Canadians take many different paths to prepare for retirement, but one universal need remains: a clear plan that helps you save enough to live comfortably and to produce income once you stop working.
Many people still feel unprepared. A 2022 survey from the National Institute on Ageing (NIA) at Toronto Metropolitan University found that only about one-third of Canadians aged 50 and over believe they can afford to retire when they want. Another 2022 study by Edward Jones shows retirees and near-retirees worry about future costs, with health-care expenses (59%), unexpected spending (58%), economic downturns (42%) and inflation (41%) among the top concerns.
Those results can be worrying, but they don’t tell the whole story. Plenty of Canadians enjoy retirement with solid financial and personal well-being. Regardless of where you stand today, the main goal is to build a retirement strategy that protects against outliving your savings. With many investment choices available, selecting the right approach can feel overwhelming—so where should you start?
What is a market leader?
One time-tested method is to invest in market leaders—companies with dominant market shares in their industries. These are often familiar, stable businesses such as major consumer brands, payment networks or logistics firms. Market leaders benefit from customer loyalty, established distribution and marketing capabilities, and the resources to invest in innovation. They frequently have long operating histories and a track record of growing or maintaining dividends.
Investors can gain exposure to these companies through funds that emphasize leading brands. By concentrating on companies that shape their sectors, an investor can aim for steady growth and resiliency across market cycles.
Which sectors should investors focus on?
Choosing strong companies matters, but sector selection is equally important. Michael Kovacs, president and CEO of Harvest ETFs, points out that the best opportunities often lie where structural economic forces and megatrends—large-scale shifts driven by technology, demographics and other macro changes—are creating sustained growth.
“We focus on these businesses because they have historically led growth industries and megatrends,” Kovacs says. “They have also been the key to the creation and preservation of wealth over time.”
Today, technology, health care and utilities are examples of sectors with potential for long-term growth. After identifying promising sectors, the next step is to pick the individual market leaders that make up a portfolio.
Some funds build concentrated portfolios of 20 to 30 leader companies in higher-potential sectors. While some critics argue that a couple dozen stocks may seem undiversified, Harvest’s chief investment officer and portfolio manager Paul MacDonald explains the approach is intentional. “Twenty to 30 stocks is not a random number,” he says. The aim is to create concentrated holdings comprised of large-cap, diversified companies, offering broad exposure to a given industry without becoming overly scattered.
For example, MacDonald notes that the 20 stocks held in the Harvest Healthcare Leaders Income ETF represent collective market capitalizations many times larger than the Canadian market average. “These are huge companies, each with diversified lines of business,” he says. “They have scale and liquidity that’s unmatched in the Canadian markets.”
Market-leader ETFs that generate income
Focusing on market leaders can be effective when accumulating wealth for retirement. But once you stop working, building a reliable income stream becomes essential. Income adequacy is closely linked to well-being in retirement, influencing health, social engagement and relationship satisfaction.
Harvest uses a covered-call option strategy to help generate income from a portfolio of leader companies. In simple terms, selling a covered call means giving a buyer the right to buy a block of shares at a set “strike price” on a future date. The seller receives a premium for granting that right.
If the share price exceeds the strike price at expiration, the buyer typically exercises the option, buying the shares and potentially realizing a gain. The seller trades the shares at the strike price (and keeps the premium). If the share price stays below the strike price, the option expires unused; the seller retains both the shares and the premium.
Some opponents of covered-call strategies argue they sacrifice some long-term capital appreciation in exchange for nearer-term income. To manage that trade-off, Harvest limits options writing to no more than one-third (33%) of portfolio holdings. That cap is intended to balance income generation with the potential for capital growth.
Active management is also important. When a fund contains a focused set of 20 or 30 leading stocks, a portfolio manager familiar with those businesses can more effectively select when and where to write covered calls. “When you have active management of a covered-call strategy, familiarity with the sector and the stocks you hold is crucial,” MacDonald says.
In short, market leaders can play a vital role in both growing retirement savings and producing dependable income in retirement. A carefully curated basket of top companies, combined with a disciplined income strategy, can help you pursue steady returns while managing risk.
Read more about investing:
- Get paid to wait—is now an opportunity to invest in tech stocks?
- 3 ways to recession-proof your RRIF
- What are call options? Why should retirees care about them?
- What do rising interest rates mean for retirement savings?
- We’re living longer—here are two ways to boost retirement savings and income
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