How Is Your Financial Plan Progressing?

One of the most fulfilling aspects of my job is the part where I get to review the progress of a client's Wealth Forecast with them (prepared every 6 months by our Certified Financial Planning Professional, CFP).

Yesterday we met with a couple who had planned to retire at 62 (currently they are 55 and we have been working together for over 12 years). Turns out that they might be able to change that goal and move it up a couple of years because they are nicely ahead of schedule. We will run a scenario for them to see if it is feasible. 

But how great to be able to have options!

When we create our Wealth Forecasts we stress that they are "working models" and need to be monitored, reviewed regularly and updated as is necessary.

Not only are they a planning tool for our clients (we can create "test" scenarios, based on a variety of assumptions and / or time horizons) but they are imperative for developing the appropriate portfolio strategy. 

These particular clients were definitely happy with average annual returns of over 8.5% (after fees) over the last 4 1/2 years (vs. our Benchmark at 5.6%) while our assumed average annual return (for forecasting purposes) was 5.5% (before fees and taxes).

But the most important question they asked: "what sort of risk do we have?". This is the type of question asked by a "steward" of their family's wealth (as opposed to the "gambler" who asks: "if the stock market is up 12%, why are my returns not up 12%").

First and foremost, there will be risk involved in attaining any growth levels better than you might get with Government of Canada 90 day T-bill (at or about 0.50% per year).

But we (at High Rock) are extremely aware of all the risk and work diligently to make sure that we are working to get the best possible risk-adjusted returns for our clients (return per unit of risk, see table below).

More importantly, we will never perform as does the "stock market" because there is too much risk in owning just one asset class. We want to have diversity across a number of different asset classes as a means to lowering risk. We also want to be selective as to what asset classes we are exposed to and when. At the moment, we (at High Rock) feel that stocks are over-priced and expensive (and have believed this for quite some time now), so we will own a reduced allocation to this asset class while we look for value in other asset classes (or wait for better value in the stock market).

The "stock market" (whether it is the S&P 500, the S&P TSX or the All Country World Index, ACWI ETF) has had better absolute returns, but has not been able to achieve the same return per unit of risk as our client portfolio (measured over the last 2 years). 

When stock markets turn lower (and they will), investors who have too much risk will feel a great deal more pain than those who have less risk.

These are the conversations that we love to have with our clients, because our relationships with them are intended to be long-term: throughout the duration of their lives.

It is why we put emphasis on strong and regular communication in our voluntary code of conduct: 

#4 Make ourselves available for ongoing reviews, updates and anything else you may want to discuss 

Do you have a plan and / or a strategy?

We are always happy to help...

scott@highrockcapital.ca

And, as a reminder....

Past returns are in no way a guarantee of future returns. However, at High Rock we work very hard for our clients (and ourselves) to get the very best risk adjusted returns as possible.