Does investment yield get too much attention?
Scotia Wealth Management Senior Wealth Advisor, Dave Lee, offers Total Wealth Planning in White Rock. To book an appointment, call 604.535.4743 or email dave.lee@scotiawealth.com.
Too often investors start and finish their thoughts about retirement income with one question in mind: “What does it pay?”
Unfortunately for these investors, the amount of interest, dividends or other income that an investment pays, also known as its “yield” doesn’t tell the whole story when considering investments.
The “total return” of an investment, which includes what it pays, changes to the value of the investment and its fees, gets closer to telling the complete story but still falls short. Other factors such as risk, taxation, diversification and whether your money is locked in or accessible are some of the other factors that should really be considered.
A narrow focus on yield, while tempting, can also overshadow some more important considerations when it comes to planning for your retirement, notes Dave Lee, Senior Wealth Advisor with Scotia Wealth Management in White Rock. “Yield is just one feature when selecting an investment in the way that the number of seats is just one consideration in selecting a vehicle.”
“Investors can fall into this trap where the only thing that matters is the yield, while risk and after-tax total returns are ignored,” Dave explains. “The numbers also need to connect with the lifestyle you can afford, what you can spend, and what you want to do in your retirement.”
Total Wealth Planning starts with better questions.
What do you want to do at different stages in your retirement? Who with? Where? What other assets, liabilities or income streams do you have? How long do you intend to stay in your current home?
Once we are clear on the assets, pensions and other sources of income, as well as goals and desires, we are better positioned to offer customized investment recommendations. “Many investment product decisions put the cart before the horse,” Dave observes. “There's a lot of value in taking this personalized approach to total wealth planning.”
Perhaps you anticipate travelling intensively for eight years in your early retirement, before staying closer to home once you're a little older. Your plan should reflect these intentions and evolve as time goes on.
Dave Lee CIM, CFP, FCSI is a Senior Wealth Advisor with Scotia Wealth Management in White Rock. He can be reached at dave.lee@scotiawealth.com or 604-535-4743.
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