by Scott Ronalds
Cheers! Ontario Teachers’ Pension Plan (OTPP) is getting into the wine business. OTPP announced last week that it’s acquiring Constellation Brands’ Canadian operations for $1 billion. Some of the labels you might recognize include Jackson-Triggs, Inniskillin, Black Sage Vineyard and Sumac Ridge.
If teachers from Toronto to Timmins are in a mood to imbibe, you can’t blame them. They’re in good hands. Their pension plan (Canada’s largest single-profession plan) is among the world’s most respected. It owns assets around the globe including stocks, bonds, infrastructure (airports, container terminals), natural resources (timberland, agriculture), real estate and private companies. It even owned a majority stake in the Maple Leafs which it sold for over $1.3 billion in 2012. OTPP is well managed and returns have been impressive, which means that the province’s teachers can rest assured they’ll be taken care of in retirement.
Unfortunately, not all Canadians can say the same. Indeed, defined benefit pension plans – which are plans that pay their members a defined amount in retirement each year – are more and more rare these days. Most of us are left to provide for ourselves in our golden years, save for the modest payments provided by the Canada Pension Plan (CPP).
But if you’re in the accumulation phase (i.e. growing your portfolio) and you’ve got a reasonable investment time horizon, there’s a lot you can do to make sure you’ll be drinking decent merlot in your seventies and beyond. Having an investment plan is key (a long-term breakdown of stocks and bonds that fits your investing psyche). Same goes for keeping your fees down. But beyond these basics, investors who really get ahead tend to cite a few key reasons:
1). Invest mostly in stocks. For the long term. Your chances of meaningfully growing your wealth are much better with stocks than bonds or GICs. But you have to stick it out. This means no veering from your plan when things get ugly, which they inevitably do.
2). Buy more stocks when you feel the least comfortable doing so. The scariest times in the market have historically been the best times to buy. It takes a lot of gumption, but this is how the Warren Buffetts have gotten to be the Warren Buffetts.
3). Invest more, and invest often. Compounding interest is a powerful force. Put it to work for you. I won’t trot out the numbers for hyperbole, but suffice to say, the more you invest, and the earlier you start, the better the pinot down the road. One of the best and easiest ways to start an investing discipline is through a pre-authorized contribution plan (PAC). Socking away even an extra hundred bucks a month will make a big difference down the road.
When it comes to saving for retirement, you’ve got to look out for number one. This means making some tough decisions with your money, like investing instead of spending, and embracing risk. But do it diligently and you can build your own pension plan that even teachers in the 416 will be envious of.