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Of course, those with guaranteed-for-life, taxpayer-backed, defined benefit pension plans may well be in an enviable position. I often wonder why the usual media financial profiles of senior couples even bother when their subjects both enjoy such pensions.
Sadly, most of us are not in such a fortunate position. We may have cobbled together a couple of small private-sector pensions over the years, but for the most part what wealth we have is in RRSPs/RRIFs, TFSAs and non-registered savings, which rise and fall with financial markets. From what I see at the new Retirement Club (which I wrote about in this space this past summer) most of those in the so-called retirement risk zone realize they are in effect their own pension managers, which means paying close attention to the markets.
Retirement Club co-founder Dale Roberts posted a typically anxious commentary on a recent The Globe and Mail column by Dr. Norman Rothery, CFA. Rothery, a celebrated value-stock picker who runs the StingyInvestor.com site, suggested the current environment of Trump-inspired tariffs and global trade wars is causing plenty of anxiety for this group. In the link, summarized as “With today’s market, investors close to retirement face precarious times,” Rothery said investors on the cusp of retirement are “facing peril from a combination of the unusually lofty U.S. stock market and political uncertainty that’s disrupting world trade.”
U.S. stocks trading at worrying levels
The U.S. stock market is “trading at worrying levels,” based on several value factors, Rothery said: the S&P 500 Index is “trading at a cyclically adjusted price-to-earnings ratio near 39—above its peak of 33 in 1929 and approaching its top of 44 in late 1999, based on monthly data. Similarly the index’s price-to-sales ratio is approaching its 1999 high. A broader composite measure that includes many different market factors indicates that the U.S. market’s valuation is at record levels.”
Rothery concluded it’s “likely that the U.S. stock market will generate unusually poor average real returns over the next decade or so.” Unfortunately, the U.S. now represents about 65% of the world’s stock market by market capitalization based on its weight in the MSCI All-Country World Index at the end of August. So if the U.S. market flops, “It’ll likely take the rest of the world with it— at least temporarily,” Rothery cautioned.
This could affect recent retirees just beginning to draw down portfolios, due to “sequence-of-returns risk.” That means those in the retirement risk zone who suffer early losses could eventually be in danger of outliving their savings. Rothery also references the famous 4% rule of financial planner and author William Bengen: the theory that investors in a 55/40/5 stocks/bonds/cash portfolio should be able to sustain retirement savings for 30 years provided the annual “SafeMax” withdrawal not exceed 4% a year after adjusting for inflation. Bengen has just released a new book titled A Richer Retirement: Supercharging the 4% Rule to Spend More and Enjoy More, which this column may review next month.
Can defensive funds reduce the risk?
At the Retirement Club, members anxiously posed questions in the site’s chat room about whether they should be moving to cash and bonds, gold, or other alternatives to U.S. stocks. To this, Roberts—who also runs his own Cutthecrapinvesting blog—warned against getting too defensive but agreed that a move to a 70% fixed income/30% stocks allocation might work for some nervous early retirees. Personally, he has trimmed back his U.S. growth stock exposure and added to defensive exchange-traded fund (ETF) sectors like consumer staples, health care, and utilities. He also mentioned a U.S. equity ETF trading in Canadian dollars: iShares Core MSCI US Quality Dividend ETF (XDU.T)
Advisor and certified financial planner John De Goey, of Toronto-based Designed Wealth Management, took a similarly cautious stance in his recent (Sept 12) speech at the MoneyShow in Toronto, archived here on YouTube. Titled “Bullshift and Misguided beliefs,” the talk expanded on De Goey’s usual themes of advisor bullishness and complacent investors, also articulated in his 2023 book, Bullshift. De Goey suggests many advisors believe their own bullish messages, often to the detriment of the performance of their own investment portfolios.
In the talk, De Goey said the U.S. economy is getting dangerous for investors. “A whole series of economic indicators are flashing red… Despite that a lot of Canadian investors are piling into the U.S. market.” U.S. stocks now account for more two thirds of the global stock market and many Canadians are overweight U.S. stocks, De Goey said, referencing the same elevated CAPE ratio that Rothery cited.
But the “real pain of the tariffs that was expected in April is now just around the corner, as stockpiled inventories get used up.” Trump’s 2025 tariffs are a case of “déjà vu all over again,” De Goey said, comparing them to the protectionist Smoot-Hawley tariffs of 1930, which ushered in the Great Depression. The U.S. now has its most corrupt administration in history, he said, so “expect chaos.” But investors are being “gaslit” by the financial industry. “There’s clear evidence mutual fund registrants are prone to herding/collective stupidity… and it seems the industry is the culprit because who else could it be?” In short, he believes optimism is good for business in the financial industry.
Peter Grandich, a veteran U.S. investor and author, is also bearish about U.S. stocks. His 2011 autobiography was titled Confessions of a Former Wall Street Whiz Kid. Having experienced three major financial panics in his 41-year career (1987, 2000 and 2008), he recently told clients he believes “we’re on the threshold of economical, social, and political crisis, which I believe can make those other three look like a walk in the park in comparison.” His personal asset allocation consists of only cash, T-bills, and three speculative junior resource stocks. “I certainly am not suggesting others consider such a portfolio, but I do believe capital preservation must overwhelm capital appreciation positions. Because corporate bond yields are now so close to Treasury bond yields, I don’t wish to own any. I suspect such a view is rarer than finding a needle in a haystack, but I never have been more adamant in needing to personally be a live chicken versus a dead duck.” (In September, Grandich interviewed me on his podcast.)
But first, a global “melt-up”?
Not everyone is so bearish. One newsletter I subscribe to argues markets will continue to “melt up” in multiple asset classes: stocks, crypto, gold and silver. And while they may well correct in 2026 or so, market strategist Graham Summers argued late in September that “The great global melt-up is accelerating now” so “investors need to take advantage of this while it lasts.”
Dale Roberts and Retirement Club members believe new and would-be retirees can find shelter in traditional asset allocation, taking partial profits in overvalued U.S. stocks and moving to more reasonably priced international and Canadian equities. Asked whether the popular global asset allocation ETFs can protect retirees against overvalued U.S. stocks, De Goey said such products may soften the blow “but right now the U.S. represents almost two-thirds of global stock market capitalization. So, if all your stocks were in a single global ETF or mutual fund with a cap-weighted mandate, you’d have massive exposure to a massively overvalued market.”
Using annuities and other defensive investments
Investors can instead focus on defensive sector ETFs that overweight niches like consumer staples, utilities and health care. Low-volatility ETFs from providers like BMO ETFs, iShares and Harvest ETFs tend to overweight such defensive sectors and underweight overvalued stocks like the technology giants. However De Goey downplays how well low-volatility ETFs work in bear markets. “If the market falls by 25% and the investor can handle that, they may not need such an ETF. “Low-volatility products are more defensive than market-cap weighted products, but it all depends on how investors react and behave when things go south.”
Asked whether RRSP/RRIF investors can buy protection from market volatility through annuitization or partial annuitization, De Goey said maybe, but he prefers products like the Purpose Longevity Fund, a mutual fund “which offers pension-style diversification and aims to replicate annuity payments for the remainder of the unitholder’s life.”
On protecting against Trump’s trade wars, De Goey agreed retirees should have exposure to the gold and precious metals sectors. His clients are 10% in gold and 8% in resources stocks through products such as Mackenzie Core Resources ETF (TSX:MORE), up 33% this year.
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Jonathan Chevreau
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