3 ways to get your investments ready for summer and beyond

It’s officially summer—the time of year when you can finally catch up on life.

Because let’s face it, the 10 months of a school year (as rewarding as they can be) are typically all ‘work’ with little time for ‘play’, or anything else for that matter.

However, summer break is also the ideal time for education members to review their investment portfolio and make any necessary updates.

After all, while most investors benefit f rom a mid –year check–in, the unique structure of the academic calendar makes July and August particularly strategic months for educators to optimize their wealth.

Here are just some of those educator–specific considerations:

• Moving up the pay grid? Use the summer to calculate any pay increases in the upcoming school year and then update automated contributions to your investments come September
• Review your RRSP contribution room: OTPP contributions generate a large Pension Adjustment (PA), which drastically reduces your available RRSP contribution room—so, be sure to check your official Canada Revenue Agency Notice of Assessment (alongside your summer pension statement) to ensure you’re maximizing remaining RRSP space without over-contributing
• Target your 85 Factor: Summer portfolio reviews help to determine if you need supplemental investments to bridge the financial gap—if you plan on retiring before reaching your unreduced pension milestone

By July, six months of market movements have also more than likely shifted your asset allocation
away from your target.

That’s where a summer review enables you to f ix any type of portfolio drift before it gets too off–balance to
correct.

With that said, here are 3 ways you can get your investment portfolio ready for summer and beyond:

#1: Ensure you are (and remain) properly diversified.

If buying the perfect home is all about ‘location, location, location’, building the right investment strategy is all about ‘diversification, diversification, diversification’—particularly if you’re looking to navigate your portfolio through the summer doldrums.

What makes diversification so important is that it aims to put your portfolio in the best possible position to maximize returns, no matter what the market throws at it.

What does that mean, exactly? Well, let’s take interest rates for example.

When interest rates rise, bond prices tend to f all—while most other types of investments typically rise.

That’s why it makes sense to spread your portf olio across a wide range of vehicles.

Although diversification is by no means a guarantee against loss, it will minimize risk by ensuring your portfolio is not heavy in just one type of investment. This will keep you on track to achieve your long –term investment goals. 

Why is a diversification check–in particularly important in the summer?

Peak summer driving and air conditioning seasons frequently drive sharp, unexpected volatility in oil and energy sectors between July and August. When market volatility spikes or trading volumes thin out during the summer months, assets that normally move independently of ten begin moving in tandem, effectively destroying your diversif ication exactly when you need it most

#2: Re-evaluate and rebalance.

Getting married. Having kids. Getting divorced. Retiring. A lot can happen in a year.

With an education member’s busiest time of year typically running from September to June, summer is the optimal time to ensure that your portfolio reflects any recent changes to your personal or financial situation.

This means making any necessary updates to your investment profile, such as your time horizon.

For instance, let’s say you had a goal of ‘taking a dream summer vacation in the next 5 years’, but found yourself unexpectedly welcoming a new addition to the family this past year. Depending on where you are on the pay grid, perhaps that goal needs to be re-evaluated and new goals (like contributing to an RESP) added.

If you’re still several years away from reaching your 85 or 90 Factor, you may be investing with a higher tolerance for risk (since you’ll have more time to recover from any market corrections).

Then there’s your risk tolerance.

Unlike the previous scenario, if you’re rapidly approaching retirement, you may want to look into reducing the overall risk of your investments in order to provide for what matters most: your goal of continuing a certain lifestyle in retirement with the many years of savings and growth you’ve earned.

This is where rebalancing your portfolio can be used to keep your long-term goals on track.

Since emotional reactions during periods of volatility could lead to making the wrong decisions, summer provides you with the time and mental space to calmly re-evaluate your portfolio and then rebalance if necessary.

Read more about emotional investing and how it can impact your portfolio.

#3: Review (and utilize) tax minimization strategies.

Just as taking the summer months to learn new skills and earn new certifications can help you move up the pay grid, brushing up on tax-minimization strategies for your portfolio can ensure you maximize any gains. One such strategy is to hold high-tax investments, such as interest-bearing vehicles like GICs, HISAs, and PPNs, in a TFSA so the interest can compound without taxation.

Next, look for investments where most of the return is through capital gains (e.g. stocks, mutual funds, and ETFs), since these receive the lowest tax rates.

Another area which could always use some tax planning is in regards to your estate, which can be subject to significant taxes. This should also include planning for contingencies in the event that your spouse passes away earlier than you.

If you’re happily retired, pension income splitting is a smart tax minimizing strategy. By splitting income, you and your spouse can keep your tax rates at a lower level. If you’re receiving OAS that can be especially important as higher income can affect these benefits. If you’re retiring soon, your financial advisor can explore your available options with you.

So there you have it. But before you make any decisions regarding your portfolio this summer, make sure to enlist the professional advice an Educators financial advisor with an educator-specific point of view.

Having served education members since 1975, Educators Financial Group knows all the elements that make up your financial world. We have a unique understanding of your finances, which means that whether you’re working or retired, we can provide you with the right investment strategy to keep you on track to achieving your goals.

Have one of our financial specialists contact you about scheduling a summer portfolio review.

Source:
https://www.tsinetwork.ca/tag/summer-stock-market-doldrums/