He starts the book with a solid case for index investing, and lays out a step-by-step guide to making a plan and following through. Be patient ot others. To see what your friends thought of this book, please sign up. Shit, even the digital books? James rated it really liked it Aug 22, Submit a new text post.
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With just three components, you can build a nest egg that has it all. Advertisement Pity the poor retirement portfolio. It has to provide you with enough growth to support the retirement lifestyle you want, but it also has to defend you from the ravages of a possible market crash.
It has to weather all sorts of different markets over several decades—and it still has to come through with a dependable retirement income you can count on. It mainly comes down to the right mix of investments. To generate that kind of income, you would have to save up a lot of dough, but luckily, not all of your retirement income has to come from your portfolio.
That means your portfolio will only have to provide the total income you need in retirement, less your annual government and pension benefits.
The right mix Now that you know roughly how much you need to save up, the next step is to figure out how to invest it. The stocks will help ensure growth so your nest egg keeps up with inflation, while the fixed-income portion provides some stability in your returns and helps to protect you from market crashes. Advertisement Advertisement Once you have your allocation roughly sketched out, you can further adjust it to fit your particular situation. For instance, a good rule of thumb is to go heavier on stocks the younger you are.
There are several ways to accomplish this, but Norbert Schlenker suggests setting the proportion of your fixed income equal to your age. There are other factors that may cause you to go a bit heavier or lighter on stocks. Perhaps the most important factor in determining the right balance between stocks and bonds, though, is your risk tolerance. If you do, it could lead to panic selling when the market falls, and that could have a big impact on your returns. Then stick with that. A life annuity is essentially a guaranteed stream of income that lasts as long as you do.
You hand over a large sack of money to an insurance company, and in return, they pledge to give you a set number of dollars back every month for as long as you live, no matter what the market does.
In Pensionize Your Nest Egg, Milevsky and co-author Alexandra Macqueen note that annuities provide many of the benefits of a defined benefit pension from work, which takes some of the load off your retirement portfolio.
Because of that, many people decide to put only part of their nest egg into an annuity for safety, and keep the rest in a standard mix of stocks and fixed income. You should also consider the flexibility of your spending plans, your keenness to leave money to your heirs or charity, your state of health and your tolerance for risk.
An income for life The annual payout you get from an annuity depends on current interest rates and how old you are when you buy them. The older you are, the higher the payout for a given purchase price. Keep in mind though, that the cost goes up if you buy an annuity with extra features, such as inflation indexing.
It also goes up if you buy an annuity that covers both you and your spouse. Some experts recommend inflation-indexed annuities, which raise the annual payout by the number of percentage points that inflation goes up each year, but the extra cost to these products may outweigh the benefits.
There are also variable annuities, which are advertised as providing a guaranteed income for life plus the ability to profit from rising markets. But the guaranteed payout is much lower than with regular fixed annuities and the fees are very high about 3. Hit the sweet spot The longer you wait before buying an annuity, the higher the monthly payment will be, although obviously you will collect over a shorter period. Milevsky says to get the right balance, you should annuitize gradually in the sweet spot period between the ages of 65 and Many Canadians will find it convenient to convert a chunk of money to annuities as they near the age of 71, which is when the government forces seniors to convert their RRSPs into either an annuity or a Registered Retirement Income Fund RRIF.
When you do add annuities to your retirement plan, you should make some adjustments to the savings you have in your portfolio of stocks and fixed income to compensate. You can do that by reducing the average time to maturity on your bonds and GICs, or by adding real-return bonds. Or you can simply go a bit heavier on stocks. Now all you need to know is which stocks to buy for the Canadian equity portion of your perfect retirement portfolio. As luck would have it, you can find some excellent suggestions among our top-rated Canadian dividend stocks in the Retirement Advertisement Advertisement.
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He takes a topic that is often explained in a technical manner and makes it understandable for non-specialists. I expect to be lending out my copy to friends and family. This book is actually a cross between a book and a magazine. It contains 10 pages of ads and has a fair bit of interesting artwork. It then goes on to look at how to decide what should go in your portfolio and how to set up accounts to buy the chosen investments. Even investors who feel intimidated by financial jargon should find the discussions clear.
The Moneysense Guide to the Perfect Portfolio (2013 Edition)
But why a book about passive investing with index funds or ETFs? Many of these details can be found separately in financial blogs such as Canadian Capitalist, but the book conveniently gathers it all in one place. And veteran journalist, author and blogger Dan Bortolotti does a great job of conveying the information in a clear, concise manner. One area where his clarity rings through is a discussion on minimizing the high, poorly disclosed currency fees on foreign investments traded within RRSPs.