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Market pullback? This is the time when financial planning really matters


October 2018: Last February we wrote to you regarding market volatility. In the last few days we've experienced volatility again, so what's different this time? The answer is... nothing. Market movements are to be expected when investing. Observe them, inquire into them and learn from them. Then use that knowledge to re-focus on what really matters - YOU.

There is no getting away from it: When investment markets turn negative, it doesn’t feel good. Though we know that there will be ebbs and flows in the economy and in our investments, it can feel overwhelming while it is happening.

So, without denying the reality of the market numbers, let’s calmly shift our focus from IT to YOU.

Informed by your financial planning
Your investments are one part of your financial life. And your financial life is one part of your … life. The big tool we have available to manage that journey is the process of financial planning.

That means understanding where you are currently, so that you can live responsibly within your present means. It also means looking to the future and the needs you will have then, saving for that eventuality, and managing those savings in an informed way.

The informed way that we manage savings is more commonly known as “investing.”

Yes, your investments are critical to your life’s journey, but let’s be candid: You are not about to spend everything in your investment portfolio today, just because of market movements yesterday. By the same token, if – or rather when – there is a bounceback, that’s also not a personal signal to you to spend immediately.

Diversification has many faces
Every investor who has worked with a financial advisor will have had the conversation about the benefits of diversification. It’s the ‘not-all-the-eggs-in-one-basket’ wisdom that advocates not overly focusing on a single security, or economic sector or geographic area.

As importantly, the concept of diversification applies to you personally, as much as to what is in your accounts. There is a natural progression over a financial lifetime – learning, earning, saving, investing and spending – but at any given time you will be engaged in more than one of these activities.

To the point, if you have a well-rounded financial plan where each of these is properly addressed, then the current fluctuation of your investments should not throw you into a panic.

Looking even closer at the investments, time is also a diversifier. As your advisor will counsel, your investment approach should always take into consideration your comfort with risk and the timeline for when you expect to use that money. Not only will you not be withdrawing everything right now, you won’t be taking it in a lump sum at any one point in future. Practically, you are setting yourself up for a flow that will carry on over the course of many years.

Maybe you’re in the midst of that drawdown mode now, or maybe it’s years ahead. The good news is that time generally works in your favour to allow your investments to recover, even in the face of a significant market pullback. The key is to have an up-to-date investment policy statement and financial plan so that your portfolio continues to fit your evolving needs.

Stay informed so you can stay the course
In that light, I am certainly not suggesting you ignore market movements. Observe them, inquire into them and learn from them. That includes listening to and learning from your own emotional response.

Some present anxiousness is to be expected, but you still need to have the comfort and confidence your portfolio is constructed to suit your long term needs.

Speak to your financial advisor to assure yourself that your plan remains sound.

Speak to your Meridian Wealth Advisor for perspective on these important issues.