Most Canadian investors have target dates for key life events, and yet fewer than half feel that their investments are structured to be able to support these milestones, a recent survey suggests.
The survey of more than 1,500 Canadians, conducted by Leger Marketing on behalf of BMO Financial Group, shows that 60% of investors have time frames or target dates in mind to reach specific financial goals. Such goals include such as marriage, buying a house, having children and retiring.
The vast majority of Canadians agree that it is important to hold investments that evolve over time to become less risky as key life-event dates approach, but despite this, only 49% said their portfolio is structured to become less risky over time.
“One of the basic rules of investing is that your investments should progressively become more conservative as your investment horizon shortens,” said Serge Pépin, head of investments at BMO Investments Inc. “This is especially critical during times of market volatility. However, as simple as this concept may seem, many of us don’t get around to ensuring that our investments are properly balanced, whether it’s because of lack of time, knowledge or convenience.”
Pépin suggests that advisors help their clients align their investments to their key life events through products that are designed to automatically achieve this goal.
For example, advisors could choose target maturity bond exchange traded funds. The average time to maturity of these ETFs’ underlying portfolios decreases to match the approaching maturity date, converting into a short-term bond fund over time. This gives investors the flexibility to access funds when needed while reducing the risk profile of the portfolio over time.
Certain mutual funds also boast target end dates, aiming to provide growth in the early stages, and to become progressively more conservative over time.