Recent market volatility and economic uncertainty may have you pondering possible changes to your investment strategy. As always, we encourage you to view your investments within the context of your wealth management plan including Wills, trusts, and charitable giving. Stephen Reichenfeld, Vice President, Private Wealth Counsellor, discusses factors to weigh when thinking about changing your wealth management plan or choosing to stay the course.
Q: How do I assess whether I should be changing my investment program?
Stephen Reichenfeld: Every investor is unique and there are numerous points to consider before revising your plan. This process should be part of an ongoing conversation with your financial advisor and portfolio manager, taking into account, among other things, a longer-term strategic asset mix as well as shorter-term tactical changes to your portfolio.
In our experience, clients often focus on the performance of individual securities; however, we believe your asset mix plays a more powerful role in generating performance. Perhaps the key consideration is: what has changed since you last set your Investment Policy? Has there been a change in the need for your portfolio to provide income? Have recent market events tested your tolerance for risk? Your answers will help determine whether a policy change may be necessary.
If you have more than one portfolio, take the time to step back and assess the overall asset mix across portfolios. This approach may help identify more tax-efficient ways to invest your individual accounts, while maintaining the same overall risk and return profile.
We think it is important to take a hard look at what is driving the urge to change. Is it an emotional response to recent market moves that, on closer inspection, may have already been addressed through your portfolio manager's tactical changes to the portfolio mix? How might your portfolio be best positioned to take advantage of the eventual market recovery? Consider how possible short-term peace of mind may influence the longer-term results of your investment portfolio.
Q: How could an estate plan be affected by the market downturn?
Stephen Reichenfeld: By their very nature, we believe estate plans should be part of a long-term view for the transfer of your assets. In our experience, fluctuations in investment account value have little bearing on the distribution of an estate. If you intended to split an estate evenly among beneficiaries, recent market events may have changed the value of the estate, but the beneficiaries still receive the same proportions. If your plan currently includes providing financial support by giving someone a percentage of the estate, this should perhaps be adjusted to a specific value to ensure the income intention is met.
It is always advisable to review your estate plan whenever there is a significant change—whether of a personal or investment nature.
Q: What about charitable donations?
Stephen Reichenfeld: This may be a time to assess where your charitable donations can have the most impact. You may choose to revisit the amount and frequency of your donations both in the short and long term. With some analysis, recent market conditions could serve as a test to determine how much you can comfortably donate without impairing current or future income needs.
You may also want to look at how you donate. If you traditionally make cash donations, consider a gift of securities. Explore the potential benefits for the charity and the potential capital gains benefits for you. We recommend consulting your financial and tax advisors to establish the best alternative for you.
Q: What should drive my decisions to make changes?
Stephen Reichenfeld: We believe in both good or challenging times, your wealth management plan should be shaped by your personal values, goals and circumstances first—not relatively short-term market peaks and valleys. If change is on your mind, talk to your financial advisor and portfolio manager. Use them as a sounding board, so you are aware of all your options and the potential ripple effects of your decisions. Then, you will be well-positioned to make changes, if in fact change is necessary at all.