I can hardly believe October has arrived. I’m still in summer mode having just returned from two weeks away. Its hard to turn to the Fall and not realize that a new year is approaching that hopefully bears better news for everyone. With a global pandemic and an economic downturn, 2020 has brought considerable change, uncertainty and anxiety for many investors. But as fall arrives and we look ahead to brighter days, the changing of the season can be an ideal time to revisit your financial plans with a fresh perspective.
Ask yourself these questions. What goals do I still need to tackle this year? And which ones do I want to pursue in 2021? In fact, for your finances, there are a number of moves you can make in the final months of 2020 to help set yourself up for a successful year-end and a better 2021.
The end of the year is a good time to revisit your investment strategy and asset allocation to help ensure your portfolio is still apportioned among equity, fixed income, cash and other asset classes in a way that fits your goals and risk tolerance. Given the recent market volatility, tactically repositioning your portfolio may help you take advantage of strength in certain asset classes and sectors. During periods of uneven market performance, active management strategies, where portfolio managers aim to identify potential out performers and manage risk, may out perform passive investment strategies that track an index.
Typically the fall, when everyone one is back in a work mode and kids are back in school, is when we connect with our clients to revisit their risk tolerance and investment strategy, and make sure their investment choices are still aligned with who they are and what they want to accomplish. You may decide you don’t want so much equity exposure or that you need to consider hedging your positions with other investments.
Sometimes we are advising clients to consider alternative investments which can generate returns and income with lower correlation to the performance of the stock market. Since the stock market’s March low, many of our clients have sought to participate in the resurgent rally by deploying cash after fund values dipped dipped or gradually re-entering the market through a process known as dollar-cost averaging. This has been a great time to invest in a disciplined fashion and take advantage of the upturn.
Plan for your tax return
Depending on your income and marginal tax rates, you may want to reconsider how minimizing the impact of taxation on your portfolio can help you build and sustain your wealth over time. For example, a tax-aware asset location strategy, which accounts for differences in the way different types of accounts are taxed, may help increase after-tax returns.
If you’re not doing so already, consider fully funding your employer-sponsored retirement plan, such as a RRSP, since your contributions can be made on a pretax basis.
Update your estate plan
We encourage our clients to periodically update their wills and other estate planning documents. Year-end is a good time to review the changes the past year brought to your family, as well as your overall estate plan in order to ensure it still reflects your situation and objectives.
Did you gain a new grandchild or daughter-in-law or is someone in the family experiencing health issues? Particularly with Covid still a concern, it’s important to update your estate plan as you would your wealth plan.
You may want to share some of your estate with your family today to help them with their own finances. Ideas you might want to consider include setting up trusts and gifting to reduce your overall estate tax liability and providing for education expenses for family members through a RESP or direct gift to an institution.
Investing with impact
Year end may also be a good time to examine how well your portfolio aligns with your personal values. There is growing concern among many of our clients, particularly women and younger investors, about issues such as climate change, gender equality and access to education. For these clients, investing in companies that lead in environmental, social and governance best practices can help them seek to generate positive financial returns while also driving positive change on the issues they care about. Sustainable investing doesn’t mean you have to sacrifice investment returns. You can do well by doing good.
Plan your charitable and holiday gifting
During the holidays, many feel the call to give back through charity. When making your gifting plans, you need to also decide whether you want to give cash, appreciated investments, or a gift of your volunteer time.
Another option for giving back is a donor-advised fund, which provides potential tax advantages while helping you support your favourite causes. If you’re serious about creating a more substantial structure and commitment, you might want to consider a family trust or foundation in which you engage your family members in the philanthropy as well.
Sit down and determine your thresholds for how much you want to give and how much you want your family involved. Don’t wait until December and then make last minute decisions on giving that aren’t carefully considered. You want to make sure your giving is in alignment with your vision and a strategy you have carefully crafted.
Before buying gifts for everyone on your list, first set a budget for planned year-end spending, keeping in mind any service providers and special people in your life you’d like to give holiday bonuses to.
What gifts do you need to make? What is everything going to cost? Set some limits before you go overboard so you can be ready to face bills in January.
While there are many things we could consider, these are primary thoughts. It is extremely challenging for many people to be considering these financial considerations given their own personal situations during the pandemic. At some point, we will see an end to this Covid curse and want to be in the best position we can coming out of it. We cannot let it dominate our lives and use it as an excuse to be as financially prudent as we can be. That is the true message in Keeping Life Current.