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Blog Detangling Financial and Investment Planning

February 12, 2020

Financial and investment planning – it’s easy to get the two confused.  

Yet while they both play an intertwined role in the picture of wealth  management and estate planning, the two couldn’t be more different. 

This  month, we are taking a closer look at each, beginning with investment planning. With that, I sat down with one Jerry Koonar, Vice-President  and Portfolio Manager at Leith Wheeler Investment Counsel. Jerry is part of our network of specialists that we work with to ensure all planning recommendations work in harmony with one another – not in silos.

Wayne: Let’s start by addressing the elephant in the room. What’s your perspective on financial vs. investment planning?

Jerry: Investment and financial planning work together, but are very different. Investment planning involves constructing a portfolio in terms of the asset mix (i.e. stocks, bonds and cash) and where it’s invested (I.e. geographic and sectors). Investment planning is one  component of financial planning, in addition to estate and tax planning, insurance needs, etc. 

Wayne: Is that the biggest misconception you come across? 

Jerry: It’s one of them. The other is that an investment advisor, or portfolio manager, should be able to anticipate market corrections when they happen. The reality is short-term market movements are beyond anyone’s control. The best control against these types of fluctuations is having a long-term mindset.  

The other myth is that we can time the  market. No one can. Our biggest weapon is time in the market and being invested at all times. We never know when the market is going to give us  those best days of returns. 

Wayne: Time is a recurring theme in both financial and investment planning. When should someone start building their portfolio?

Jerry: There’s no magic formula. If anything, it comes down to this: the  earlier you start, the better you’ll end up. It’s the power of compounding. The longer you have, the greater the power of compounding over time.  

Ask questions like when you want to retire, what does  your monthly income requirement look like and how much do you need?  Based off of that, you can work backwards to get a sense of the size of  assets you need. You can then look at where you are currently positioned in terms of assets relative to the time you have until retirement, and  how much you need to contribute to get there in terms of straight capital in the portfolio and return. 

Wayne: If I was 20 years away from retiring and just starting to build my portfolio, what advice  would you have? Would your advice change if I was planning to retire in the next couple years? 

Jerry: You want to build a portfolio that  maximizes the return relative to the risk that you’re comfortable with. We call it an efficient portfolio – efficient in terms of maximizing  your return given the level of risk you’re comfortable with.  

Typically,  when you’re beginning to invest and are in the accumulation phase, you will tend to have a higher allocation toward riskier types of assets such as equities. As time progresses though, you will likely reduce the amount of equity risk in your portfolio by increasing your fixed income assets.  

Wayne: Does that hold true for everyone? 

Jerry: It’s really specific to each person. We have clients near retirement who are still comfortable with a high allocation toward equities because the income being generating by that portfolio is dividends, which are tax-efficient.  

It’s important to recognize that while there’s a  financial component to risk, there’s also an emotional component. I look  at it as sleep tolerance – can you still sleep at night? You might  financially be prepared to accept a 10 per cent drop in your portfolio due to a downturn, but emotionally you might not be able to deal with it. That’s why it’s important to structure each person’s portfolio  differently.

Wayne: Is there a risk of being too risk-averse when investing? 

Jerry: The risk of being overly conservative is you won’t be able to meet your income objectives. Part of investment planning is defining your income  objectives as well as your expected rate of return. If you need a six per cent rate of return to meet your income objectives but are only comfortable with no downside, you need to be realistic and consider  taking longer to retire, contribute more or spend less.

If  you are looking to start building your investment portfolio, the advisors at Three60 Wealth & Estate Solutions and its network of  specialists can help. We help business families reclaim their time, gain peace of mind and achieve their own unique version of success.     

For a truly different financial planning  experience, contact our office online or at 403-640-4414 to schedule an introduction meeting.

Authored by: Wayne De Boer, Wealth & Estate Planner at Three60 Wealth & Estate Solutions Inc.