Financial and Business Succession Planning, J. Paul Wilson, CFP, Halifax, Nova Scotia, Canada

"The investor of today does not profit from yesterday's growth." - Warren Buffet

Whether you are retired and living off your assets and / or still accumulation wealth; the world of investing it always seems to come down to RISK versus REWARD. Even if you stuff your money in a sock you may have little Risk of loosing your capital, but you have a real Risk of purchasing power loss due to inflation. The goal in an investment plan is achieve your goals with the highest return possible for the Risk you are prepared to accept. In order to avoid emotion based buying and selling, which usually costs you money, it is better to have a process and stick to it.

Or put simply:

Determine your objectives, your risk profile and then invest in a diversified portfolio that reflects your risk profile and objectives. Rebalance regularly.

If having an investment strategy was important when your were accumulating for retirement then it is even more important when you are retired. The stock market does indeed go up and down, however unless you are properly diversified then the effects of a major drop could be devastating.

Investing Process 

A conservative investment approach views investing as process that is an important part of a comprehensive financial plan designed to achieve your long-term goals - investment, insurance, tax and estate planning. There are enough books written on “successful investment strategies” to fill several libraries. When you get right down to it though, most of the research indicates that the most important component of investment success is diversification or strategic asset allocation.

Here is what Duff Young analyst and Globe and Mail columnist says about the importance of asset allocation:

“As the chart below illustrates, Asset Allocation is by far the most important investment decision you can make. Research has clearly shown that how you spread your money among different classes of investments (i.e. stocks, bonds, and cash), accounts for 85% - 90% of the variability in your rate of return.”

Since asset allocation accounts is the most important component in your rate of return it follows that your understanding of the basic principles of strategic asset allocation is key to designing your portfolio.

An investment philosophy that is essentially conservative in nature includes:

• Operating within your risk profile

• A quantitative analysis of your existing portfolio

• An investment approach structured using state-of-the-art research on portfolio design

• An objective of achieving long-term growth with the lowest possible level of risk along the way

Your financial planner should review and help you understand (if you don’t already):

• The investment options available to you.

• Market volatility and ensure that you are prepared for (because it is guaranteed to play a role in your investing)

• The 4 components of diversification (Asset Classes, Security Mix, Geographical, Fund Manager Style)

• The principles of strategic asset allocation and see how you can best take advantage.

Investment Planning - Points to Consider 

• What is your investment philosophy and is your portfolio in line with it?

• Does your asset allocation match your risk profile?

• Is your portfolio in line with your investment objectives?

• How tax effective is your portfolio?

• What is your relationship with your current investment advisor?

• What process did your advisor use in creating your portfolio?

• If you use more than one advisor has a quantitative analysis of your entire portfolio been done to determine diversification?

• How was the quantitative analysis done?

• Do you review your portfolio regularly?

What if the analysis indicated that you are not properly diversified and your portfolio is down?  

• Should you wait until it comes back?

• If yes, how long do you stay exposed to the higher Risk?

• If you should not wait, when should you get back into the market?

Each situation is different. Remember, the goal in an investment plan is achieve your goals with have the highest return possible for the Risk you are prepared to accept and that “asset allocation is the most important decision you have to make." If you panic and put everything into cash then you will probably miss the upswing. If you rebalance and stay in the market you will probably catch the upswing.

For more information contact:

J. Paul Wilson, CFP, CLU, CH.F.C., TEP
380 Bedford Highway, Halifax, Nova Scotia, B2N 2L4
Office (902) 405-8665 Direct (902) 982-2377 Mobile (902)488-4982
Toll-free Fax (866)-436-1207 Email paul@jpw.ca


Desjardins Financial Security Investments Inc.
Branch Office
110-230 Brownlow Avenue
Dartmouth, Nova Scotia. B3B 0G5
Branch (902) 468-0814
Direct (902) 982)-2377
Fax: (902-468-7292



NOTE:

The information contained in this article is intended to provide general guidelines only. The application and impact of the law can vary widely from case to case based on the specific or unique facts involved. Accordingly, the information in this article is not intended to serve as legal, accounting or tax advice. Users are encouraged to consult with their professional advisers for advice concerning specific matters before making a decision.

Make your investment decisions wisely. Important information is found in the funds' simplified prospectus. Please read this carefully before investing. Commissions, trailing commissions management fees and expenses all may be associated with mutual fund investments. Mutual funds are not guaranteed, their values change frequently. Past performance of the funds may not be repeated.

A description of the key features of the segregated fund policy issued by the insurance company is contained in the information folder. Any amount that is allocated to a segregated fund is invested at the risk of the policyowner and may increase or decrease in value.

Desjardins Financial Security Investments Inc. (DFSI) is not providing the financial planning service and will not be supervising this activity. You should not rely on DFSI for review of the plan. DFSI is neither charging nor being paid any fees for this service and will not be liable for any errors or omissions. This Financial Planning Service is done solely through jpw.ca Insurance Retirement Investments.