It’s Time to Become Less Distanced From Your Financial Affairs
By now we have all become accustomed to going about our lives with physical and social distancing protocols everywhere. That said, one thing is abundantly clear to me as a local financial planner and investment advisor: The COVID pandemic has actually created more motivation among local families to map out their financial future. I view this actually as a huge positive outcome of the crisis, given that previously only about 50% of Canadian households actually had a financial plan for life after work.
The reason for this is anyone’s guess but as with any big goals in life, motivation is always the deciding factor. With everyone isolated at home in the first few months of the crisis, many families stuck at home were taking stock of their priorities and financial affairs linked to those priorities. In most respects, the failure to plan for one’s financial future can mostly be blamed on apathy. If there is nothing pressing you to complete a complex thing like a financial plan, then it can be put off. This flies in the face, however, to one of the most powerful inputs for investing and making your money grow: Time in the market or how long you are invested for.
Back to the topic of priorities. If families weren’t clear on the things important to them before the crisis, they are certainly much more aware of those things now and also have a renewed appreciation for even some of the simple liberties we enjoyed before the crisis and maybe all took for granted. As we have all been isolated ‘home bodies’ for the last 6 months, consider how people have become focused on the quality and functionality of their home. This makes perfect sense in light of how much time we have all been spending there. Families have been busy with home renovations or even a relocation to a desired community thanks to work from home flexibility. As an extension of this, I believe families have become increasingly strategic with their planning. We have not been able to be as spontaneous in the activities we enjoy and therefore planning takes center stage on even our day to day affairs.
Planning is essential to be successful in anything we do. As the saying goes “Failing to plan is planning to fail”. Being spontaneous with your financial affairs or budgeting is really an oxymoron if you think about it. Even very wealthy individuals can spend beyond their means and get themselves into long term financial trouble, so it has nothing to do with just having wealth. Having a financial plan and family budget is a must for every family. It’s really just about creating a roadmap. By the way, its not about taking the fun out of the equation. We all should live and enjoy life. Planning just helps remove the uncertainty and negative surprises that could lie ahead. Without a plan you are just running blind and could end up in a pinch. As Yogi Berra once said “If you don’t know where you’re going, you’ll end up someplace else”. We all need to take charge of the destinations we want to arrive at.
Financial planning can also be quite complex so spending the time on it can really help reduce the anxiety over what the future looks like. With the clients we work with, the financial plan becomes a baseline that we keep coming back to for context. It helps determine the required risk for the investment portfolio rather than just proceeding with a “more is more” approach. So in many ways, having a financial plan can reduce the risk associated with your investment game plan. Otherwise, investors left to their own devices may feel their game plan should be to swing for a homerun each and every time at bat, and yet, baseball games are never won that way.
One of the greatest risks I worry about when conducting financial planning is longevity risk. Given advanced healthcare and just the general health of my active clients up in this area, it’s not unlikely we need to plan for 30 year retirement windows. Based on my experience, people want to know that they can continue to fund their desired lifestyle.
The other big topic is Tax. A financial plan can help uncover a need for strategies to reduce tax at the estate level. Mostly everyone I talk to prefers money be left more to family than to the government.
The last most important point is what people should do with all the noise. Noise is the news and information we are all exposed to that can create short term dislocations in the market and provide a good dosage of fear. Fear is a motivating emotion but as it pertains to investing most always leads to bad decisions. These are things that can de-rail your ability to reach your long term goals. This is why as a financial advisor, I see my role somewhat as a Sherpa to help investors reach their destination. This requires setting framework and context for investing using a plan, of course. Everyone’s journey is unique and yes the reality can look and feel different than the plan. But as it pertains to financial matters it is the destination and NOT the journey that’s most important.
Case in point would be that with all the distancing that is going on, fewer Canadians are choosing to do so with their financial affairs. This is very good news as it relates to securing their financial future.