Are you planning for retirement in Mississauga and the GTA?
We asked the Dedicated Financial Solutions team of Janet Baccarani and Jennifer Black, who are both Financial Advisors and Certified Financial Planners with Manulife Securities Incorporated and Manulife Securities Insurance Inc., to respond to some questions that are high in people’s minds as they contemplate retirement planning:
Q: How do you approach retirement planning with your clients in Mississauga and the GTA?
A: We look at each client’s situation individually, or as a couple if that is the case. First we make sure we understand the client’s unique needs and goals. We gather information together that will give us a picture of the client and their financial circumstances. We determine what they are doing with their finances, if anything, and then analyze and research any investments they already have. We then put together a financial plan with recommendations. We look at each plan as personal and customized, rather than using a cookie-cutter approach. While we can make some generalizations about the cost of living in Mississauga and the GTA, there is no single plan that works for everyone.
Q: What is your opinion on market volatility and the economic forecasts in the news?
A: Very few people are really comfortable with market volatility, and fewer enjoy the dire news reports. Certainly everyone who is invested will have been affected in some way by the fluctuating markets. We have a better understanding now of the causes of the financial crisis, and we have historical data that shows us how markets have recovered after a significant downturn. Simply put, we will have to be patient, but things will eventually improve. Meanwhile, we have to keep in mind that market volatility also offers opportunity. One should not panic. A drop in stock prices due to market volatility is preferable to having a stock bottom out because there are problems in the company. We have to look deeper into the situation before making any decisions.
Q: Most people have seen a drop in the value of their investments in the last year. You must be hearing complaints about that, right? How do you respond to clients who are disappointed with their portfolio statements?
A: We do our best to provide context around the chaos. When reviewing a portfolio, we take a close look at the holdings within the funds they have. Most often, the client will see that the funds have been invested in companies they would otherwise believe to be strong and worth their investment. If we find that there are changes that could be made, we will make those recommendations, and discuss how to make the best of the situation.
Q: Are people abandoning equities in favour of money market funds or GICs just to protect their principal wealth, even though the growth will obviously be minimal?
A: Yes, it does seem that many people are dropping their equity holdings and turning to GICs or money market funds. We don’t really think this is the best course of action. It depends on the individual investor and their financial goals. If the investment is needed for income, the investor may be more anxious to protect their principal wealth. Younger or long-term investors can be more patient and can wait for the economy to recover. They can take advantage of some low prices right now. Investor behaviour does affect returns. The reason for the difference is that the average investor is emotional and makes financial decisions based on those emotions. When prices are high they get excited and want to buy in, and when the price drops, they get frightened and sell low in their panic. Experienced investors do the opposite. Research has provided evidence to support the theory. We can quote a Manulife Investments Market Insight commentary from October 2008:
[box style=quote]…over the last 20 years, the average mutual fund investor has lagged the return of the S&P 500 Index by a considerable margin. While the S&P 500 has increased in value a respectable 11.8 per cent per year on an annualized basis, the average mutual fund investor has only obtained a 4.3 per cent return over the period.[/box]
It just underscores how emotional decision-making can be very costly.
Q: Are people still buying insurance policies, in spite of general belt-tightening?
A: Yes. The need for personal insurance does not change according to the state of the economy. People may be more motivated to get insurance coverage for their mortgage or critical illness and disability insurance. Small businesses may be more interested in starting group health and dental benefits plans for their employees. We have had some executive clients with larger accounts contact us to increase their insurance in order to cover what their portfolios have lost due to the economic downturn.
Q: When should someone begin planning and saving for retirement and what is the best way to get started?
A: The best time to start is right away! Seriously, the younger someone starts investing, the less they will need to save compared to someone who starts even one year later. A registered retirement savings plan is a good place to start. The most immediate benefit is the tax deduction. If the RRSP is through a group plan where the employer contributes a portion, that‘s a second benefit. Most importantly, though, the benefit of dollar cost averaging may reduce the cost of your investment while potentially generating a bigger return over a longer period of time. These factors have the biggest impact on creating wealth for the future. It is worth making an appointment to discuss all the options with a financial advisor.