Mike Tyson once famously said, “Everyone has a plan until they get punched in the face”. What the former heavyweight boxing champion of the world meant, was when confronted by adversity, people tend to change their behaviour. This usually leads to unintended consequences and outcomes.
If you arrived at this piece from my most recent Vexxit Minute (if not you can access it here), you will already know that Vexxit recently shared that only 29% of all investors engage the services of a financial advisor. Contrast this with findings from Mackenzie Investments: “research tells us that advised households have approximately twice the level of financial assets as their non-advised counterparts - and this advantage grows over time” and it makes for a compelling case to find and engage good financial advice.
What are the common reasons that people are looking for advice? A recent survey by global insurer, Allianz, found that “people are most interested in getting professional guidance about how to prevent running out of money before they die (66%) and understanding the impact of a market downturn’s impact on savings (64%).”
Some of this concern is due to the performance of global markets themselves via sequence of returns risk and the impact of asymmetrical correlations between asset classes among other investing phenomena, but we will leave those thoughts for consideration later in this series.
Today, let’s simply focus on how investors respond to uncertainty outside of their control. Risk can be expressed in many quantitative and elaborate ways, however for the average person, it simply means when the outcome didn’t meet your expectation.
For example, securing a desired position of employment may be dependent on passing a final exam. You could mitigate the risk of failing by engaging a tutor to assist being better prepared or hiring someone that could increase your emotional stability. If, however, you do not get good advice, you may make decisions not in your best interest, fail the exam and lose the new job. The outcome does not meet the expectation.
Investing is no different. In 2008, during the Great Financial Crisis, many investors lost 30% or more of their entire portfolio. Unable to sustain the potential of further losses, they made a knee-jerk decision and exited the marketplace and held their remaining – and yes, diminished - capital in cash. By making this decision on their own and abandoning what they thought was a long-term plan, they missed out on the start of one of the longest bull markets in global history.
Conversely, those investors who worked with an advisor typically adhered to a previously agreed upon investment policy and soon turned the corner, well positioned for the prosperity that followed. More recently, these same behaviours were replicated during the early days of the pandemic scare when global markets reacted quickly to the uncertainty of COVID-19.
As a result, three-in-four Canadians who work with a financial planner are confident that they can withstand a financial emergency. (Source: FP Canada 2020 Cross-Country Checkup)
So, if you are not working with an advisor today and want to achieve the results and well-being of many stress-free Canadians, or as Iron Mike would infer, not have your portfolio “take it on the chin”, where do you start?
Check out vexxitlife.com as this leading resource can help you navigate your financial future. It's designed to give you clarity and know-how on all things finance, budgeting and investing with insights from vetted professionals. When you’re ready to take action, vexxit.com connects you with a financial advisor that has the experience, expertise, and credentials to help you reach your financial goals.