Veteran investors know stock markets go up and stock markets go down. The daily headlines can make things sound as though “this time is different.” Still, volatility presents an opportunity to have a candid conversation with your financial advisor about the performance of your investment portfolio and investing in today’s world markets. You may be worried or just want to review your past decisions once again. In any case, here are four worthy questions to ask your advisor.
1. Where is my money being allocated?
Find out how much of your money is in equities, fixed income and cash. It may turn out that your asset mix is more than appropriate for your risk tolerance and age. “Chances are, if your investment plan [that you set up with your financial advisor] made sense one year ago, it makes sense today,” says Dan Richards, founder and CEO of ClientInsights.ca. “It’s unlikely that anything has changed dramatically.”
Still, you’ll want to ensure that you aren’t putting too many eggs in one basket, says Alison Griffiths, a financial commentator and author of the book, Count on Yourself: Take Charge of Your Money. Sometimes 60% in equities has a way of becoming 65%, for instance. “As an investor, the best defense is to spread eggs out over a number of investment baskets,” she says. Richards notes that retired people really need to ensure they have adequate cash holdings since they are living off their investments. “The rule of thumb is three years of liquid investments so you don’t have to worry about liquidating things at the bottom of the market,” he says.
2. How can I protect my portfolio?
Were you originally okay with mainly equities but now have a change of heart? It’s time to revisit your investment plan, Richards says. “There may be things that you thought you could live with before but now that you’ve had the experience [of volatility], maybe you’re not comfortable with living with them.” Griffiths finds that most people have too much invested in equities. “While fixed income and cash provide the lowest returns, they also provide the balance in your portfolio.”
3. What is the quality of my investments?
Inquire how your mutual fund is performing relative to its peers and a benchmark index. “If you see yours consistently at the bottom, you know you have a problem,” says Griffiths. “People really need to get this information. Why would you keep putting money into a bad investment?”
4. What is a better option?
You’ve found a dog among the rest of your investments. What to do about it? Have your financial advisor walk you through all the possibilities, Griffiths says. Advisors licensed to sell securities and/or insurance can offer more product solutions beyond mutual funds, like low-cost exchange-traded funds, index-linked GICs, and guaranteed minimum withdrawal benefit products, notes Jonathan Chevreau, a veteran financial writer who now runs the Financial Independence Hub.. If you are more conscious of protecting your principal, ask your advisor about products like segregated funds and annuities, he suggests.
Having a proactive discussion about your investments not only enhances your relationship with your advisor but gives you more peace of mind.