Portfolio Confidential

I’ve owned a very successful engineering firm for over 35 years now and I plan to finally retire this summer at age 72. I have two trusted investment advisors (at different firms) and they both run balanced portfolios for me. Starting this fall I would like to draw income from my portfolio, but I am unsure as to which accounts I should draw from. I have corporate accounts, registered accounts and personal accounts. How do you think I should set myself up? Should I have a meeting with both of my advisors to discuss this?

First, congratulations on your imminent retirement! Next, it is great that you already have two advisors that you trust so you will be in a good position to start your next chapter.

Which accounts should you draw income from? Depending on the amount involved, it will probably make sense for you to use your mandatory RRIF withdrawals to fund part of your annual spending requirements and otherwise supplement with income from one or more of your other accounts. With a balanced strategy of bonds and equities, you will be earning income from both interest and dividends. In my opinion, this is a decision for your tax advisor as it is important to figure out the most tax-effective strategy for drawing income.

Should you have a meeting with both of your advisors to discuss this? I don’t think so. As mentioned, this is a question for your tax professional, and from there you will be able to decide whether to take your income 50/50 from each advisor, or any other split that makes sense to you. While it is always a good idea to share information with all your advisors so everyone understands your consolidated position and profile, having two investment advisors meet to discuss this issue won’t serve any purpose. First, get a handle on the tax implications of each of your accounts, then ask each of your advisors where they suggest you draw your income from and why. Once you have all the facts, this is your decision to make.

At 45 I’ve recently inherited some money, and I’ve been shopping around to find a good investment advisor. To be honest, I’ve now met with six different people and I’m just getting more and more confused. They always ask me about my risk tolerance but since I don’t have much experience investing I don’t know how to answer that question. Two of the advisors assumed that since I am a woman I don’t like to take much risk. Can you give me some guidance around risk tolerance?

In the world of investing, standardized risk questionnaires are still the norm. And as you have experienced first-hand, the most pervasive question is “What is your risk tolerance?” Most investors check a box describing their risk tolerance as one of conservative, moderate, or aggressive. But what is the risk that the investor tolerates? The assumption is that risk is short-term market volatility. But the really risky scenario is when longer-term objectives are not met…especially for women.

We know that on average women live nearly five years longer than men. That means the average female retiree needs to save and invest well over $100,000 more than the average man. If women don’t take enough risks and keep too much money in cash, they will certainly not meet their long-term objectives. The onus is on your advisor to ensure that this concept is well understood!

Risk is a moving target and so is risk assessment. To properly assess investment risk, advisors need to look at a client’s investment portfolio as a whole, and in the context of their life goals. This isn’t about ticking boxes. What are the implications for a woman’s overall life and welfare if she takes different amounts of risk? More importantly, what are the implications if she doesn’t take enough risk? A financial plan is an excellent tool to use for these types of discussions. A good advisor will run a wide variety of scenarios using a wide variety of input assumptions. This way they can have a comprehensive discussion about the numbers, but always in the context of a client’s life and her unique preferences.

I must say I cringed when I read about the two advisors who assumed that as a woman you don’t like to take much risk. My research has clearly shown that risk tolerance varies, but not because of gender. From the global Rich Thinking 2019 Quantitative Survey: If it was ever true that women were excessively fearful about risk, it’s not true anymore. Fewer than one in 10 women said they were risk averse, while nearly three-quarters said they were risk aware, not risk averse. And about 16% self-identified as risk takers and said they had no problem with risk at all.

People of all genders have a mix of risk-avoiding and risk-seeking tendencies. More importantly, how much risk anyone will take is based on how aware they are of all their options in any given context. Risk tolerance is shaped more by life experience, personality, education, and situational factors than by gender.

Finally, I would encourage you to spend some time reflecting on what is important to you. What are your values around investing? Are there certain causes or concerns that matter to you? Once you are super clear on this you will be more assured in your interviews with advisors. I have found that the propensity for risk-taking rises with value alignment. Whether it’s investing in a new venture or the stock market, if a woman is interested and an opportunity is aligned with her causes and concerns, she will be motivated to take a risk.