Pre-retirees too risk averse

As Canadians approach retirement, they are generally expected to ratchet down the risk level of their portfolios. But a recent survey suggests that the market crash of 2008-2009 has scared many pre-retirees into positions that are far too conservative.

According to a survey by Ipsos Reid, Canadians over the age of 50 are holding 25% of their portfolio in guaranteed investment certificates (GICs) and high interest savings accounts.

That marks a nine-year high for low-yield allocation, with roughly $300 billion sitting on the sidelines.

“Investors have had to deal with significant market volatility over the past two years, so it is expected that many Canadians have a lower risk tolerance and a higher desire for security,” says Fred Pinto, managing director of distribution services at Russell Investments Canada Limited.

This aversion to market risk could be leaving pre-retirees exposed to another risk, though: longevity. As Canadians live longer and more active lives in retirement, they run the risk of outliving their savings.

“GICs and savings accounts do not yield enough after-tax returns to position portfolios for retirement and deliver the income needed in retirement,” Pinto says.

Heading further out on the risk curve, the next stops are managed bond portfolios and balanced funds, both of which have held up well, with many having served up double digit performance in the past year.

“This $300 billion sitting on the sidelines represents a tremendous opportunity for advisors to help clients put their money to work, make the most of their savings, and build their retirement portfolios.”

(02/16/10)