Finance 9. The time to think about risk is before you need to If you’re in any way interested in investing and personal finance, you’ve probably read a lot about how risk and return are inseparably linked: the higher the return you expect from an investment, the higher the risk you have to accept in order to get that return. Unfortunately, the sheer longevity of the most recent bull market lulled some investors to sleep about risk. When your stock portfolio kept going up, trimming back winners didn’t make a lot of sense. Building defensive positions in safer, lower-return investments represented a big opportunity cost. Taking a flyer on a small startup, a trendy sector or a “next big thing” kind of company seemed like a pretty good idea. And that central truth of investing − that there is no such thing as a risk-free investment − was all too easy to forget. Fast forward a fewmonths and we can say that the corona-crash taught us an essential truth about risk: that the time to think about it is beforeyou need to. Once a downturn happens, it’s likely too late to exit risky investments, because everybody else wll be trying to do the same thing at the same time. It comes down to this: if you’ve had the good fortune to be able to put up your work boots once and for all and actually enjoy your golden years, then you probably need less risk in your portfolio, not more. You probably appreciate portfolio stability, predictable growth and regular income a lot more than “all-or-nothing” stock market bets. All of which means that you should get into the habit of thinking about risk before you enter into an investment. Always a good idea, but a particularly good idea now, as the world contemplates another round of market volatility. 10. Income is your friend For much of the past decade, North American income investors have suffered hard times. With persistently low interest rates for government bonds, GICs and other income-oriented securities, a lot of investors said “why bother?” with traditional income-generating assets. And, to some extent, that was understandable. With the stock market going up and up and up, if you needed some cash, you could just sell some of your stocks and carry on. However, when the market suddenly plunges 30-40% in the space of a few weeks, selling a few shares at a loss just so you can pay the hydro bill doesn’t seem like such a smart thing to do. Meanwhile, those who invested in boring old government bonds and GICs slept soundly at night, knowing that whatever happened on Wall Street, their “portfolio paycheques” would keep rolling in. There’s a big lesson here. If you find your portfolio loaded with growth stocks, longshot speculations and other securities that don’t produce any dividends or distributions, now may be a good time to rethink such a strategy. Take the time to trim such positions and reallocate to conservative, blue-chip, dividend-producing stocks in utilities, consumer staples and related “steady eddie” businesses. Build a portfolio of ultra-safe, ultra-secure government bonds. Check in with your wealth advisor, financial planner or similar professional and ask whether purchasing an annuity makes sense for your financial situation. No, such investments will never make you rich. But if we ever face a similar financial or economic crisis again (maybe this fall?), you’ll be glad that you can rely on their income and their (relative) stability. 11. Yes, you really do need an estate plan In our heart of hearts, all of us know that sooner or later, we will pass on from this world. Despite this knowledge, many of us resist crafting an estate plan for organizing and distributing our assets after we die. Many of us haven’t even written our will or, if we have, we leave it untouched and out of date, sitting in a desk drawer somewhere. In an ideal world, we will all be given ample time to sit down with an estate-planning professional, get our affairs in order and create the proper legal documents to ensure a smooth passing of our assets to our heirs. But, as the COVID-19 crisis has proven, life doesn’t always work out like that. Tragically, the sheer speed and unpredictability with which the disease ravaged communities have almost certainly meant that a number of these people passed away without a valid, up-todate will, leaving their estates in a mess that their heirs now need to clean up. Don’t let that happen to you. Take the time now, while you’re healthy, to write your will, to organize your affairs and to communicate clearly and thoroughly with your heirs about how you’d like your finances organized and arranged after you’re gone. While the time of your passing will likely remain outside of your control, the implications of your passing are entirely within your control. 32 | www.snowbirds.org
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