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A key commandment of investing may be – sacré bleu! – wrong.

The accepted rule has always been that one shall not stay heavily invested in stocks as retirement approaches, but move into bonds and other fixed-income securities. The goal is preserving one's savings and leaving stock volatility behind.

But suddenly exiting stocks may be the worst advice for some.

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Those who can afford to retire on their pensions and savings, and who may be secure enough to use their investments only for discretionary spending, might do much better if they stay in stocks. Indeed, this may be the only way to pay for a lengthy retirement at the same standard of living, or to pass along a sizable inheritance to children or grandchildren.

But Ron Knowles, a retired management consultant who still works part time, is like most of us. He needed to be convinced.

"I always assumed that when I got here [to retirement], the idea was to switch over into a vehicle that would minimize risk, that it's irrational for a person at my age to be in risky investments," he said.

Left to his own devices, he would have converted a much larger portion of his retirement funds into defensive fixed income. But had he done so, his investments would have performed worse, according to his financial planner, Keith Thomson at Stonegate Private Counsel in Toronto.

"If I should live quite a bit longer, I just won't have the standard of living that I always assumed that I had provided for. So, I need to have one of my two feet in equities and one in fixed-income vehicles," Mr. Knowles said.

It takes a steely mentality, though, to watch the stock market and your retirement portfolio bounce around. "It is something Keith and I kid each other about. We talk about our 'spirited discussions,' and it's around this point," Mr. Knowles said.

If retirement means gearing down to a much simpler life, with fewer expenses and few dependents, then stocks may not even be necessary. But that scenario can change. A retiree may live long, or inflation may kick in, further stretching retirement funds.

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"If you only need a 1-per-cent or 2-per-cent rate of return to keep you in the standard of living that you've grown accustomed to, then you have a nice choice. You don't have to take any equity volatility risk at all, and you can put all your money in GICs and bonds, and live happily ever after," said Mr. Thomson, the financial planner.

"But say that's not the case. If it comes back that you need a 5-per-cent, 6-per-cent, 7-per-cent return to keep you in the standard of living that you've become accustomed to, well, bonds and GICs ain't going to get you there," he said.

That means accepting stock volatility. Yet, longer retirements can bring longer time horizons for investing and less of an immediate need to draw down funds. A higher return from equities may also compensate for the tax hit when a retiree draws down his or her registered retirement savings plans (RRSPs).

Again, though, it should be stressed that we are talking mainly about people who can retire on a pension and savings, those who aren't dependent on their investments immediately.

People in this situation may do better to view their investments through a wider lens. Instead of looking to balance their portfolios conventionally between equities and fixed income, retirees could view their pensions as the fixed-income component of their money.

"It's fixed, it's guaranteed until the day you die. And because [investors] have that, and usually even more fixed and guaranteed income in the form of CPP [Canada Pension Plan] and OAS [Old Age Security], they can actually afford to be sometimes almost fully invested in equities," said Susan Stefura at Bespoke Financial Consulting in Toronto.

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"So I think it's important to factor that in. A lot of people don't do that. They just look at their investments, and they are forgetting about all these other incomes that they have," Ms. Stefura argued. "One strategy we often recommend is to try to have enough of a fixed and guaranteed income to fund all of your fixed expenses – and then have your RRSP and equity to fund the discretionary spending."

And finally, there's estate planning. Some clients tell Ms. Stefura that they want to die broke, that they aren't interested in leaving anything behind. For others, though, leaving an inheritance may be a priority. This factors into whether a retiree may want to stay invested in stocks. Timing of the inheritance is also important.

"For our wealthier clients, we encourage them to start distributing their estates while they're alive, instead of waiting until they're dead. Usually their kids are at an age and stage of life where they will appreciate their inheritance a lot more, rather than waiting and receiving something in their 60s," Ms. Stefura said.

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