How to Have a Stable Retirement Plan
Capital One's slogan, 'What's in your wallet?' is a great question to consider, especially after I read a recent article about the crash of FTX, a cryptocurrency exchange platform that went bankrupt after a few years and how it may have a heavy impact on thousands of people, maybe even you.
One thing this affirmed is that investing into cryptocurrency is volatile and risky. During the pandemic season, everyone became an investor and cryptocurrency was the hot topic. In 2021, cryptocurrency saw record highs. Then in 2022, the market tanked, so much so that I now hear little to no conversation about cryptocurrency. This is one reason why I advise people to not put a large portion of their portfolio into cryptocurrency or anything that is very volatile, like penny stocks. Cryptocurrency specifically is new to the investment space, in comparison to the trusted companies on the S&P 500, TSX Index or Nasdaq index.
The second thing I discovered is, 'Who's in your wallet?' The Ontario Teachers’ Pension Plan Board invested US$75 million in FTX Trading Ltd. through its Teachers’ Venture Growth platform in October 2021 and another US$20 million in January 2022. By November of 2022, FTX declared bankruptcy. US$95 million gone from the The Ontario Teachers’ Pension Plan Board thereby impacting teachers' retirement pensions. In case you missed it, US$95 million was lost. This wasn’t a stable coin.
The Three Legged Stool
When I shared this story with my wife, she reminded me of my very first meeting with my advisor. During the meeting, we spoke about 'The Three Legged Stool'. If one of the legs on a three legged stool are compromised or broken, it will have a heavy impact on the stability of the stool and likely not stand or support what it's meant to support. And if two legs are broken...forget it.
When we use this analogy as a context for retirement planning, each of the three legs can represent government pension plans (leg 1), company pension plans (leg 2), and personal pension plans (leg 3). Due to the lack of control and say you have with what the government or your company does with their money, can you really bank on that money being there for you when you really need it? This is why it's important to also build your own personal pension plan. You have all the say in where you get to invest your money. Calculate how much you need to retire then create a plan to work towards it. What the government and your company gives you, treat it as a bonus.
3 investment vehicles to leverage to create your personal pension
1. Registered Retirement Savings Plan, RRSP
2. Tax Free Savings Account, TFSA
3. Insured Retirement Plan, IRP
In conclusion, this is a simple conversation to have considering things didn't go as planned. In truth, if the cryptocurrency market continued to rise, my investment philosophy would remain the same and my emotions may have wanted me to invest more. This is one reason why it's important to automate your plan, think long term and work with an advisor to help keep these emotions in check. And just so you know, while US$95 million is a large amount of money to lose, that's only about 0.05% of the Ontario Teachers' Pension Plan's portfolio as of December 2022.