How to Protect Your Retirement Portfolio From a Banking Crisis

A golden egg in a nest

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The second week of March started bearish as many tech startups were unable to withdraw their deposits from Silicon Valley Bank (SVB). SVB did not have sufficient liquidity to meet its customers’ withdrawal requests. After bank after bank, three banks collapsed for the same reason, a liquidity crisis. This triggered a sell-off in global bank stocks. Things moved quickly, and on March 10, a California regulator took control of SVB.

Don’t let panic eat up your retirement portfolio. Relax, reflect, learn, understand your risk and use hedges to protect your portfolio.

How safe is your money?

The US bank collapse has raised a question among Canadians: how safe is my money in the bank?

While investors are always exposed to institution credit risk, Canadians are well protected due to the strict banking system. Canada Deposit Insurance Corporation (CDIC) protects up to $100,000 of your deposits should the listed financial institution fail. The six major Canadian banks are covered by CDIC.

The CDIC covers time deposits, checking and savings accounts, foreign currency accounts, and guaranteed investment certificates (GICs), but not investment securities such as stocks, bonds, ETFs, or mutual funds. However, tax-exempt savings accounts (TFSA) and registered retirement savings plans (RRSP) are covered. The $100,000 coverage applies to any of the above accounts.

For example, let’s say your portfolio is split between three banks:

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Bank insoles Amount deposited Deposit covered under CDIC
Toronto Dominion Bank savings $25,000 $25,000
Toronto Dominion Bank RRP $145,000 $100,000
Bank of Nova Scotia checking account $5,000 $5,000
Bank of Nova Scotia GICs $32,000 $32,000
Bank of Montreal TFSA $20,000 $20,000
Bank of Montreal Investment funds $18,000 $0
In total $245,000 $182,000
What CDIC covers

The CDIC requires financial institutions to inform depositors if that deposit is uninsured.

How to protect your retirement portfolio from a banking crisis

During the 2008 financial crisis, many investors lost a significant portion of their retirement portfolios as they panic-sold stocks, bonds, and mutual funds. A recession is psychological and fuels the fear of losing money. And panic brings your fears into reality. As you retire this year, don’t back away from your worthwhile stock investments.

  • If possible, delay your retirement by a year or two.
  • If you have income-generating securities like interest-bearing bonds and dividend-paying stocks, use the passive income from such securities to meet your day-to-day expenses.
  • Add more gold stocks to your portfolio before they surge more than 50%.

One share to secure your retirement Portfolio before a market collapse

Canada’s largest gold mine Barrick Golds (TSX:ABX) The stock price moves in line with the price of gold. Historical data shows that gold prices rise exorbitantly in a recession. The deeper the recession, the higher the rise in gold prices. Barrick Gold’s share price is up 75% in less than two months after the March 2020 plunge and 211% in eight months after the 2015 oil crisis hit.

The 2023 recession is a result of the bursting of the tech and crypto bubble, high inflation and rising interest rates that are draining liquidity in the market. During the 2008 crisis, Barrick Gold’s stock doubled in two years. You can now invest in the stock and sell in four tranches as follows.

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Barrick Gold shares selling price to recieve money
20 $37 $740
20 $42 $840
20 $50 $1,000
20 $55 $1,100
How to make money with Barrick Gold stocks in a recession

Suppose you invest $2,000 in Barrick Gold at $24 per share and buy more than 80 shares. The stock is up 130% during the recession and you sell 20 shares in each of four sales at the above prices. From this investment you get $3,680. Why sell the stock in tranches and not in bulk?

Gold stocks only rise in the short term. A jump of 130% is an estimate that may or may not come true. That way you don’t leave profit to chance, sell the stock gradually and still be in the money even if the stock goes up 80% or 100% and then falls.

The diversification lesson

Diversify your portfolio across stocks, deposits and ETFs and across different accounts such as a TFSA or RRSP.

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