WEALTH PLANNING IN THE MULTIVERSE

As we near the mid-point in the year, the team at Surround continues to meet with clients to review amongst other things, two interrelated key metrics. As most of you know by now, during the first half of year “AGM Meetings” we review –

1. the client’s Wealth Plan; and
2. how their current investment balances and strategy are doing in support of the Wealth Plan.

This ‘Yin Yang’ relationship between wealth plan and investment strategy is at the heart of what we do at Surround. This is because our core purpose is to show clients that wealth is more than money, and that everyone’s unique way to wealth will be a function of how they live, save, grow and enjoy the fruits of their labour. Wealth Plans do this.

So what exactly happens when we have two historic world events like COVID and interest rate normalization in the same 3 year period? Do Surround Wealth Plans hold up? Or is it back to the drawing boards?

You’ll be happy (but not surprised!) to know that this month’s Surroundup reviews 3 key reasons why Surround Wealth Plans hold up, and 3 key habits of the happiest clients as well.

I myself have conducted more than three dozen client meetings so far this season, and prepared for as many more in the coming weeks. Andrew and Adil have done the same. And what this year’s AGMs have in common might surprise you.

In this month’s blog post I write all of this out for you and I also explore a multiverse of “what could have happened” had our clients not accepted our advice to follow the methodology of the wealth plan driven investment policy.

Now exactly what are the 3 key reasons why Surround Wealth Plans hold up through something as seemingly chaotic as the last few years?

1. Building blocks of income – Employee sponsored pension plans are a luxury for some, an option for others, and non-existent for business owners or self-employed. Luckily in Canada we have several retirement pension schemes one can enter into, but the need to create multiple streams of saving as well as income both while working and in retirement grows with each passing decade. More and more our clients are not retiring outright either, rather they reinvent themselves to stay engaged and end up earning an income when they do. This seems to me to be a sort of Darwinian force of habit and it’s not a bad one – keep doing what you like to do and switch it up once in a while. The overall lifestyle results are as impressive as they are inspiring.

2. Appropriate net worth diversification – A fully paid for house is a tax-free golden goose BUT if that’s where all of the effort goes for 25 years, then reverse mortgage becomes the only option to supplement government pension benefits down the road. If a client asks “should I save to my RRSP, TFSA or pay down my mortgage”, the answer is always “yes.” A Surround Wealth Plan considers the unique proportions of how much to allocate to each “bucket”. Net worth diversification is central to our conversations with clients.

3. Smart use of different investment vehicles for liquid investments – The success of a wealth plan consisting entirely of RRSPs is markedly trickier and less tax efficient than a plan that uses multiple registration types – RRSP, TFSA, Open, RESP and when possible, corporate accounts.

I’d be remiss if I didn’t also let you in on 3 winning habits of the happiest clients as well, which are:

1. Eye on the horizon – the plan for your investments and net worth isn’t ending anytime soon, so why get bent out of shape about what it’s worth when things are grim? The long term trend is and remains upwards on every client asset held, whether it’s liquid investments or real estate. We don’t just own it when it’s at its worst, we also own it at its peak. Unless it’s for sale today, assets are assets. The long game is where our focus needs to be.

2. Stay above the noise – Age old favourite of mine here, short and sweet: focus on what is important that you can control. The rest will go on just fine without you.

3. Do what you’re best at – Whatever you do for a living, chances are, you’re pretty great at it. Contrary to occasional instincts when times are tough, investment and wealth planning professionals like our team at Surround and the investment teams we work with at major international institutional money management firms, we train and practice a long time before we get to manage your futures. Not only that but we love it and we think about it day and night. If you do what you do best, and we do the same, that’s not just a symphony, but it totally rocks. Clients who know what they don’t know respect the access to expertise and information that our collective team brings to the relationship.

Now for a bit of a Surround parable on how these habits look in action. For those of you committed to reading the whole thing, THANK YOU and enjoy this short story – 3 trips through the multiverse, 2020-2023.

For this piece of the Surroundup, we will follow a man, let’s call him Peter Quill, on three possible routes through the last three years.

Peter Quill 1 – too much

Peter started the year 2020 with 2 million credits. Faced with the news of the worldwide COVID pandemic on March 12, Peter saw this as a huge opportunity to take advantage of market swings.

Quickly deciding his advisor had never been in this territory before, Peter decided to pull everything out of his diversified portfolio and go all in on where he thought all the money would be based on what he was seeing on the news.

In fact, he became so obsessed with his decision to do this that he ended up glued to the television for weeks, losing sleep, not eating well, seeing nobody because of lockdown, and feeling incredible stress from being alone and out on a limb.

Financially he didn’t end up making a terrible call on his albeit one pronged and highly concentrated investment strategy, but he had spent a ton of health capital, and had also pulled all of his money out of registered and gone to cash in all of his open accounts, creating a huge tax bill for himself.

Convinced for the moment at least that he was right and the world might just be ending, he didn’t care. This was every man for himself time and he couldn’t be talked out of it. His 2 million credits were now worth 1.8 million, but he still thought he was better off than what the news said had happened to other people’s portfolios.

It’s April 2021 and Peter is in the process of filing his taxes. His accountant reaches out, “do you have time for a quick call on Zoom?” Peter figured why not, first human I will have seen in weeks.

“Peter, I wish you had consulted your advisor before going to cash last March. Your tax return is complete, and you need to pay 384,000 in taxes by April 30.”

Peter quickly does the math. 1.8M minus 384,000 is a little over 1.4M credits left. How am I ever going to retire from being a bounty hunter on that? I’ll to have to find another big play to make up for this.

It’s December 2021 and fortunately Peter has now made back roughly half of his losses by going all in on two big names in tech. Higher than the farthest galaxy, he foresees only winning from here. What could possibly go wrong now?

Enter Q1 2022. War breaks out, inflation starts running hot and interest rate hikes begin. The first place to get hit? The two names in tech he had put all of his money on. Still convinced tech has to be the winner in the end, Peter repeats the cycle from 2020, only to hold on all the way back down to 1.5M credits, and cash out by July when things were just too much to take anymore. His mojo has been forever altered and he is still not sure when to get back into the market and how.

Peter Quill 1, by the numbers

March 2020 = 2M credits
July 2020 = 1.8M credits
April 2021 = 1.4M credits
December 2021 = 1.8M
July 2022 = 1.5M
Today = still in cash, 1.5M credits

Peter Quill 2 – too little

Peter started the year 2020 with 2 million credits. Faced with the news of the worldwide COVID pandemic on March 12, Peter was immensely freaked out and wanted nothing more to do with markets.

Quickly deciding his advisor had never been in quite this territory before, Peter decided to pull everything out of his diversified portfolio and put it into money market. Honestly stitching it into the curtains crossed his mind. If only he had curtains.

In fact he became so obsessed with his paranoia over taking any risks at all ever again that he ended up glued to the television for weeks, losing sleep, not eating well, seeing nobody because of lockdown, and feeling incredible stress from being alone and scared.

Financially he didn’t end up making a terrible call timing wise, but the thought of ever going back into the market seemed impossible. He had pulled all of his money out of long term investments and gone to cash in his open account, creating an untimely and possibly unnecessary tax bill for himself.

Convinced for the moment at least that he was right and the world might just be ending, he didn’t care. This was every man for himself time and he couldn’t be talked out of it. His 2 million credits was still now at least worth 2 million. He would hear nothing of investing again even when markets were at their lowest in 2020, and thought he was better off than what the news said had happened to other people’s portfolios.

It’s April 2021 and Peter is in the process of filing his taxes. His accountant reaches out, “do you have time for a quick call on Zoom?” Peter figured why not, first human I will have seen in weeks.

“Peter, I wish you had consulted your advisor before going to cash last March. Your tax return is complete and you need to pay 120,000 in taxes by April 30.”

Peter quickly does the math. 2M minus 120,000 means he has 1.88M credits left. How am I ever going to retire from being a bounty hunter on that? I’m not even making any interest since rates are so low. This is downright depressing.

It’s December 2021 and unfortunately Peter has watched from the sidelines as markets melted back up, by A LOT. Lower than the deepest black hole, he foresees only darkness from here.

War breaks out, inflation starts running hot and interest rate hikes begin. Peter starts to feel the pressure ease financially though, as suddenly banks are offering 2%, then 3%, then upwards of 4% on high interest savings accounts. It’s a miracle! Still convinced the world must be ending but afraid not to seize the day in July 2022, Peter puts everything into a 4% interest 1-year locked in GIC.

Peter Quill 2, by the numbers

March 2020 = 2M credits
July 2020 = 2M credits
April 2021 = 1.88M credits
December 2021 = 1.88M
July 2022 = 1.88M
Today = 1.95M credits still locked up

Peter Quill 3 – just right

Peter started the year 2020 with 2 million credits. Faced with the news of the worldwide COVID pandemic on March 12, Peter reached out to his advisor for guidance and information about how to navigate this apparent asteroid field.

Quickly deciding his advisor had intelligent things to say, and that they had built not just wealth together over the years but trust and a functional partnership as well, Peter listened, and decided to leave everything in his diversified portfolio. He focused on taking care of his end of the relationship and his fellow travelers. Even in lockdown there are things they could do to support each other.

In fact, he became so committed to his daily health routine and eating well that he ended up lowering his cholesterol, dropping 10lbs and even learned how to run. This was a way he could get outdoors during a time when positive biofeedback would help with all the worrying over what might happen next. He even made new running friends online, and a bunch of them decided as soon as lockdown was over, they were all going to run a 10K together.

Financially he didn’t end up making a terrible call at all. He met regularly with his advisor visiting both the investment statements and how they reflected in the health of his Wealth Plan. Man, it’s nice to know that best laid plans can handle even a pandemic.

His 2 million credits were now worth 1.97 million, but he still thought he was better off than what the news said had happened to other people’s portfolios.

It’s April 2021 and Peter is in the process of filing his taxes. His accountant reaches out, “do you have time for a quick call on Zoom?” Peter figured why not, first human I will have seen in weeks.

“Peter, your advisor did you a huge favour by doing something called tax loss selling for you last spring. Your tax return is complete, and you will be getting a refund of 100,000 credits.”

Peter quickly does the math. 1.97M credits plus 100,000, that’s great news I’m ahead of where we started. This whole perspective thing and coaching from an advisor really works. I’m so grateful.

It’s December 2021 and fortunately Peter has now made back all of his losses and then some by using the same diversified portfolio, with a few important changes under the hood by the portfolio construction team and the pool managers. Higher than the farthest galaxy, he foresees only winning from here. But even if it’s not the case, he is feeling resilient and confident. Together this team can help him through anything.

Enter Q1 2022. War breaks out, and interest rate hikes begin. The first place to get hit? Tech gets smashed and commodities seem to do well, and happily he has just the right amount of each. Peter repeats the cycle from 2020, holding on throughout because he recognizes this is a long game, and past experience shows the value of working with an advisor who also acts as a coach in difficult times, as well as a professional team of money managers with extraordinary access to information for investment decision making.

Peter Quill 3, by the numbers

March 2020 = 2M credits
July 2020 = 1.97M credits
April 2021 = 2.15M credits
December 2021 = 2.25M credits
July 2022 = 2M credits
Today = 2.1M credits

By now, I am sure you get the idea. The happiest Peter Quill was the last one, and that’s the way we like it to be.

Be sure to check out our B-Side article this month to learn more about another fantastic Next Level Sponsorship athlete, Max Vigneux, and find out what the team is up to this June in support of one of Surround Foundation’s other personal charities.

Be well, stay connected, and remember, there’s more than one way to wealth.

Gillian Stovel Rivers, MA, CFP®, CEA
Senior Wealth Advisor
Assante Financial Management Ltd.