Investment Portfolio Strategies During a Crisis

We speak with Colleen Gillam–Judd, an investment adviser with Servus Wealth Strategies in Red Deer Alberta. Colleen started her career as an investment adviser 13 years ago and has been a Certified Financial Planner for 10 years. Servus Wealth Strategies is a cooperative credit union in Canada that focuses on holistic financial planning and Colleen’s role within the company is to create and implement a fully integrated financial plan, which includes all aspects of the client’s investment management.

Why is financial planning important?

Financial planning is a process that sets you on a course towards understanding and achieving your life goals through the proper management of your financial affairs. Financial planning is more than budgeting and cutting back, the right financial plan balances what you need and want today with the personal goals you have for the future. Comprehensive or holistic financial planning looks at the big picture to consider all relevant aspects of your life including budgeting, investing, tax, retirement, estate planning, debt or risk management

Working with a financial planner is about more than the short-term goals, it’s about integrating all the financial needs of your life into one cohesive plan. Many people believe that you don’t need a financial plan until you are ready to retire, I argue that any life event that requires significant planning, a future date and significant funds requires a financial plan. Many of us have done aspects of financial planning on our own, think of planning for a wedding, or a new child, both of those things require a plan.

A Certified Financial Planner helps to integrate those plans into your larger financial picture to keep you on track for your short- and long-term goals. Canadians that work with a financial planner have told us they feel significantly more at ease with their day-to-day finances, they have more positive feelings towards handling any uncertainty that comes their way, they are better equipped to manage personal economic shocks such as job loss, divorce, illness or injury or any major family life event that can disrupt your finances.

A survey done by Financial Planning Canada indicates that again in 2020, finances are the number one cause of stress, by a big margin, outranking personal health, work, and relationships. This is particularly significant because we expected personal stress to exceed financial stress due to the pandemic.  Canadians that work with financial planners say they are significantly more likely to be shielded from financial stress and 53% of them say it doesn’t impact their lives at all.

Canadians that work with financial planners say they are significantly more likely to be shielded from financial stress and 53% of them say it doesn’t impact their lives at all.

How should people structure their portfolios during a crisis in the market?

During times of great market volatility, like we continue to see in 2020, it is important to look at your portfolio and asses if the current market swings of 5%, 10%, 15% etc. are causing you anxiety. It’s one thing to not like what’s going on in the news and the stock market and it’s another for it to be causing you anxiety to the point where it’s disrupting your sleep and your life. During a time of market volatility, it is key for me, as an adviser, to work with my clients to truly understand what their risk tolerance is. All of us, at some point or another, have overreached on our comfort level with risk and unfortunately, it is usually a market event that brings the overreach to light.

If you find that the current market rollercoaster is causing you significant worry, it is time to address what options you have to reduce the volatility in your portfolio. There are a few important things to remember:

  • Will the changes to the investments change the long-term viability of your plan?
  • Will you need to make some changes to your cash flow? (if the investments are supporting your lifestyle)
  • Will the changes impact your taxes for the year?
  • Will the changes support your medium- and long-term goals? Or do you need to re-address the goals?

In a financial planning context, the amount of risk that is taken on in a portfolio is generally less because the rate of return that we are trying to achieve is based on what is required to make your goals a reality; it is no longer about trying to beat an index. Portfolio construction and management are still key components and prudent management is still very important but the context of what investments are being chosen are different when the conversation is about what these funds need to do for you as an individual and a family to achieve the lifestyle you want to have.

What should people address in their plan for 2020 and 2021?

For many of the families I work with, the pandemic of 2020 has created a material shift in their priorities and goals. I recently had a meeting with a couple that were 3 years from retirement. Their goals were to travel extensively for 5 years and then settle into a routine of spending the winters in a warmer climate and the summers in Central Alberta. They planned on downsizing their home and moving into a condo so they could just lock up and drive to the airport on a whim. They were so excited about 2023. When we recently had a review meeting, they have had a significant change of heart – they really enjoyed the slower pace that the pandemic has forced on many of us. They started a garden in their back yard, they spent time working on their home and realised how much they missed seeing the grandkids. The pandemic changed their plan – now they want to retire earlier, keep their home and garden, and spend more time with family. They still plan to travel (when they can) but they plan on doing shorter trips and spending some of the funds they had set aside for travel to upgrade the home they love into a place they plan to stay in for another 20 years.

Many times, our goals and plans change and that is what causes the investments and planning goals to change. Our meeting meant starting from scratch on the retirement plan and cash flow analysis but that is why those documents are never set in stone. Financial planning is an ongoing process that changes as life changes – goals change, investments change, life happens.

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