By Paul Delean
Montreal Gazette
Monday, July 24, 2006

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As stock markets twist and turn, anxiety is heating up for many investors, especially those approaching retirement.

Adrian Mastracci, investment counsel at Vancouver’s ‘fee-only’ KCM Wealth Management, says, “If you’re at 40 per cent equities, maybe take 10 per cent off. If you’re 70 per cent, 20 or 30 per cent might be advisable.”

They don't want to see the value of their assets erode after the steady advances of recent years, particularly if they're going to have to start drawing on them soon.

Watching the Toronto Stock Exchange decline about 8 per cent since April has been unsettling for many Canadians. For those whose comfort level has been shaken, "stay the course" may not be the most appropriate advice.

Financial counsellor Adrian Mastracci of KCM Wealth Management says what he recommends as a defensive strategy for those perturbed by market volatility is a 10- to 30-per-cent switch in the asset mix, from equities to fixed-income products (T-bills, strip coupons, bankers' acceptance deposits) with a term of roughly one year.

The actual percentage hinges on factors like age, risk tolerance, proximity to retirement and current weighting in equities.

"If you're at 40 per cent (equities), maybe take 10 per cent off. If you're 70 per cent, 20 or 30 per cent might be advisable," Mastracci said. "If you've got a lot in Canadian resource and energy stocks, maybe that's where you take some profits and start cutting back."

The rebalancing should be relatively painless in RRSPs and RRIFs, because there are no tax consequences. .

The reallocation serves to preserve capital, cushion some of the downside in the event of a continuing slump in the markets brought on by a slowdown in the U.S. economy, and help investors sleep better, Mastracci said.

Large losses are a major obstacle to portfolio growth and investors without a long time horizon may not be able to recoup before tapping into their capital.

"I don't think the sky is falling," Mastracci said. "However, the U.S. interest-rate picture suggests a possible slowdown ahead."

Investment adviser Bassam Kadi of MacDougall MacDougall and MacTier says people who haven't been following the fixed-income market might be surprised to learn interest-rate hikes in the last few quarters have bumped up the yield on several products to more than 4 per cent.

"There are a lot of intelligent choices out there for the short term," he said, citing a one-year bankers' acceptance rate of 4.16 per cent on a deposit of $30,000 and a discounted Government of Canada bond returning 4.62 per cent if held to maturity in September of 2007.

Mastracci said a fixed return of 4 to 4.5 per cent is an acceptable tradeoff against the risk of further market drops.

"You're being a little more conservative. If the markets go higher, the worst that can happen is that you earned 4 per cent on that money over the next year. Normal investing can resume when the market jitters are deemed to have subsided."

If the investor is comfortable with the current mix of assets, Mastracci said there's no compelling reason to change anything if the portfolio still is true to the long-term plan and risk profile.

NOTE: The information provided above is intended for general informational purposes only. It does not constitute advice for anyone's specific situation. Everyone should always first consult directly with their advisors to determine the appropriateness of any information contained above before taking any action. KCM Wealth Management Inc. assumes no responsibility for any loss or damage arising from the use of, or reliance upon the above information.