6 Principals to Help You Through The Economic Storm

Many of our clients have questions about the recent news regarding the U.S economy and the volatility in the world’s stock markets. These are very confusing and sometimes scary times, as financial institutions around the world are reacting to the biggest economic crisis in 80 years. There are not a lot of answers to be found about the short-term strength of the Canadian economy.

What we do know is that Canada’s lending practices are more regulated than those in the U.S. and because of this our economy and our financial institutions are doing significantly better than those in the US for the time being.

We also know that know that our economy is still growing (thanks mainly to our oil and gas exports), but may economists predict that Canada may experience a significant slow-down in the coming months should the U.S. enter a long recession.

Let’s always remember that the economy operates in a cycle, and periods of growth and recession are natural market forces.

In good times and in bad times, my golden rule when it comes to financial planning is not to let your emotions guide you in making important decisions about money. History shows us time and time again that fear and greed are the two biggest enemies to your financial health. It may be that a recovery for the stock markets are just around the corner and you will benefit from staying invested. But either way, it should be understood that those adhere to a disciplined process to handling their finances will come out ahead in the long-term.

These basic principals to proper financial planning have not changed in since Mankind began thinking about money. These principals will help you be successful in bullish and bearish times of our economy.

Here are 6 actions you can take today to make the most of your money:

1. Build a budget, reduce your debt & live beneath your means.

We’ve all heard of the importance of knowing how much money you have and what your expenses are. The basic fundamental of financial planning is to spend less than you make. When times are tough, it’s even more important to know where you are spending your money and making sure you make the most of every dollar you have.

This is also not the time to take on more debt. In fact, it may be a good idea to reduce your debt load as much as possible. Canada’s economy is usually 12-18 months behind the US., so take this time to reduce the amount of debt you are being charged interest on. With the inflation rate creeping up in Canada, it is likely that interest rates will follow.

Here at Algoma Financial and Manulife Securities we have some of the most sophisticated debt management tools and products available in Canada to help you reduce the cost of your debt.


2. Review your savings goal and stick to your savings and retirement plan.

Having an emergency fund is an important tool to any financial plan. One never knows when we might find ourselves in need of cash. Saving 3-6 months of income can help you, your family or your business weather troubled times. We can help you achieve such a fund using our Advantage Account with Manulife Bank. The account has no service fees, pays 2.9% interest, and it CDIC protected up to $100,000.

When it comes to your investments, our process will help you build a long-term investment plan. This program will help you set your investment goals, create a plan to achieve it, and help you keep track of your progress.

To ensure that you're saving enough money to achieve your investment goal, you need to check that your plan is on track at least once a year. We are committed to meet with our clients regularly to review your investment needs.

3. Assess your risk tolerance and your time horizon for your investments.

Once you know what you need to save, choose investments that match your risk tolerance and time horizon. Our Investment Needs Analysis will help you assess not only your tolerance for losing money, but your tolerance for not making enough money as well.

If your investment needs are long-term (over ten years before a child’s education, retirement etc.) you should not be overly concerned about the short-term volatility in your investment portfolio’s value. Our economy has weathered many financial storms in the past and the markets have always rewarded those who have the time-horizon and the discipline to stay committed to an investment plan.

4. Diversify, diversify, diversify.

With a mix of stock, bond and money market funds. Over the long term, almost all investments grow. But over the short term, a specific investment will go up and down depending on market conditions. All investments don't move the same way all the time. Some may go up while others lose money over the short term. By diversifying and choosing different types of investments, you can take advantage of the long term growth potential while reducing the short term volatility. Our process helps you determine the optimum asset allocation of investments to provide a diversified mix for each investment style.

5. Don't try to time the market.

Selling stock funds when a market is depressed means you are selling at a loss. Moving back into stock funds when the market begins to climb means you will likely miss out on the recovery. If you carefully chose your equities based on your risk tolerance, stick with them. They will not let you down in the long term.

6. Maintain the saving habit.

When you invest a specific sum at regular intervals, you benefit from the magic of compounding. And you reap the rewards of dollar cost averaging. When markets are down, the unit value of investments decreases. That means you can by more units for the same amount of money. When the markets start going up, as they inevitably do following a major decline, so will the value of your units.

If you have any concerns about your current financial situation or your investment plan, please don’t hesitate to contact us. With a review of your needs and current situation, and a commitment to these six basic principals of money management, we can help that you stay on course no matter what the economic conditions.

Canadian Banks "Safe and Sound" Amid Crisis

According the Superintendent of Financial Institutions in Canada, our banks are not subjected to the same concerns that those south of the border are dealing with. This is good news for investors in Canada. In the short-term the markets may be choppy, but Canada should continue to be a good place to invest. Here is the short-story below from Reuters:

OTTAWA (Reuters) - Canada's banking regulator said the country's financial institutions are healthy and it has no plans for special measures to help banks cope with the deepening crisis in world financial markets.

"No special action is planned in response to the announcements from the U.S. because the Canadian banking system is safe and sound," Rod Giles, spokesman for the Office of the Superintendent of Financial Institutions, told Reuters.

"Our institutions are well capitalized which helps them deal with the events taking place in the markets," he said.

(Reporting by Louise Egan; editing by Janet Guttsman)