Q. I am in my late-70s and retired, and my wife and I have accumulated sufficient retirement savings to live comfortably for the remainder of our lives. The market value of our combined retirement investments (non-registered, registered,

tax-free savings account , etc.) fluctuates daily but is currently sufficient to provide us with ample funds to cover us for the remainder of our lives.

Here is my dilemma. The large majority of our investments are in solid blue-chip Canadian stocks (mostly the

Top Six banks and utilities) that have historically never missed dividend payments for periods between 50 and 160 years. These form the basis of our income funds. However, the market value is fluctuating significantly given the current geopolitical factors, including the unsettling tariff situation and the war in

the Middle East. And there is always a risk that the markets will drop drastically.

Would it be wise to essentially cash in all our investments and place all resultant funds in predictable, risk-free investments such as

guaranteed investment certificates (GICs) to retain the value of our principal, with the realization that we would be negatively affected from a taxation standpoint (dividends versus income)? Despite this tax increase liability we would still have sufficient after-tax dollars remaining to continue our current lifestyle. Should we switch to a safe haven or stay the course?

—Gerry FP Answers: Gerry, it sounds to me like you are asking the age-old question: How much money should I have in equities, bonds and cash? Often, the mix is determined by answering a few questions on a risk tolerance questionnaire, which is sometimes completed in the absence of, or prior to, investment education and financial planning.

Let’s go back to basics and ask why anyone would want to invest in equities. The simple answer is because over time equities have earned rates of return higher than the rate of inflation. The goal with equities is to protect and enhance your purchasing power over time so that as the price of milk and everything else goes up you can continue to afford them. Of course there will be times when equity markets crash before eventually recovering to new highs, but that is the emotional price you must pay to get good long-term returns.

Your bonds, GICs and cash are there to protect your capital. With a million dollars, say, invested in cash, you will never have less than a million dollars and you don’t have to worry about a market crash. What you should worry about is whether you will be able to afford the rising price of milk and everything else. As an example, from 1982 to about 2015, U.S. government long bonds provided close to equity-like returns after inflation. A lump sum purchase into the same bond portfolio in 2008 over 16 years to 2024 earned zero per cent after inflation and before taxes. From 1927 to 1981, over 54 years, the average after-inflation, before-tax return was -0.2 per cent. Yes, you still have the value of your initial investment, but what can it buy? I remember my grandmother, who was born in 1909, saying the biggest change she saw over her lifetime was the value of the dollar.

Gerry, rather than asking how much money should go to bonds, GICs, cash or volatile equities, ask yourself how much money you want to go toward capital preservation and how much toward probable inflation protection.

As a retiree you should want to protect your income for a set number of years, say three to five years, and protect your capital for any large, near-term expenses. For instance, the math may suggest if you draw $50,000 a year, set aside $150,000 to $250,000 in assets that are geared toward capital protection, plus a little more for future expenses. Your remaining money goes toward equity.

Keep in mind the math behind asset allocation is based on probabilities and not guarantees, and there are behavioural and planning aspects to inject into allocation decisions. If you are not comfortable with volatility, reduce your equity exposure. If financial projections suggest you will be okay with just GICs then what is your reason for trying to earn more? Being in your late 70s, you have less inflation risk than a younger person with a longer life expectancy.

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Gerry, your question reads as though you will be okay if you convert everything to GICs and pay the tax. A couple of things to consider are selling stock over time and making charitable donations to reduce the overall capital gain and subsequent tax. Finally consider how to set up the portfolio so your wife can easily take over if something should ever happen to you.

Allan Norman, M.Sc., CFP, CIM, provides fee-only certified financial planning services and insurance products through Atlantis Financial Inc. and provides investment advisory services through Aligned Capital Partners Inc., which is regulated by the Canadian Investment Regulatory Organization. He can be reached at alnorman@atlantisfinancial.ca.