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Investments options for your retirement

By Finbar Garcia LUTCF, FSS, MFA

Now that you’ve read part 1 of the retirement planning process (Pg 17, June 7 issue), today we look at the investment side of the programme. Hopefully, you calculated your retirement timeline. So how serious are you about achieving this important savings objective?

As I mentioned in the first part, there are many vehicles in which to invest towards retirement and the possibility of risk involved. Let’s look at the investment markets and the associated risk.

Stock Market

This can be a great vehicle to invest. You can make a lot on your investment in a short period of time. If you play the market right, you can create the wealth needed. However, you must remember with the possibility of reward, is a significant amount of risk.

Investing in this market means you are a shareholder of the companies you invested in and looking forward to some dividends as they declare profits. If a company ‘goes south’, your investment also ‘goes south’, and you can lose the value of your investment.

This market will require that you be not risk averse and be in a stable financial position. You can buy, sell, or even trade on this market. When a share price drops, you need to look into what caused it. Was it a business, financial or other associated risk? The key is to buy low and sell high. You have to invest and wait for the price to increase then sell. However, this should not be your entire retirement fund builder.


These are fixed interest instruments paid over a given period, then the principal is returned to the investor. Bond maturities can be from one year to 30 years. Bonds with a shorter maturity (less than a year) are known as money market instruments. These are the pros and cons of investing in bonds.

The pros:

  1. Investment returns are fixed
  2. Less risky than stocks
  3. Less volatile
  4. Bonds have clear ratings. e.g. Standards & Poor’s and Moody’s.

The cons:

  1. Larger sums of investment needed
  2. Less liquid as compared to stocks – if they are issued by a smaller less financially stable company, fewer people are willing to buy them
  3. Direct exposure to interest rate risk
  4. Default – while this is not a norm, the issuer of a bond can default in payment, thereby delaying your return of investment.

To really gain from the bond market, an individual must invest larger sums of money as the interest rates are usually small and fixed.

Real Estate

This can be a great avenue to invest for retirement. With a portfolio of real estate properties, you can secure a comfortable lifestyle, and should not wait to retire then invest. Nothing is 100 per cent guaranteed and persons may ‘lose their shirt and everything else with it’.

It takes some knowledge, skills, and intuition to invest in real estate. Having this rental income prior to retirement will create a good foundation as you enter your retirement years. Proper management and maintenance of the properties would afford you the continuous income for years to come.

The risk here is low. However you would need at least six months rental income set aside if a tenant should leave, and you cannot replace with another in a timely manner.

Remember that you may have taken out another mortgage during your working years to purchase this property, so you must have a backup plan.

Life Insurance

This is yet another investment vehicle towards retirement once the policy carries some guaranteed cash build up. Having the policy for a period of years allows it to build up cash values. These can be used to supplement your lump sum as you retire. It can also be used to liquidate any mortgage loan to avoid any heavy debt going into retirement. You can have multiple life policies that mature at different ages of your life, thereby giving you a better cash inflow as you enjoy your retirement.

Pension Plans

Every person should invest in a pension plan, regardless of if you are in the tax bracket or not. Pension plans are designed to give you a steady flow of income upon your retirement. What you need to know is where do these companies invest to give you the best returns.

Some banks, if not all, offer some type of pension fund account. While the banks are regulated, they are not designed to payout a pension. In so doing the banks would request the best pension benefit from an insurance company upon your desired retirement.

It is also advisable to invest part directly with the insurance company, as they can offer certain guarantees from inception of the policy, like a minimum dollar amount per thousand of your accumulated fund or even greater at the time of retirement.

Most of these pension policies invest in units, so upon retirement you are now buying units to receive your pension. The risk is at the point of retirement—if the cost of the units is high, you will be getting a smaller pension. The other associated risk is the fund performance, as there could be “negative growth” during the buildup period based on the portfolio under management. Inflation would also have to be considered.

These are just some of the investment vehicles. Next time we would chat about life in retirement.

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