What does high inflation mean for your retirement savings? + MORE Jan 4th

There is a plethora of options to sort through for building a retirement savings plan, and anyone can be forgiven for wanting to trim a branch or two off that decision tree. That’s why many people choose to streamline their investment strategy with a focus on target-date funds.

A target-date mutual fund or exchange-traded fund (ETF) is basically a one-stop shop for a retirement saving strategy. Canadian investors simply choose the year they would expect to stop working, then buy a target-date fund targeting the same or nearly the same year.

At this point, target-date investors pretty much go back to whatever else they were doing. Behind the scenes, however, investment managers will be gently nursing the savings toward the investor’s retirement goal. If you decide to go with a target-date fund, your role in the process is to continue to make regular contributions and check in occasionally to ensure everything is on track according to your expectations.

Simple, right? Well, that’s the plan…

Welcome to The Fourth Estate, our new column that looks at investing and retirement planning through a journalistic lens, asking the questions of who, what, where, when and, of course, why. For our first article, financial planner and writer Robb Engen looks at how high inflation affects investments.

In Canada and abroad, 2022 can be summed up as the year in which nothing (or almost nothing) worked. Canadian, U.S. and international stocks got clobbered, while bond returns were nearly as bad. The classic 60/40 balanced portfolio had its worst performance since 2008.

The culprits? Stubbornly high inflation, Russia’s war in Ukraine, rapidly rising interest rates, and stock markets coming back to earth after a period of greed and excess.

The result? Inflation, as measured by the Consumer Price Index (CPI), soared to 8.1% in June 2022 and is still hovering at 6.8% six months later, taking a big bite out of Canadians’ purchasing power.

The Bank of Canada (BoC) has embarked on a series of interest rate hikes designed to squash inflation and cool the economy…