Time to Review

With 2014 officially underway it is time to review your financial plan. Most financial plans break down for 2 reasons. Firstly, for incorrect or outdated data and secondly because they are filed away in a drawer somewhere never to be seen again until it’s too late. Both problems can be solved with an annual update of your financial plan.

Now that you are one year closer to your financial goals, are you ahead or behind your plan? If so what changes if any should you make? Did you save less or more than you were supposed to? Did your income or liquidity needs change? Have your objectives changed? Did the government change any of the rules i.e. tax or pension system? In regards to your investments; what worked what didn’t work? What should you do more of, what should you do less of?

If you don’t have a financial plan, now is a good time to make one. Estimates are only 20% of Canadians have a financial plan. 1 “A good plan is like a road map: it shows the final destination and usually the best way to get there.” H. Stanley Judd.

 Planning makes optimum utilization of all available resources. It helps to reduce wastage of important resources i.e. your cash. It aims to give the highest returns with the least amount of risk at the lowest possible cost. Planning thus increases the overall likelihood of achieving your financial objectives.

 There are many risks to obtaining your optimum financial health. “Always plan ahead. It wasn’t raining when Noah built the ark.” Richard Cushing. Planning helps to forecast these risks and take the necessary precautions to avoid these risks. The two biggest risks to most people’s financial well-being are health and inflation.

Through an efficient comprehensive plan, the short-term, medium-term and long-term plans can be coordinated with each other. Such a plan allows you to exert control over your future and the confidence to make the best available decisions. Being in control allows you to track results, deviations found out and corrected. Therefore, planning becomes important to maintaining control, which results in less stress and allows you to sleep better at night.

As advisors it is our responsibility to keep clients on track with their financial objectives by having these meetings yearly, but not just with the client but with their other key professionals (accountants, lawyers etc.).

 Where most people get confused is that they believe their investments are their financial plan. In reality the investments are only part of a comprehensive financial plan. Further to that most people really don’t have a detailed investment strategy. The first part of a financial plan is key because that is what will dictate the investment strategy.

The first part closely resembles that of a business plan. A good financial plan should include:

  • Goals and Objectives
  • Time Frames
  • Balance Sheet
  • Income and Cash Flow Statement
  • Risk Identification
  • Strategies/Action Plan
  • Projections
  • Stress Test

 Once we have the goals, time frame, income and liquidity requirements, and target rate of return we have the framework for what we need to accomplish through our investments. In order to give yourself the best opportunity to achieve these investment results you need a plan. Too many investors have no strategy at all — they merely react to each twitch of the market on the fly. If you fail to plan, goes the saying, then you plan to fail. If you do not have a portfolio built on a plan (for example: diversified, split among stocks, bonds, cash and so forth), then it is time to build one. Within your investment plan is the strategy you are going to use, from the asset allocation to when you are going to buy and sell. It is the lack of a plan that allows us to be drawn to the noise and make decisions based on emotions.

Emotion is the enemy of investors, and that’s why you must have a methodology that relies on objective data points, and not just gut instinct. When we make investment decisions based on emotion we fall victim to our natural response to stress which is fear and panic or the other side of that coin, greed. Successful investing requires an objectivity void of all emotion.

The biggest obstacle to a successful financial plan is the absence of constant update and review. As the situations in life change, your financial plan requires regular reviewing and updating. Just as how you undergo regular health checkups to review your health and regular service for your vehicle, your financial plan also needs regular examination.

Paul Vorstadt, Portfolio Manager and Vice President

Brett Kowan, Portfolio Manager

Dundee Goodman Private Wealth

  1. “It’s Time to Get Over ‘Getting By’ ” Financial Planning Standards Council Cary List, President & CEO, FPSC November 17, 2013, http://financialplanningweek.ca/news/its-time-get-over-getting
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National Bank Financial is an indirect wholly-owned subsidiary of National Bank of Canada. The National Bank of Canada is a public company listed on the Toronto Stock Exchange (NA: TSX).
Products and services of the National Bank Financial — Wealth Management are only offered in jurisdictions where they may be lawfully offered for sale. All products and services are subject to the terms of the applicable agreement. The information in this Website is subject to change without notice. This communication does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation. Prospective investors who are not resident in Canada should consult with their financial adviser to determine if these securities may lawfully be sold in their jurisdiction.

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