- April 2, 2019
All Your Eggs In One Basket – A Guide to Retirement Planning
Imagine investing $190M only to lose it all in one fell swoop.
That’s what happened to a group of QuadrigaCX customers when the company’s founder suddenly died, taking access to their investment with him. QuadrigaCX is a Canadian cryptocurrency exchange. Based on media reports, the founder, 30 year old Gerald Cotten, “was the only person with the passcode to unlock the company’s ‘cold wallet’ leaving almost all the exchange’s cryptocurrency inaccessible”.
While there is skepticism regarding the QuadrigaCX debacle, there is a valuable lesson to be learned - don’t put all your eggs in one basket.
Diversify Your Savings
Any kind of investment involves some degree of risk. For an investment as important as your retirement savings, it is important to manage these risks. To do this, diversity is the order of the day.
It’s simple”, says RF AVP of Pensions services, Cleora Farquharson. “If you invest in things that do not move in the same direction, at the same time or at the same pace, then you reduce your chances of losing all of your money at the same time or at the same pace.” In other words, putting your eggs in a few baskets at different times reduces the risk of losing them all at once.
Diversification is a technique that reduces risk by allocating investments among various financial instruments, industries and categories. The objective is to maximize returns by investing in different areas that would respond differently to the same event. The more diverse a portfolio is, the safer it is.
With this in mind, what should your investment portfolio look like? Common advice would be to invest in stocks and bonds, investing more in bonds and less in stocks as you near retirement. Clarke recommends that your bond percentage be in line with your age. So if you're 30, 30% of your portfolio should be in bonds. At retirement age, 60% to 70% of your portfolio should be in bonds. You shouldn’t stop at stocks and bonds in diversifying your portfolio though. Forbes writer, Simone Moore, says some of the most robust portfolios include stocks, bonds, commodities and/or real estate and some international diversification.
The Bottom Line
You may not be at risk of losing your retirement savings because of a lost password, but you may not be maximizing your portfolio’s potential either. Speak with an investment manager to determine if your savings are adequately diversified and working for you.
References:
https://www.rfgroup.com/pension