Keeping your retired clients on course

On the day that Trump’s tariffs were looking like an inevitability for Canada, I had a meeting with some of my longest standing clients. A retired couple, who have been with our practice for 20 years, through all those historical ups and downs, came into our office and the husband was ready to go to cash. He mentioned friends who were moving to cash positions, he cited the volatility we saw on the market that day, and he wanted to know why he still had a solid equity allocation in his portfolio.

I began by asking him how many of his friends were in cash, and how long they’d been there. Most, as it turns out, had been in Cash since November of 2024, around the US election. I showed them how badly that cash allocation has turned out for them. Then I showed him his returns and told him the truth: I have never seen evidence that tactical asset allocation works. He backed off.

Every successful advisor will have a million stories like the one I just told, of scary headlines, panicked clients, and a push to make a knee-jerk decision. In our practice, we build ways to ensure our advisors and our clients don’t fall into the trap of bad investor behaviour. We are especially strict on controlling for behaviour once our clients enter retirement. As much as our approach relies on relationships and personal trust, it’s built on a foundation of solid portfolio construction.

We use what I call a napkin approach with clients, where we take their portfolio value at various withdrawal rates while maintaining an equity allocation of around 60-70 per cent of their portfolio, even in retirement. The fixed income side of the portfolio, despite being lower than some more traditional models might use for a retired client, can function as a means of maintaining those withdrawals through any downturn on the equity side. It functions as protection against the downside, an income stream, and a means of assuaging client anxiety.

Not that the equity side should actually provoke any anxiety, even among retired clients. I’ll often position that allocation not just in terms of the per centage in their portfolio but in the absolute number of companies they hold. Even that first client, I reminded him that he owns 13,000 companies, each selected for its resilience, its quality, and its historical ability to recover from tough moments. The fixed income side, I remind them, can offset a potential downturn and cover withdrawals through a market recovery, but it’s the equity side that will protect against the risk of outliving their savings.

The fixed income side allows us to maintain that core of equities in retirees’ allocations and that, in turn, helps them live better in retirement. Looking historically we find that for every 10 per cent more in equities a client holds, they get a roughly 75 basis point bump in overall returns. On a $2 million retirement portfolio, that amounts to an extra $15,000 per year on their portfolio for the rest of their lives.

We believe that in retirement clients should not get more conservative. They’re not earning any more money, so they need their portfolio to last as long as they live. Especially with longer life expectancies these days and the higher rate of inflation, clients need to outpace the cost of living for a long time. Equities can do that. We’ve seen clients move even into 80/20 portfolio splits because they know not to panic and they know what their fixed income side can do to protect them should the equities turn.

A downturn, too, doesn’t always mean that a client keeps making the same financial decisions. I’d say about 80 per cent of my clientele would automatically adjust their spending during a market downturn. They might delay a new car purchase or a big trip until things recover, taking some pressure off their portfolios. The other 20 per cent might end up having a conversation about their choices now. We’ll talk about what is happening, what could happen, and how giving the market time to recover can set them up well in the long-term. It’s worthwhile to note in these conversations that over the past two to three decades we’ve only seen one bear market drag for an extended time, and that was in the context of a near-collapse of the US financial system.

Portfolio construction is the core of our behavioural approach. If advisors want to help keep their retirees on track, they need to be voices of prudence and trust, they need to stay ahead of the news and make sure they’re not caught flat footed when a client brings them an article. But most of all, they need an evidence based strategy in portfolio construction that serves the client and helps control for their worst impulses.