Your Financial Plan: A tool to help you manage the challenges and opportunities of COVID-19 - Kerr Financial
Financial Planning
Your Financial Plan: A tool to help you manage the challenges and opportunities of COVID-19
Category: Financial Planning, Investment Management Tags: Financial Plan, integrated wealth management, investment management, wealth management

Your Financial Emotions – During the COVID-19 Pandemic

Investors are stricken by three types of emotions to the COVID-19 investment breakdown: excitement, contentment, and fear.

Excitement

A few clients are excited and see the drop in the equity markets as an opportunity and they now find themselves willing to take on more risk.  After all, what better time to buy investments then when they are lower priced. On this point, what’s important to realize is that financial planning is a mix between an art and a science. This newfound willingness on the part of the clients to take on more risk should be evaluated in two parts, the emotional and the analytical.  The completion of the personal financial risk tolerance questionnaire will in many respects measure the client’s emotional willingness to take on risk. To complement your willingness to take on risk, financial planners can model multiple scenarios to your financial plan in which you move up on the risk spectrum and the corresponding rate of return while at the same time introducing bear and correction market scenarios.

The objective of these analytical market crash scenarios is to measure your capacity to take on risk.  There are occasions in which clients have the willingness to take on risk but unfortunately cannot move up the risk spectrum because a reduction to their portfolios puts them at risk of not attaining their financial goals. Generally, the five years before and after your goals start date are most critical because you may be liquating assets to support your goals at depressed levels. Financial testing may help you decide whether you are prepared or should save more before you undertake more risk.

Contentment

Some clients are content with their investments and financial plan. They do not want to make any changes and are willing to stay the course.  If you are content this means that you have been well positioned to weather the storm. That being said, one’s level of contentedness should not result in complacency.  Needs and wants change over time and it is important that your financial plan be reviewed periodically in order to address any changes in your life. You may be well positioned with your retirement goals but during a planning review discover that you would like to help your children financially with the establishment of an RESP to fund your grandchildren’s’ education.

Fear

Many clients fear the drop in the equity markets and their portfolios may have diminished their capacity to fund their goals. These clients are willing to liquidate all their investments at depressed levels with the idea that this will preserve what little capital is left to fund the reduced goals capacity.  The outcomes from a fear-based decision are rarely positive. In such circumstances you should review your financial plan and address the funding of any immediate goals.  Your financial planner should be communicating to you that in depressed circumstances you are better served to postpone any radical changes until things have stabilized.

The common theme is that no matter what stage of life or market circumstances that we are faced with, we must deal with the resulting emotions. Everyone should have a robust integrated financial plan established with attainable goals, and most importantly this plan should be reviewed periodically for the changing circumstances that life brings.

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Kerr Financial Group was formed in 1979 for the purpose of assisting individuals to maximize their personal financial resources, alleviate their financial and retirement concerns and simplify the administration of their affairs.

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