A major aspect of a wealth advisor’s role is to educate clients about the numerous risks they face and devise strategies to mitigate them.
You have probably become familiar with some of these risks as an investor. The two that most often come to mind when I probe clients about risks they face are:
- Market risk (stock markets dropping in value) and;
- Concentration risk (having too much of one investment relative to the overall wealth).
One that always flies under the radar is sequence risk.
Hold Up – Sequence Risk??
Essentially, it’s experiencing a big market drop or a bear market right when you start needing your money that you have been squirrelling away. You know… buying that cottage you have been saving for. Or of course, the granddaddy of all projects: retirement.
Sounds Awful – How Do I Avoid It?
I’m not going to lie, it’s the biggest determinant. If your retirement coincides with the start of a bear market, there’s not much you can do about that. That macro trend is out of everyone’s control.
There are, however, certain strategies you can implement to mitigate the damage in case you end up being unlucky.
Yes, you’re probably sick of hearing it, but diversification is about the only free lunch out there. You spread out your bets and if a couple go south then you’re still OK.
We have a strict process for rebalancing client portfolios whenever it deviates from the target asset allocation; the principle of “buy low sell high” is baked right into the portfolio construction. By having a process, you also remove emotion from the equation, which is a key component of any advisor’s job: manage emotions.
3. Having a rainy-day sleeve within your portfolio
This is particularly used for clients nearing retirement. We hold a much more conservative portfolio as a small subset of the overall portfolio. It won’t earn as much, but it will be quite stable during a market downturn vs. the overall portfolio. In the event markets drop, you have stable capital to draw on for your needs while allowing the main portfolio time to rebound.
4. Having a financial plan and sticking to it
Ask any of our clients about our meetings during the COVID crash and they will all tell you the same thing: I would pull out their plan and show them that they are still OK with their objectives still at hand. I cannot overemphasize how important this is for you. It will remove so much stress from your life knowing that you have a roadmap that allows for the odd detour.
If you have a project 12-36 months out from today, then you should be asking questions about sequence risk and making sure you are protecting yourself from it.
I’m always open for a chat, and it is always at no-obligation. Direct message me on LinkedIn if you would like to explore this consideration.
As a strategic wealth advisor, I can help you gain peace of mind and achieve your dreams for the future through various wealth management strategies. Whether it’s a worry-free retirement, saving for your children’s education, fulfilling a lifelong ambition, running a prosperous business or leaving a legacy to your loved ones or a cherished cause, I can work with you every step of the way. Please feel free to reach out to me by completing our Meet With Us form.
Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and is registered with the Investment Industry Regulatory Organization of Canada.
This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources however no warranty can be made as to its accuracy or completeness. Before acting on any of the above, please make sure to see a professional advisor for individual financial advice based on your personal circumstances.
*Note to the reader: This article was originally published on LinkedIn on March 22, 2021.