How to invest for retirement when time is no longer your friend

How to invest for retirement when time is no longer your friend

Save early, save often.

Time in the market is your friend.

Get started, stay invested.

Let’s face it – easy to say, hard to do. 

How to invest for retirement when time is no longer your friend?

Read on in today’s post including answering a reader email on this very subject. 

Time in the market 

Cutting to the chase: time in the market, as opposed to timing the market, works because it does not involve short-term predictions or any guesswork at all. This strategy proves that time and patience in the market is better than a quick sale. For example, when a person has a stock or ETF for many years, the power of compouding simply tells us that investment growth will do all the heavy lifting for us. Patient investors will gain larger profits by allowing their investments to grow over time.

“The wonderful magic of compounding returns that is reflected in the long-term productivity of American business, then, is translated into equally wonderful returns in the stock market. But those returns are overwhelmed by the powerful tyranny of compounding the costs of investing. For those who choose to play the game, the odds in favor of the successful achievement of superior returns are terrible. Simply playing the game consigns the average investor to a woeful shortfall to the returns generated by the stock market over the long term.” – John Bogle, founder of Vanguard Group.

John said things better than I did. Most investors should consider investing as a multi-year long-term endeavour.

The secret sauce therefore is spending time in the market – staying invested – and not diving in and out.

I’ve seen this play out myself, in real time, with my dividend investing journey. See the chart below. Sure, I’ve added new money over the years but going forward, my portfolio will continue to grow and is likely to double every 10 years or so even if I don’t add another five cents.

My Own Advisor Dividend Income Update

Further reading: read more about my progressive dividend income journey here.

Waiting for growth can be painful. Or, maybe life throws a curveball at you and you simply can’t invest as much as you’d like. Life happens.

I’ve been on record to say if you haven’t saved a cent by age 50, for any retirement at all, you might be kissing any middle-class retirement lifestyle away. With inflation running higher, that might be more true than ever. 

But it is never too late to right the ship. It’s never too late to learn something new. It’s never too late to get started with investing – you can invest for retirement when time is no longer your friend. 

How to invest for retirement when time is no longer your friend – reader question

Here is the reader question, adaptedly slightly for the site for today’s post:

Hi Mark,

I appreciate all that you do. I recently sold a property and I’m starting all over.

I’m newly self-employed. I have a new rental apartment, but starting from scratch. I’m 55 and have an empty TFSA. I would like to max it out with investments that will act as my long-term account. I don’t need to touch that money for probably 15 years. I hope to put any savings, about $77,000 in there next year.

I’ll also be putting another $150,000-$200,000 into my new business. Day trading? Kidding.

Back to my biggest question – most articles and advice I’ve read about is focused on long-term investing that caters to a younger person whose age allows them to exploit compound interest – I know you write about that too. Because I’m not in that category, I thought I’d reach out and see what you can help with. What is possible? 

Please accept my request or send me any articles on your site that address investing for someone older, with limited funds like myself for the TFSA. 

Thanks so much for your time and consideration.

Thanks for your email and readership.

Well, a few thoughts and I’ll put them in order of what I would consider myself based on my personal lessons learned as your food for thought.

How not to invest for retirement when time is no longer your friend

I’ll cover how much wealth you can still generate with your TFSA in a bit, but I think it’s important for me to call out that based on market history, because equity markets can be volatile in the short-term but rather predictable over the long-term (they rise), an investor that stays invested is probably going to win the race.

Case in point.

Did you predict this massive fall, and rise, in our pandemic-era?

If you’re being totally honest with yourself, I doubt it. I know I didn’t see this comeback coming but I’m sure glad it happened….

Reference below: my Cash Wedge post and why a cash wedge works to ride out market volatility. 

The Cash Wedge

The Cash Wedge – Managing market volatility

So, whether you invest in stocks, bonds, real estate or more speculative plays like Bitcoin, you should know that you’re mainly rewarded with returns for your exposure to just one thing— risk.

Risk, on the whole, is difficult to define and measure especially at the personal level but essentially it comes in two main flavours: short-term and long-term. 

Short-term risk might be easier to relate to. Stocks, bonds, and other assets can lose money in the short-term. See above!

But investing history consistently tells us for any short-term headaches, by staying invested, “this too shall pass”. This means that an investor who stays in the market (and does not trade) generally-speaking has a much higher probability of long-term success than one who tries to pick the perfect time to get in and out.

Further reading: I used to sabotage my portfolio. Don’t repeat my mistakes!

How not to invest for retirement when time is no longer your friend

Another concept I want to bring up, is the fact that at any age, there is one major piranha you need to avoid for successful, more predictable wealth-building: the investment industry itself. 

Did I just call out all the entire wealth industry? Only some to a point!

I firmly believe the more you know about the financial industry’s priorities, the more likely it is that you’ll be able to thwart it. Simply put, the brokerages and financial industry at large is a colossal marketing and money-making machine designed to do one major thing: make money.

(If you ever doubt this, turn on your television for a couple of hours and count the credit card companies, banking companies, loan companies and more you see in advertising to you.)

When it comes to successful, long-term investing (and you still have many years to invest by the way!!), you should simply be very wary of any financial company trying to be your best friend. Absolutely, there are great companies out there. But essentially, financial companies are in the business to do one thing and doing it very well for shareholders – make lots of money. I know, I’m a shareholder of many financial companies for that reason. 

Conquer the enemy in the mirror: avoid sabotaging your portfolio

I know you’re probably kidding on the day trading thing (or not?), so whether any investor decides to trade or not is their decision of course. I know for many investors, these universal and repeatable practices can work well given enough time:

  1. Keep a modest and consistent savings rate for investing purposes. Grow your savings rate if you can.
  2. Keep your money management fees low.  
  3. Consider diversifying your assets to mitigate risk. Spread your assets around. 

With these lessons learned above, let’s now consider what wealth you can still create leveraging that TFSA alone.

How to invest for retirement when time is no longer your friend – use the TFSA!

I’ve come to realize investing might be as exciting as watching our laundry tumble in the dryer. That boring process doesn’t mean it can’t work incredibly well – including using the TFSA as a long-term investment account.

Good on you to consider it too!

The Tax Free Savings Account (TFSA) is a gift to all Canadians. I mean, who doesn’t love tax-free money or better still, money that grows tax-free?! 

To your earlier point, here is the current TFSA contribution limit in this post.

As of next year, you should be able to max out that TFSA assuming new TFSA contribution room opens up on January 1 – so you can deposit your $77,000 and then some. 

Similar to the assets you can hold within a Registered Retirement Savings Plan (RRSP), you probably already know that the TFSA can also be used to help Canadians build significant wealth beyond just holding cash savings. With your after-tax dollars, you can own a number of different types of investments inside the TFSA:

  • Cash
  • Guaranteed Investment Certificates (GICs)
  • Bond funds or bond ETFs
  • Individual stocks
  • Equity funds or equity ETFs

I personally own a mix of individual, Canadian stocks and low-cost, diversified ETFs in my TFSA. I’m likely to add more ETF units in the coming years thanks to my lessons learned in diversification.

Assuming you contribute that $77,000 to your TFSA in the coming months, and keep contributing every year to your TFSA, you still have the potential to build some great wealth for the coming 15 years until age 70. 

How to invest for retirement when time is no longer your friend - TFSA

*Assumptions:

  • After $77,000 contributed, $6,000 contributed every year, for 15 years, to TFSA. 
  • To simplify, TFSA contribution room does not increase by inflation (although it should).
  • Rate of return is a modest 5.30% in a 70/30 stock and bond mix. 
  • No TFSA withdrawals occur over the 15 years. 
  • Inflation runs at 2% otherwise.
  • Value of TFSA at age 70 ~ $299,510.

How to invest for retirement when time is no longer your friend summary

Based on this reader question, I can’t say whether that TFSA alone should be enough to retire on at age 70 in addition to CPP and/or OAS benefits. 

I can say that a steady, disciplined approach to saving and investing inside your TFSA is likely to deliver some value to your retirement plan.

To wrap, a few final comments:

  1. All investors make trade-offs when it comes to their investment decisions. Stocks may or may not go up. Bond returns could be lower in the coming decades. Holding cash might not keep up with inflation – it likely won’t. There is no right or wrong answer since we cannot predict the investing future. There really is no perfect portfolio – but do consider staying invested in a balanced approach that is aligned to your personal objectives. I would personally reconsider day trading for wealth-building. 
  2. Consider using your TFSA as you have considered beyond cash savings for tax-free growth. This means most of your investments inside the TFSA should not be for major speculation but again, I will leave that decision to you!
  3. Finally, there are some simple, low-cost ways to own wealth-building assets inside your TFSA. From Cashflows & Portfolios consider this:

Build Long-Term Wealth using these Diversified ETF Model Portfolios.

I hope this post helped you out, in many ways, and I look forward to your continued readership.

Further reading for all!

How can you retire on a lower income?

Can you retire early on a lower income?

Should you speculate with your retirement portfolio?

Should you speculate with your retirement portfolio?

How to generate retirement income is found here.

How to generate retirement income

My name is Mark Seed and I'm the founder, editor and owner of My Own Advisor. As my own DIY financial advisor, I've surpassed my goal and I'm now investing beyond the 7-figure portfolio to start semi-retirement with. Find out how, what I did, and what you can learn to tailor your own financial independence path. Subscribe and join the newsletter! Follow me on Twitter @myownadvisor.

28 Responses to "How to invest for retirement when time is no longer your friend"

  1. Why is this stuff not taught in schools? If properly taught, it could save millions of people from contemplating forced retirement at 70+ with little/no savings to sustain them in their remaining ‘golden’ years.

    Reply
    1. As a retired teacher I’ll address this question as I see it a lot. Truth is curriculum does exist for the teaching financial literacy, it has for many years. Ontario is rolling out a new financial literacy strand for math gr 1-8, Alberta has Career and Life Management that all students must complete to graduate High School. Most school jurisdictions have Accounting courses. The recognition of the importance of financial literacy is causing a shift in the right direction and more is being included in main stream curriculum’s like math. There is reason for optimism.

      School have often been used to try to and address the short falls of society. Kids don’t get enough exercise – implement daily activity (more gym classes). Schools should teach a second language, about reproduction, how to eat properly, career preparation, post secondary education, proper use of technology and the list becomes endless. For every new subject added, what gets dropped? PE and Technology became mandatory in many provinces and there are only so many hours in a school day and spaces in a timetable. Lots of valuable life skill topics get dropped as a result. Food prep, basic building skills and mechanics for example.
      The amount of subject material available to learn is also growing exponentially, especially in STEM.

      High school kid wants to be a vet but they have one spot open in their timetable. Biology or Accounting? Both are valuable but only one is required for the next phase to follow their dream. Kids face this choice all the time.

      I am personally thrilled to see more financial literacy coming into schools but does it really take the school to tell someone they should save money? The other change is access to information through technology. One important role of school is to help students use the technology responsibly and differentiate between accurate and false information. Anyone can find anything to support their hypothesis and beliefs online. It truly can become a rabbit hole.

      It takes a village to raise a child. I’ll ask why this stuff is not also being taught at home? We taught our kids about money, shared our budget, made them do their own taxes, automated their savings, how to make simple meals, change the oil, change a tire, problem solve life’s bumps, and care for others. I believe most families can do this if they chose to and yes I know there are exceptions.

      Your question is valid and I hope my reply gives some insight. There is reason for optimism.

      With respect – Gruff

      Reply
      1. I think these are good comments Gruff403. What schools should teach is critical thinking. We see so much advertising telling us how to invest. Socks, Bonds, Emerging Markets, ETF’s, percentage of fixed income, cash wedge, etc, etc. Every investors’ situation is different and only he knows what’s best for him. Critical Thinking. When I was in my mid twenties I knew I wanted to be an investor, but had no knowledge. My relatives, father in law, everyone told me how risky the stock market was. don’t do it.
        So I thought a bank manager would be a good person to talk to. After all, you don’t become a manager without education and know how. He also advised me of the risks and said the best way to get ahead was to save your money in a bank account. Wow, That is not what I went there for. I asked him for a $25,000 loan to buy mutual funds.(it didn’t last long until I realized what fees they charge) He agreed and gave me the loan. And the rest as they say is history. I still made mistakes along the way, but learning from them and changing course works.
        There is nothing wrong with reading adds and blogs, and any investment advice you can find. But you must think for yourself what will work for you. The motive behind everything is also important. What’s in it for the author? Teach you kids and yourself to question everything.

        Reply
        1. Totally agree – there is an art and science in critical thinking, especially when it comes to investing. Know thyself. The behavioural psycholology behind investng cannot be understated for success. That is a learned skill IMO and an extremely important one.

          Reply
      2. Great comments Gruff, and I agree that society is a little too dependent on schools to teach _everything_.

        This topic came up recently on another blog site, and so I did a very small experiment with my now 21 year old daughter. I have been working with her to invest as she is a budding entrepreneur; she has maxed out her TFSA, put some money in her RSP and also has a decent start at a non-registered account as well. Living cheaply at home has certainly made most of that possible, but she works very hard as well.

        Anyway, I asked her what she thought about the lack of finance / investment education when she was in school and her very abrupt answer was “well, it would have been better than learning about Pythagoras’ theorem. Certainly there is room for debate there, but I think her point has some merit in that some tweaks to the curriculum could yield (pardon the pun) some benefits. So, I wonder if there are opportunities in other core, or non-core subjects for introducing some life skills? I don’t think the answer is an outright yes, but I’d like to believe some adaptations might be possible.

        Ultimately, I loved your example of the student wanting to pursue becoming a vet – you’re right, with today’s curriculum their choices are not really choices at all.

        Reply
  2. Should he put the $77,000 in the TFSA all at once or should he make gradual contributions (dollar cost averaging) and if so, how long should he do this? thanks!

    Reply
    1. I’m personally a fan of lump-sum investing Marilyn. I answered that reader question on this page here in fact.
      https://www.myownadvisor.ca/faqs/

      “Mark, I’d like to get my money working for me but but I’m wary of the recent run up in values. What are your thoughts on buying in ASAP vs. waiting for a dip or breaking up the buys over a few months? Maybe you could mention this in your weekly email sometime?
      Essentially, your question is: is it better to do lump sum investing (invest now) or dollar cost averaging (invest over time)?

      Here is my thesis on this.

      I prefer to invest money, when I have it, as in now. So, I’m in favour of lump sum investing versus dollar cost averaging (DCA).

      Why?

      First, I have no idea if the stock market is going to go up or down tomorrow, next week, next month or otherwise. But, I do know lump sum investing gets my money working for me as soon as possible.

      Second, given markets tend to go up over time, you have a better chance of ending up with more money by investing in equities at once versus in phases over time. Of course, there are absolutely times when stocks go down, significantly, and stay down. Market volatility can occur. The challenge, we don’t know when that will happen. But overall, you’re more likely via chance to be giving up investment gains through dollar-cost averaging instead of lump sum investing.

      Three, and maybe my most important point for you, think of DCA as market timing. You are strategically setting up intervals or timing your purchases that may or may not work out when it comes to market pricing.

      That said, the DCA approach can make you emotionally feel better since you’re not investing lump sums of money at once. It may seem less risky, therefore feelings that are reducing your stress by potentially reducing the impact of market volatility. This is not wrong whatsoever, it’s just your plan.

      I liken these types of decisions like paying off a mortgage – very aggressively. Some people swear by it even though it might not make the best financial/mathematical/logical sense. It doesn’t mean it is flat-out wrong.

      Saving, investing and more are much more emotional decisions than we tend to recognize. So, if it makes you “feel better” to go with DCA, then do it. Dollar-cost averaging aims to avoid mistakes of making a lump sum decision that could be poorly timed. Only in hindsight will we all know if that decision is correct!”

      Reply
    2. I just wanted to add to Mark’s comments something I read recently on a financial blog somewhere ( maybe Mark was the author, maybe not, I’m not taking credit for it)

      If you happened to receive a portfolio of stocks – say as an inheritance – in today’s markets would you sell them, and then buy them back in increments? I know my answer is no (assuming it’s was stocks I’d buy anyway).

      This is a good way to think about whether or not to lump sum invest or dollar cost average.

      Reply
      1. Interesting James.

        Personally, for any inheritance (depending if I did or did not believe in those stocks), I would keep on the condition that what you inherit (the assets that you receive) align with your personal values or lifestyle needs.

        I would not keep any assets that I don’t believe in – full stop – rather, I must invest in a manner that aligns to my values and needs. The same applies to me for a gift provided to me or otherwise.

        DCA (dollar cost averaging) in my book is a form of market timing. With DCA, you are betting that by slowing dipping your toe into the asset, the market may be both higher but likely lower over time and therefore you’re getting some prices on sale per se. If you were more certain that any stock price could be higher in the future, of course you would do lump sum investing today. Meaning, why pay more for an asset when you don’t have to?

        Of course the challenge is nobody can predict the future so it “feels better” to many to DCA when the reality is, more times than not, stock prices trend higher over time. Food for thought!

        Reply
  3. Hi, Mark,

    It is a great topic. We have 13 years to go to collect a small CPP/OAS, but before then, we are using cash wedge, dividend income, HELOC, and occasional withdraw from taxable account for living expenses. I used to think that the long term investing is 10-15 years before withdrawal. But, now, it is actually 30-40 years investing, simply because we might live to 80-90 years, actually, financial planner make projections based on 100 years old life expectancy. Therefore, long term investing is not a period till we get retired/collect social benefits, but till the day we leave our physical body, that is the long term horizon we need to plan for.

    Reply
  4. Mark, it’s an excellent post and an awakening call for many to understand that investing is the way for wealth building. I’ve followed most of your advices here but in the wrapping point 1. you wrote “I would personally reconsider day trading for wealth-building”. Do YOU plan to do it? as I have the same thought:)) Can you elaborate it or I may misunderstand. Thank you!

    Reply
    1. Thanks very much Kim. Nope, no intentions of day trading here. The reader did ask about that. Not sure if they were kidding or not but thought I would reply.

      My boring approach has worked well thus far – no intention to change it up! If it ain’t broke = don’t fix it kinda thing.

      Cheers!

      Reply
      1. Thanks Mark for a clarification. Since I read your posts, my minds are clear and I choose to follow your path to invest in etf and dividend growth stock. However, some days, I doubt myself or maybe I become impatient and greedy:)). A year ago, I’ve investing money in LIRA account with a half money for VFV&QQC.F and the other half for MFC,FTS, RY, ENB. Up to now 2 ETF provides 18% but stocks only 7%. I’m thinking to switch all to ETF for better growth as my LIRA is small. What’s your comments on it if you have time. I really appreciate your time and effort to reply all comments. Thank you and take care

        Reply
  5. You have touched on all the main points, Mark. I retired at 56 with a severance package that I duly invested. Made three mistakes right away by contributing much of it to an RRSP, by consulting a financial advisor on whether to hold back investing (got wrong advice at a high price) and by signing up with a broker at a reputable bank. These mistakes were followed by taking CPP early, at 60 (big penalty that lasts for forever; should have drawn down the RRSP for the extra money I wanted.) Like everyone I was hit by two major set backs, from dot-com collapse and the financial crisis.

    My correction started with dumping my broker, and then slowly by learning the things that Mark outlines. I read a lot (still do…you never stop learning) and welcomed the TFSA with open arms when it started (by the way, it is partially indexed by getting occasional $500 increments.) I find comfort and encouragement from the “projected income” table that my bank (TD WebBroker) provides, and am happy with my portfolio, which is spread across the TFSA, RIFF, and US and Canadian Margin accounts. There is plenty of reliable investment detail in free newsletters from Mark, cannew, Mike and others. If only they had been around 26 years ago!

    Reply
    1. We all make mistakes DougP. To your point, I don’t think you succeed in life unless you make a few along the way!!

      “My correction started with dumping my broker, and then slowly by learning the things that Mark outlines.”

      Great stuff.

      I hope to continue to max out my TFSA/our TFSAs for the coming 3-4 years. I will need to, to reach out FI targets.

      I also hope to increase my cash position for the “what ifs” in life as I approach semi-retirement. This way, the stock market could go into the tank for 1-2 years and I wouldn’t be worried much as I work part-time.

      I wish I knew then what I know now in my 40s 🙂

      Thanks for the kind words!!
      Mark

      Reply
      1. Good for you DougP for having the courage to make things right. It’s never too late to learn and take control.

        I suspect most of us would admit to mistakes we’ve made along the way – if I could go back 25 years in time, I would have smacked myself in the head for believing the MFDA advisor who said “You don’t pay me, the fund companies do.” – where did I think the fund companies got the money to pay the advisor? Out of thin air? Selling loans like banks to? Then I would have smacked the advisor and his DSC schedules for taking advantage of people. That period of time didn’t last long for me – I quickly work up and learned how to manage DIY, but there were other mistakes and lessons to be learned along the way.

        Reply
        1. I echo that – good on DougP.

          We all live and learn. I chased penny stocks, owned costly mutual funds, and did other silly things in my 20s. In my 30s, I found some investing religion per se and took matters into my own hands. Started this blog and have been far more mindful about investing and spending and just my money values ever since!

          Reply
    2. Great job on the correction. I, too, had to dump a broker and am glad I did. I can’t even begin to tell you how much I’ve learned from Mark’s newsletters along with those of cannew’s and others.

      Reply
  6. I agree with the TFSA advice big time – the withdrawals won’t hurt means-tested programs (e.g. GIS/OAS). As you note, time in the market favours long-term investors through compound capital gains as well as compound earnings. Those who start late have to rely almost entirely on their savings, with less relative growth driving their portfolios forward.

    While investment loans in taxable accounts might ‘buy back time’, for someone who doesn’t have investment experience, this would be extremely risky. Instead, he should adopt a FIRO mentality – Financially Independent, Retire Older. If he is healthy and capable, he should keep working to 70 if possible and strive to live as frugally as possible.

    Reply
    1. Thanks Bart. I think those that start later in life do need to consider working a bit longer or at least part-time to hedge any portfolio risk. Certainly if this reader diligently takes advantage of the TFSA for the coming 15 years, I have little doubt that $77K can grow into that $300K range in 15 years with a tilt towards equities for sure. Later in life discipline with time will still be key!

      Reply

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