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A financial plan can guide you through life’s ups and downs, but two-thirds of Canadians don’t have one


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A financial plan can guide you through life’s ups and downs, but two-thirds of Canadians don’t have one

My kids, who are both competitive freestyle skiers, have been trying their best to get me to ride with them in the slopestyle park when we head to the mountain. Since turning 40, however, I’ve really started noticing the ups and downs a lot more — or maybe I just have a greater perception of…

A financial plan can guide you through life’s ups and downs, but two-thirds of Canadians don’t have one

My kids, who are both competitive freestyle skiers, have been trying their best to get me to ride with them in the slopestyle park when we head to the mountain. Since turning 40, however, I’ve really started noticing the ups and downs a lot more — or maybe I just have a greater perception of risk given how much more the falls hurt and how much longer the recovery takes.

The fact of the matter is that there is volatility in life but the more prepared we are the better it can be managed, allowing us to still achieve our goals.

While I have learned how to manage risk on the slopes, the same can’t be said for Canadian investors, many of whom continue to ride the rails — metaphorically speaking — with little thought of the consequences.

According to a recent CIBC poll less than one-third of Canadians have a financial plan even though 77 per cent are worried that they won’t have enough money in retirement.

The same report also indicated that 11 per cent of Canadians will not have any retirement savings, and will be forced to rely solely on CPP and/or OAS.

While shocking, this isn’t a surprise as the majority of Canadians are racking up debt at a record pace and with it increased servicing costs. StatsCan recently reported that our debt-service ratio hit nearly 15 per cent last quarter, the highest on record.

Ignoring the issue isn’t going to make things better, while trying to play catch up by taking on more risk in a retirement portfolio may only compound the problem, especially during market crashes.

We believe that formulating a financial plan should always begin with a discussion of a family’s financial position in the context of their goals — Is the family on track when it comes to ensuring there will be enough savings to fund a desired lifestyle in retirement or to handle an unexpected change in circumstances such as divorce, a job loss or even the death of a loved one.

This means undertaking a financial audit of a household, including the preparation of standard financial statements, such as cash flow and income statement and a balance sheet.

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The first two will take note of the family’s spending habits over time measured against after-tax income levels. The surplus or deficit can then be compared to the family’s liquid assets, including investments.

Rounding it out is a capital asset forecast that is scenario-tested under different return assumptions and varying levels of projected spending into retirement. Estimated terminal asset values can then be adjusted to meet the amount the family wants to leave behind in an estate.

This process should also flag some important considerations including the need for insurance, tax planning, family governance, corporate structures, any potential cross-border issues and a review of wills to see if they match the plan. When outside expertise is required, a well-documented plan can provide an excellent summary, saving both a lot of time and money on the front-end.

Finally, the portfolio’s investment policy can be updated and the asset allocation can be adjusted to reflect the aforementioned factors accounting for willingness and ability to take on risk. This is why it’s important to put the investments at the back-end of the process to ensure they are designed to meet the requirements outlined within the plan.

Mapping out one’s financial future will help provide peace of mind through life’s ups and downs. The goal, just as in slopestyle, is to get to the bottom as safely as possible while having fun along the way.

Martin Pelletier, CFA is a Portfolio Manager and OCIO at TriVest Wealth Counsel Ltd, a Calgary-based private client and institutional investment firm specializing in discretionary risk-managed portfolios as well as investment audit and oversight services.

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