Tuesday, December 9, 2008

“Pessimists see problems in every opportunity. Optimists see opportunities in every problem.”

The title for today's blog comes from Winston Churchill. It was quoted in an article in the Globe and Mail by Dan Richards of Strategic Imperatives. Dan is well know within the "financial advisor" industry as someone who can look at all sides of an argument. In this article, he points out "10 pieces of good news in the gloom".

So we have gone through this mess (and are hopefully finished with it) yet I constantly wonder why I feel like someone is watching me. The reason is simple - while markets may climb, the economy will lag for another 6-12 months and that means we need to remember a very important fact.

By that I mean remembering not to cash in a RRSP (when it's down in value and pay the taxes too) to pay off a credit card debt. There are ways to solve problems without making the problem worse.

One of the keys to success is looking at your retirement plans on a long term basis, meaning a 20 to 30 year period. Even if you're 55 years old, the time from now through your retirement years represent a 30-35 year window. Don't think of retirement as a specific date in the future; it actually represents a period of time (of as many as 40 years for some).

The end of December is fast approaching, soon to be followed by the arrival of your year end investment statements. What should you do? I have heard several clients tell me they will simply file them without looking. One suggested they would simply add them to the fireplace. While I am not suggesting we all go out and torch our paperwork, I have come up with an interesting remedy to the situation/problem.

The year end statement will reflect values for the year 2008, and will also show how much you have contributed to the plan. My solution; we plan to create summaries (where able) to show everyone how their plans have performed since they started. I'm not sure why, but I'm confident that looking at a net annual rate of return of 4% over the last 5 years looks better than looking at a 30% loss.

No comments: