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First of all, forget the “noise” about China and low oil prices. Forget “noise” and most financial headlines in general because these agencies know we have short attention spans. They thrive on flashy headlines like “Markets headed for crash” or “Debt crisis will sink Europe,” and many more like that. Remember, though, that none of this affects yourfinancial plan. Your plan is a marathon, not a sprint. Keep your head down and keep putting one foot in front of the other, regardless of the noise from the sidelines along the way. To help you keep focus, here are 10 practical steps you can take:
1.Back off equity.We have been in an extended bull market, so don’t invest large lump sums too aggressively into equity. Save that for corrections of 20% or more or during true bear markets.
2.Consult regularly.Visit with your financial advisor at least once a year to fine tune your plan. Make sure you have some fixed income once you are over 40. Endeavour to play it slightly safer if you don’t have a defined benefit pension plan. You will have less guaranteed money in retirement, and you know that going in.
3.Maximize RESP grant moniesif you have children/grandchildren under 17 years old. This is free money folks. If parent are squeezed due to mortgages and general costs of childcare, and you (as grandparents) are very comfortable, help them out and contribute to an RESP for your grandchildren. Having a long-term $100,000-plus student loan upon graduation is an albatross young people just starting out don’t need.
4. Look for opportunities to save income tax.Start with the simple things like contributing to RRSPs, and then work with your accountant or financial advisor to find other methods to have more money in your pockets after tax.
5.Take advantage of the TFSA.This is a very generous government plan that can help you save for short-, medium-, or long-term goals. Don’t be too conservative (e.g., GICs) if you want to make money and save taxes, because earning 2% in a GIC will save you very little tax. Choose a good balanced dividend fund if you don’t like too much volatility.
6.Revisit your willand decide if you need a power of attorney.
7.Revisit life insurance policiesand ensure you’re covered adequately. What may have been great 5 or 10 years ago may not be now due to increased income or more dependents (to name but a few of the factors that may require an increase/decrease in coverage).
8.Ignore the static.Forget what friends/colleagues, neighbors, or media pundits are doing fiscally. They all have diverse ages and goals, and react differently to volatility, so why would your investment strategy be the same as theirs? Yes, if they say they know an advisor who sees them twice a year and calls a few times a year, and it’s been five years since you heard from your advisor, you may want to have a meeting someone more attentive.
9.Always watch for red flags from your advisor.Are your investments all in deferred sales-charge (DSC) funds? Why? Do you get asked to leverage (borrow money) often? Why? Does your advisor move fee-free units back into DSC units (this is known as churning)? Does your advisor ask you to buy exempt market products without explaining higher risks involved? Does your advisor ask you to sign something so he can trade on your behalf without explaining the trade to you? All of these raise a redflag and need to be questioned. While these practices aren’t alone evidence of an unscrupulous financial advisor, they do leave some questions that need to be answered before proceeding.
10.Are you peaking?I will finish with a question. At what age do you reach peak asset value as a family? The answer is age 64. If you’re crowding that age bracket, go back and review steps 1 through 9.
Courtesy Fundata Canada Inc. © 2015. Bruce Loeppky is a financial advisor based in Surrey, B.C. This article is not intended as personalized advice.
