What are your worst financial planning fears? Some answers may include longevity risk (outliving your money), sequence of returns risk (the impact that negative stock market returns has on your withdrawal strategy), or poor investment performance (earning a lower rate of return than you expected). 

A recent discussion on Twitter teased out more answers from investors and advisors alike. Here are some financial planning fears keeping people up at night:

• Future tax laws. We’re planning for retirement with today’s tax rates in mind. Who knows what future tax rates will be, but the general consensus is that they’ll need to go up to meet the scale of entitlements that lie ahead. 
• Elder financial abuse. Financial fraud against seniors is a multi-billion dollar problem. Sadly, the losses are worse when seniors are ripped off by their own friends and relatives. 
• Sandwich generation. Saving for your own retirement while at the same time caring for aging parents and adult children. 
• Consumption smoothing. Balancing the needs of your present and future self. 
• Investing behaviour. Not adhering to an investment strategy during difficult times and bailing.
• Unforeseen health issues. The unknown demands of future healthcare.
• Wrong assumptions. When future spending and expected rates of return don’t match up with reality.
• Too conservative with investments. Old rules of thumb about investing in retirement don’t align with 30+ year long retirements.
• Another 2008-style market crash. No one wants to see their portfolio cut in half, especially the soon-to-be or recently retired.
• Loss or reduction of human capital. The ability to earn an income is our most important wealth building factor (why disability insurance is a must).
• Inflation. Often overlooked in this era of low interest rates and stable 2% inflation, but annual rising costs eat into retirement spending and pose a significant risk to our retirement plans.
• Pension risk. Underfunded pensions and increasing lifespans put enormous pressure on both public and private sector defined benefit pension plans.

Obviously we cannot plan for every scenario. But this is why financial planning is so important. We take the variables we know today and then use our best assumptions to project them into the future. Each year gives us more “actual” data to apply to the model and that gets us closer to our desired future goals. 

It’s not perfect. Your financial plan is a compass. It’s pointing you in the direction you want to go. Unknown variables might take you a few degrees off course, so it’s important to recalibrate every year or so.

Have you thought about any of these issues and how they apply to your own financial plan? What are some of your worst financial planning fears? Let me know in the comments.

This Week’s Recap:

I’ve had a flood of financial planning inquiries since Christmas and I’ve spent the last week getting caught up. That’s why I was incredibly grateful to have a couple of guest posts to entertain you this past week.

First up we had travel expert Barry Choi stop by to explain the best credit card travel insurance for seniors.

Next we had a post from Late Cycle Nick, who shared his terrifying tale of betting the farm (and winning) on weed stocks before watching his portfolio crash and burn. 

Over on Young & Thrifty I wrote a comprehensive comparison of low cost discount brokers – Questrade vs. Wealthsimple Trade.

Promo of the Week – Wealthsimple Trade

Speaking of Wealthsimple Trade, in my research I discovered that this new investing platform ranks a very close second to Questrade for self-directed investing – and, in some case, comes out ahead. Here’s why:

• Wealthsimple Trade is the only trading platform in Canada that offers zero-commission trades for ETFs and stocks. With Questrade, you get free ETF purchases but pay $4.95 to sell ETFs and to buy and sell stocks.  
• Wealthsimple Trade started out with only non-registered accounts available, but have since added RRSPs and TFSAs to their platform. There’s no cost to open an account, no minimum to start investing, and no inactivity fees.

So, if you’re the type of investor who has basic trading needs inside of an RRSP / TFSA / Non-registered account, you might consider opening a Wealthsimple Trade account. It’s also ideal for investors who are contributing small, frequent amounts to their accounts and don’t want to get dinged for trading fees each time they do so.

One caveat is that Wealthsimple Trade is completely mobile and so it’s only accessible from a mobile device or tablet. There is no desktop access. 

Try Wealthsimple Trade today and enjoy zero-commission stock and ETF trading.

Weekend Reading:

The good news: Canada is no longer dead last in a global ranking of how much mutual fund investors pay in fees. The bad news: We’re still below average in the global rankings.

In another slap in the face to investors, most of Canada will ban Deferred Sales Charges in 2020 – except for Ontario.

Better news – Vanguard’s new asset allocation ETFs have gathered $3 billion in assets. $250k of that is from me with my new VEQT all-in-one investing solution.

Here’s advice on how to improve your finances from people who have heard all your excuses.

The hidden mental toll of overwhelming debt: How a payday loan spiral almost ended in disaster.

Why the best way to manage your money isn’t what you’ve been told:

“Precarious employment and changing values are why the old financial playbook needs a refresh. We have a sharing and a gig economy now—meaning there are a lot of people that don’t have full-time employment.”

Jason Heath explains how income from a rental property creates RRSP contribution room.

Our friends at Credit Card Genius share 9 easy ways to score free Amazon gift cards.

A Wealth of Common Sense blogger Ben Carlson has a new book out exploring a short history of financial scams (which I hope to review here soon). Here are some crazy tales of financial fraud that didn’t make it into his book.

Carlson’s latest in Fortune Magazine explains why you actually may want to buy ‘bears’ in a bull market.

Preet Banerjee uses the movie Interstellar to explain the concept of hyperbolic discounting and why it’s so hard to save for the future:

Millionaire Teacher Andrew Hallam shares the best and worst college majors for future income and employment.

Belief doesn’t have to be black or white. It lives on a spectrum, filled with asterisks. Morgan Housel explains what he believes least.

Finally, Rob Carrick says sorry snowbirds, but provincial health plans should not help Canadians cover their out-of-country medical costs.

Have a great weekend, everyone!

The following story is from Nick, whose investing journey began when he bet the farm (and won) on weed stocks, then watched in horror as that same barn burned to the ground several months later. You can follow his portfolio and journey for redemption at LateCycle.com – or on Twitter (@latecycle_nick).

It’s one o’clock in the morning. The bar is rocking. Three and a bit drinks deep — embracing the euphoria only a Saturday night buzz offers — you sense the crowd forming around you, cheering and chanting while your friend ensures the blindfold covering your eyes isn’t compromised.

Bullseye.
Sixth in a row.

“This is unreal!” bellows a voice behind you.

Seven. Eight. Nine.

Every soul in the place is vying for a view of the action. Even the bartenders are gazing in awe. You’ve never believed in miracles, but you do now. And yet, dwelling beneath this magical aura, you sense it’s too good to be true.

It was too good to be true.

Winning with Weed Stocks

Recreational cannabis became legal in Canada on October 17, 2018. Until that point, you could have blindly thrown money at any “weed stock” and hit the bullseye. I was one of those people. Not only did I throw money at weed stocks, I threw all of my money at them. As a matter of fact, I borrowed money to amplify my earnings.

I was already planning next steps: “Just 20% more and then I’ll sell. I’ll buy a house, car, and a stack of blue-chip dividend stocks to keep me generating cash for life!”

Just 20% more. It was a naive mentality, but not far-fetched given the circumstances.

Up in Smoke

In a cruel twist of fate, the global stock market “crashed” just after legalization. It culminated in the worst December on record since the Great Depression, and the worst year for stocks since 2008.

50% losses in the cannabis sector were rationalized as “part of the pack.”

Instead of taking profits at the first sign of trouble, I stood by like our bartender, frozen in disbelief as the market dragged me to the depths of my personal hell.

I panicked and sold everything, right at the very bottom.

Rising from the Ashes

This experience called for deep reflection. I devoted most of that dark, bitter winter to absorb everything I could about investing: books from the library, dissecting financial statements, reading through analyst reports, watching lectures, etc. My learning hasn’t stopped. I developed a genuine interest and respect for the power and unpredictability of the market. It can make or break you. It broke me.

As I watched from the sidelines, weed stocks led the market roaring back to life just as quickly as they collapsed, posting near 100% gains from the tail end of December 2018 until peaking around April 2019.

It was from atop this peak the cannabis hysteria took its final puff.

For now, at least.

A New Leveraged Bet

In March 2019, after missing much of the rally, I felt determined to dive back in.
My strategy changed for the better. But my risk tolerance…
Well, I guess I enjoy taking risks. Calculated risks. Without the blindfold.

I leveraged 60% of my portfolio into a mixture of blue chip and high-yield stocks. My portfolio returned 13% last year.

So, I learned a few key things along the way—the hard way.

The stock market is a lot like a game of darts.
You can throw 10 and hit the bullseye each time.
You can also miss the board entirely.
Most people fall somewhere in between.

Investors, like dart players, must:

1. Manage risk
2. Make calculated decisions
3. Be grounded in themselves

You’ve heard it all before. This is Investing 101.

Yet, many of us fail to implement even the most basic principles — such as diversification — in our portfolios. I know many people who are clutching their weed stocks at a 60% loss, praying for the next catalyst to spark Cannabis 2.0.

The same analysts who stoked the $100 Canopy flame are calling the bottom at $25. Sometimes life defies logic. What doesn’t defy logic are fundamentals.

It’s OK to take risks. In fact, you should. Invest in your education, switch careers for longer-term prospects, ask that person out on a date. This is how progress is made.

Have a prosperous 2020!