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TED RECHTSHAFFEN

Volatile markets are taking us for a trip Add to ...

Imagine your significant other says to you “I have a surprise trip planned. It will happen next week. I have arranged everything and you have the time off. Your only job is to pack for yourself – and I won’t say where we are going.”

Do you pack for warm weather and a beach or skiing and cold weather? Will you be active and hiking? Do you overpack just to make sure you are covered?

This exercise is a little like investing at the moment. How do you prepare when you don’t know what is coming? On Tuesday the guru said the sky was falling and on Wednesday the next guru said today is the best day to get back in the market. What is coming next?

I believe that you can be invested properly without this knowledge, and in the case of the unknown vacation, you can prepare and pack appropriately for you. Let’s look a little deeper.

If you are young and carefree, you may just pack for the beach. It makes the packing light, and you guess that the worst case scenario is you stay inside to keep warm. This is a risky approach if your trip ends up in the Yukon.

If you are middle aged, and a little cautious, you may underpack, but bring some warm and cold weather clothes. You will almost certainly be re-wearing your clothes often on the trip, but at least you will have some of the right clothes. Besides, if necessary you can pay through the nose to buy what you need there. You know it will be expensive but you can afford it.

If you are older, and more cautious you may just say no to the whole thing. Too much uncertainty. Of course, you may also have passed on one of the best trips of your life. If you are convinced to go, you are going to be prepared, you will pack three suitcases, one for each type of weather. It will be heavy, the new baggage fees will be expensive, but you just never know.

All three of these approaches might be right for the different individuals.

Of course, you may have some insight. After all, you have been together for years. Would the trip planner want to go someplace quiet or adventurous? Hot or cold? Where did you go last time? What was their favourite holiday? Did they mention a certain place they always wanted to go? What is the global weather picture looking like? Is this a global warming year or a deep freeze year?

You will try and use this insight to help determine whether to take an extra blanket or bathing suit.

You may also think about your own comfort in the elements. Do you mind wearing shorts when it is five degrees outside? People call you crazy, but you almost never wear a winter jacket. Or maybe you’ve already worn your winter jacket a couple of times this late summer. You simply don’t like the cold.

Depending on your personal comfort with the elements, you may tend to err on the side of warmth or err on the side of a smaller bag.

The fact is, the markets, just like your vacation destination, are very uncertain at the moment. We are all trying to search for clues, and you may be more confident in one direction than the other.

In my opinion, it is all of the other things that are most important for you. It isn’t so important to know the destination, but it is important to know you. Know your hopes and those of your family. Know what type of person you are. Know whether you are just fine buying your $300 hiking gear for $600 at the base camp, or whether that would be enough to ruin the trip for you. To understand how important it is to you to have all your clothes laid out for the week, or whether you are okay with a little more chaos. Do you like to travel light or do you want to have everything with you?

I truly think that the job of a financial professional today is more about making sure that you and your family are prepared properly for your goals, your needs and your fears. Especially now. If that part is taken care of, then you will be able to manage whichever market is directly ahead of us. If those goals, needs and fears are not directly driving your investment strategy and the makeup of your portfolio, it is time to review how it is being done.

Of course, if you guess right you will be further ahead than if you guess wrong, but do you really want to be guessing about your financial future in these markets – especially if your retirement is on the line? Not me. I want to be prepared for all of them.

Ted Rechtshaffen is president and CEO of TriDelta Financial Partners, a firm that provides independent financial planning advice. He has an MBA from the Schulich School of Business and is a certified financial planner. He was vice-president of business strategy at a major Canadian brokerage firm.

Follow Ted on his blog at The Canadian Financial Planner.

Note:

If you are in the Edmonton area, I will be doing a retirement seminar for Globe readers next month. To find out more click here.

 

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