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For investors approaching retirement or already there, the past three years have been a wake-up call.

The wild swings in the market over that period have demonstrated that retirees can't count on traditional portfolios of stocks and bonds to produce a steady, dependable stream of income.

The solution, says Moshe Milevsky, a professor of finance at York University's Schulich School of Business, is to expand your portfolio to include a wider range of investments that can provide a guaranteed income no matter what the market does.

"Over the last decade, equities, especially in the short term, have become a lot riskier than people previously thought," says Prof. Milevsky. "Retirees have to think hard about their exposure to the stock market, especially when they start to draw down their assets."

Mr. Milevsky is co-author of the books Pensionize Your Nest Egg and Strategic Financial Planning, a look at cradle-to-grave investment strategies, due to be published this fall.

He says investors should refrain from taking any drastic or dramatic action as a result of the wild swings in the market over the past few days. However, the volatility does give him an opportunity to drive home the need for people to consider a wider range of financial offerings.

"Start thinking about products that give you upside but have some sort of downside protection. I think that's the realization of the last decade," he says.

These products include variable and fixed annuities sold by insurance companies, segregated funds with guaranteed minimum withdrawal benefits, structured products that guarantee principal and index-linked GICs. For anyone who doesn't have a pension, these guaranteed income products are an essential part of any retirement plan, he says.

"Some of these products give upside potential if markets do well. But if we see a complete meltdown of the market, you have a minimum amount of income that is guaranteed for the rest of your life. That's something retirees are starting to appreciate now."



In addition to broadening their strategies to include guaranteed income products, there are two other things that investors might consider during big selloffs.

The first is to take the worst performing stocks or funds in a non-tax-sheltered portfolio and sell them to lock in the losses for tax purposes. The investor can then purchase a different asset very similar to the first. For example, an emerging-market equity ETF could be replaced by an international growth ETF.

"Your net economic position is the same, but you lock in a loss that you can use for tax purposes," Mr. Milevsky says.

The second is to use the sudden rise in bond prices and fall in equity prices to rebalance a portfolio by selling investments that have soared in price and redeploying the money into areas that look less expensive.

An investor who started the year with $100,000 in equities and $100,000 in bonds might now find himself with $80,000 worth of equities and $120,000 worth of bonds. He could sell some of the bonds and use the proceeds to purchase stocks.

"Today represents a phenomenal opportunity to take money off the bond table and put in the stock table, especially in registered accounts," he says. "This is not about market timing. It's about bringing you back to the right allocation and getting out of some very expensive bonds. People often think that buy and hold means buy and do nothing. That's not necessarily the case."

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