When I saw the classified ad in the newspaper for a Financial Planner for a Trust Company I knew that was what I wanted to do – help people get a handle on their finances and plan for the future. My dream job!
I worked for a bank and they didn’t recognize financial planning at that time so I took the six correspondence courses over three years at my own expense and passed the grueling six-hour exam the first time (yeah, me!), and became a Certified Financial Planner.
Related: Fee Only Financial Planner vs. Commission Based Advisor
Unfortunately, the bank still didn’t recognize my achievements but I worked my way up to become a Financial Advisor which sounded fine to me, I could still practice what I had learned.
However, this is where my ideas started falling apart. Banks are like retail stores and they make their profits by selling financial products, and they want to entice customers from other financial institutions with cleverly packaged products that sound great.
As much as you may like your financial professional, make no mistake about it, they are compensated for selling bank products and bringing in more money from other financial institutions.
Related: Can You Trust Advice From Your Bank?
The packaged investment and credit products they sell are pretty much “one-size-fits-most” and there is very little individual about them. Since it’s human nature not to look foolish or ignorant, most customers will nod knowingly and sign on the dotted lines.
The bank and I have since parted ways and I “retired” several years ago so things might have changed in the meantime but I seriously doubt it.
Now is my chance to do what I originally dreamed of.
From my experience I have found that many (if not most) people have little interest or information about one of the most important things in their lives – money, and it doesn’t seem to be taught in school.
Related: Why Your Financial Plan Sucks
It is my intention to post articles on investing and personal finances and help those who are interested in what I have to say to formulate their own individual financial plans.
It’s great to write about financial success stories and wisdom from past experiences. Paying off debt, building a growing stock portfolio, and sticking to a budget are all part of my road to financial success. However, there are some things that should also be part of my financial plan, and either I haven’t got around to it, or I don’t believe there is a great need for it at this time.
It’s time to confess my financial sins. I don’t have an emergency fund. I don’t have a will. I don’t have adequate life insurance.
Emergency Fund:
The rule of thumb on this varies, based on who is giving the advice. Let’s assume the standard emergency fund should cover 3-6 month’s expenses and should be held in a relatively safe account that can be readily accessed when needed most (like a high interest savings account or money market fund).
Ok, I get it. You need to have some form of security in case you lose your job, or have a major repair to your house or car. Also, for some people that earn commissions for a living it would be nice to have money set aside for the lean months.
But I’m not really in that situation. I have a secure job, and we live well within our means. In the event that something terrible did happen, or multiple things happened (a true emergency) we have a secured line of credit that we would draw from.
Yes, I have a fully funded TFSA. But that savings vehicle is part of my long term retirement plan, so I would prefer not to dip into it.
Making a Will:
I have absolutely no excuse for this, as it has been on my “to do” list ever since I became a dad last year. Maybe it’s the perception of being young and invincible, but I have a hard time thinking about my own mortality. I’m not the only one who feels this way, as less than half of Canadians have made a will and a large proportion of Canadians die without ever making a will.
From what I have read, making a will is a fairly straight-forward and relatively inexpensive process. Here are the main types of wills:
- Holograph Will – This may simply be a few hand-written lines accompanied by your signature. Valid in most provinces, this would be the most inexpensive way to go (no pun intended), but may not be in the best interests of your loved ones should you have a complicated estate.
- Conventional Will – You can draw up a conventional will yourself, or have someone (a lawyer) prepare one for you. You must sign and date your will to make it valid. Depending on your province of residence, your signature must be witnessed by one or two people.
- Living Will – Formally known as an Advance Health Care Directive. These specify the nature of medical treatment you wish to receive (or not receive) if you become incapable of communicating your own wishes. Not all provinces have laws making health care directives binding. These can be complicated, and are best drawn up with the help of a legal advisor.
I hope to make this a priority and meet with a lawyer to draw up a conventional will in the next few months.
Adequate Life Insurance:
Again, I don’t really have much of an excuse for this. When I started my new job, there is a mandatory life insurance plan that all employees buy into. The policy is set at $200k, although I do have the option to top-up this policy at my discretion. I just don’t know the answer to the life insurance question – which is, how much is enough?
I’ve heard anywhere from 10 to 20 times salary is the general rule of thumb. Personally, I think that’s crazy. As long as all of your debts are covered and you have enough left over to support your surviving spouse for a few years, that should be plenty.
I would much rather have larger critical illness/disability insurance policies (which I do), because the likelihood of being off work due to illness or accident is far greater than an early death.
Perhaps I’ll look into a 10 year term policy to top up my life insurance to $500k. Once the term expires I wouldn’t renew, as we’ll likely be self-insured at that point.
So there you have it, I confessed to my financial sins. What about the readers, do you have anything to confess?
When you go to your financial institution to purchase mutual funds, you will be given a questionnaire to complete to determine your “investor profile” which in turn determines your asset allocation mix.
I have heard it said that it doesn’t matter what investments you have within your asset classes as long as you have the correct percentage mix. What a load of nonsense! Your individual investment choices should have some meaning to you and your plan and should be unique to you and your circumstances.
This is how my asset allocation is set up. I know approximately how much I want to have in each category in dollar value. I don’t know, and have never figured out what the percentages are. It’s nearly impossible to find a perfect asset allocation solution.
Related: The Perfect Portfolio Doesn’t Exist
Asset Allocation Mix #1 – Safety of Principal
I believe everyone needs some funds that are relatively easy to get to for emergencies, opportunities and just plain peace of mind. This is what I have in this category:
- A savings account that I make regular monthly deposits to that covers my yearly expenses such as insurance, vacation and Christmas.
- A high interest savings account for unexpected expenses, etc.
- Money Market mutual fund that is my real emergency fund in case I find myself about to be homeless or worse
Asset Allocation Mix #2 – Income
I’m not a fan of bonds these days, but I do have a Bond mutual fund in my RRSP that is not doing too badly.
This is not really used for income, but I have 5 GICs that are laddered in 5-year compound interest terms. I initially purchased these quite some time ago for $1000 each to be used in what I morbidly call my funeral account, as GICs are easy redeemed prior to maturity in case of death.
However, with current interest rates, I’d have a pretty puny funeral if I were to pass away right now. I’ll have to stick around for a long, long time to get the send off I think I deserve.
Asset Allocation Mix #3 – Growth
My main goal here is actually income, not growth. I have blue chip dividend stocks in my Direct Trading account, RRSP and TFSA. Some examples are:
- Financials – TD Bank, Power Corp.
- Utilities – Fortis, Emera
- Telecom – Rogers, BCE
- Resources – TransCanada Corp, Suncor
- Consumer Goods – Empire, Reitman’s, Saputo, Corby Distillery
I have some income trusts: Canadian Oil Sands, Liquor Stores, Cineplex, Rogers Sugar and Riocan.
I also own some specialty mutual funds: US Midcap, Emerging Markets, Health, Entertainment and Global.
I’m only giving some examples of what I have in my investment portfolio because I don’t think anyone should just copy what I have. Many of my stocks I purchased years ago when the prices were substantially lower. Everyone needs to do their own research and keep their own goals in mind when investing.
What’s your asset allocation strategy?