FP Answers: I’m worried the stock market will burst, how much of my investment accounts should be in cash?


This is how you know how much cash you should have in store, whether the market is falling or not

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By Julie Cazzin, with Doug Robinson


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Q: I’m about 15 years away from retirement and I was wondering what percentage of cash I should be keeping in accounts such as Tax-Free Savings Accounts (TFSAs) and Registered Retirement Plans (RRSPs). Apparently the bubble is about to burst. All I’ve done with my investments is an exchange traded fund with a 70/30 split of stocks to fixed income. – Cheers, Paul

FP answers: Thanks for the question, Paul. They imply that the money you invested in your TFSA and RRSP is for retirement, which is a long-term goal 15 years away. But cash is an asset class that is ideal for short-term goals. There is a conflict here between your long-term goal for your investments and the short-term purpose of having cash in a portfolio.

There is a very short answer to your question and that is that your money shouldn’t be in cash. But I’m going to offer a longer answer with more context and considerations about holding cash in your investment portfolio.

It makes sense to hold cash if you have financial goals that happen within two years. For example, if you plan to travel to a warm Caribbean island in eight months and need to spend $ 10,000, invest that $ 10,000 in cash today. In this way, falling markets do not suddenly leave you too short on vacation.

I also feel compelled to expand on your comment that the stock market bubble is about to burst. That may or may not be true. If it’s true, forget about the 70/30 model. Move all of your money into cash and then buy back near the bottom of the market. Unfortunately, this is not an investment. This is known as market timing. Even reallocating your money into a 70/30 mix is ​​based on market timing. If your old mix of wealth was right for you, why change it when you have 15 years before retirement and hopefully 30 years after?


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Investing wisdom begins with accepting the fact that we cannot accurately predict the future and shouldn’t even try

Several studies have been conducted – and continue to be updated annually – to examine investor results and compare them to the performance of the underlying investments. If you generalize the results, investors are about five percent behind the asset classes they were in. Much attention is paid to fees and it is reasonable to attribute about two percentage points of that underperformance to fees. The rest is due to investors shifting their assets in anticipation of or in response to market volatility. I cannot emphasize enough the importance of not letting your emotions lead you to make this mistake.

I know investors, market forecasters and colleagues who loudly warned of an impending market collapse three years ago. Unfortunately, many have switched to cash and have missed all of the winnings of the past few years.

Even if someone could time the market and switch to cash before a significant correction, they would still need the courage to buy back when the markets are down a whopping 30 percent and most have not. Market timing is a game of fools. Investing wisdom begins with accepting the fact that we cannot accurately predict the future and shouldn’t even try.

  1. If you are considering investing in alts, you should be comfortable and have a good understanding of what they are investing in.

    What are alternative investments and are they for me?

  2. My bond ETF is doing poorly. Should i sell it?

  3. Pipe for the Line 3 pipeline from Enbridge, Alberta.

    I want to buy dividend stocks. How do I understand the finances?

It can help you know what I am doing with my investments. I identify my priorities and develop a comprehensive financial plan to achieve them. Part of that plan is to create an asset allocation strategy that will help me retire comfortably. Then I forget until one of three things happens.


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First, I will re-evaluate the strategy when I am within seven years of retirement to be ready to begin withdrawals for future income. In simple terms, I have a rule that says, “Always keep seven years of income in safe investments.” This will reset the strategy to be more conservative.

Second, if my asset allocation deviates from the target I set because of differences in the performance of my investments, I will rebalance to my original target. But I don’t do this often.

And finally, I am ready to use my strategy to be more aggressive in extreme market crises. I’ll aim for a slightly more aggressive target when most investors are scared and sell their holdings. To use your situation as an example, I might go to an 80/20 asset mix instead of a 70/30 mix.

The first two points apply to all investors, but this third strategy is one that advisors are likely to find only suitable for the most aggressive and demanding investors.

Paying for advice and not getting it, or worse, taking bad advice, is expensive. Good advice should add more value than the price you pay. When – not when – the stock markets are right, an advisor should help people make profitable, not emotional, decisions. I hope this helps you further and I wish you every success in the future.

Doug Robinson is a certified financial planner and investment advisor with Veritable Wealth Advisory in Peterborough, Ontario. Veritable Wealth Advisory is a full-service financial planning and investment firm employing several certified financial planners and portfolio managers with offices in Burlington, Kingston and Peterborough. Veritable has advisors who specialize in retirement planning, tax planning, and estate planning, and most work with professionals, business owners, and wealthy retirees.


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