning the losses when stocks go down,” says Benz.

Benz says the benefits from bonds can work in ways beyond returns.

“That can help on a psychological level, of course, ensuring that you don't panic and sell yourself out of stocks when they're in a trough,” says Benz, noting the role of bonds when health issues quickly cascade into income issues. “Holding at least some assets in safer securities can also help serve as an insurance policy: If you are forced to retire early or find yourself out of a job prematurely, having a cushion of bonds can help you avoid tapping stocks for living expenses when they're in a trough.”

Keep it simple

Once you’ve set your portfolio selection, seize opportunities to eliminate any unnecessary complexity. Benz says that when it comes to the portfolios themselves, investors in their 50s shouldn’t assume they need something as complex as their lives (stay tuned for tomorrow's article from Christine Benz where she'll tell you how to simplify your retirement planning).

“As their assets grow, many investors assume that their portfolios should include more moving parts. But that's not necessarily so,” says Benz, “Even as you may need to spread your assets across more and more silos as your assets grow, and so do the number of yours accounts--that doesn't mean you need to maintain distinct and/or narrow holdings in each of these accounts.”

If you’re a DIY investor, Benz says it's hard to go too far wrong with a simple three-fund portfolio consisting of a total domestic market index fund, a total foreign-stock index fund, and a core bond; you can own that same cluster of holdings in each of your accounts.

And when it comes to complexity that surrounds us on the world stage with its economic uncertainty, Gares suggests you can probably spend less time worry about it. “Don’t be deterred by market volatility; stick to the plan!”

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About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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