Your Portfolio Shouldn’t Need Big Changes

02/08/2012 5:45 am EST

Focus: MONEY MANAGEMENT

If your advisor is doing his or her job correctly, volatile times shouldn’t have much impact on your long-term strategy, says Anthony Williams of the Canadian Institute of Financial Planning.

We’re talking about financial planning with Anthony Williams. Anthony, tell us how current market volatility has changed any of the ways in which you educate financial advisors.

It’s certainly a consideration. But you know the reality of being in the market is that there are going to be good times and there are going to be bad times.

Certain periods, unfortunately, seem to be emphasized a little bit more or accentuated a little bit more. But I think the beauty of planning, and the beauty of dealing with an advisor that has a long-term outlook, is that you really shouldn’t have to make drastic changes to your portfolio.

That’s really the key thing. If a planner is doing his or her job properly, and has laid the proper groundwork and proper foundation, even if we are in extremely volatile times…and even if there are extreme events going on—which we’ve encountered over the last several years, and undoubtedly will encounter again—it shouldn’t necessarily mean that you have to do a dramatic overhaul of your portfolio.

Really, those reactionary kinds of moves are for people that are not doing long-term planning, and therefore not in the proper sense of the word investors, but really are more traders. Now there’s nothing wrong with that. If that’s what you want to do and how you want to handle your portfolio that’s OK. You just need to understand though that you’re going to have to be very quick on your feet and you’re going to have to be, as I said, more reactionary to the times.

On the other hand, if you’re doing planning from a long-term horizon—ten, 15, 20 years—then really at the end of the day, these volatile events, as bad as they may seem when we’re in the middle of them, in the eye of the storm, when you really look at them in the overall timeline, they turn out to be a blip.

I mean we’ve survived the Great Depression, we’ve survived other events throughout history. And undoubtedly we’ll survive them as well again, if you have a sound financial plan in place.

Now, a lot of people do look at the fact that the markets have just downtrended dramatically in the past ten or 11 years or so, and continue to worry that, hey, maybe it could get worse. How do you calm some of those fears, or reassure people that a longer-term approach really is the way to go?

Well, one of the things is going back and sort of touching base with the original plan that you put together for the plan that you drafted.

Go back and revisit those objectives and ask the client, are these objectives still relevant? When we talked about this we had a long time horizon. It may have been two years ago or five years ago, whatever, but we talked about a long time horizon, we talked about you want this, you want this. Are those objectives still relevant? Do you still feel comfortable with the types of investments that we talked about?

Now, it’s perfectly fine to make adjustments along the way, because a plan really at the end of the day is a dynamic document, it’s not meant to be static, it’s meant to be altered and changed as your situation changes. As I said before, it really shouldn’t mean a major overhaul.

The other part of this as well, that can really soothe clients, is where the human qualities of a planner come into play. It’s all and good to talk about the technical aspects, but it’s the empathy, it’s the connection with that person, it’s the hand-holding, it’s being proactive and contacting the client to say, "Look, is everything OK?" before the client is trying to contact you in a panic.

You can do a lot of things proactively to put your client at ease and avoid a situation where the client is in a major panic.

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