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Should you update your financial plan given recent volatility?

May 22, 2020 Jason Heath
Should you update your financial plan given recent volatility?

Photo by Priscilla Du Preez on Unsplash

The COVID-19 pandemic is causing wide-ranging impacts on people’s investments, jobs and businesses. There are events that may trigger significant personal changes for someone’s financial planning, but COVID-19 has caused sudden changes for many people all at the same time.


For those who are concerned about their investments right now, we should start with some perspective. The TSX is down about 8% over the 12 months ending April 30, 2020. The S&P 500 is up about 3.5% in Canadian dollar terms. The FTSE Canada Universe Bond Index is up about 8.5% over that period. Despite a sharp correction in March, markets have rebounded nicely. And the year-over-year numbers do not look all that bad for a balanced portfolio that is hopefully break-even.

If someone had a predominantly Canadian portfolio, or only owned a few stocks in hard-hit sectors, their investments may not look so great right now. Or if an investor panicked and sold in March, they may have missed out on the 30% recovery as stocks have bounced back from the recent lows. A single flat year-over-year return should not be enough to derail a financial plan, but updating a financial plan that helps give peace of mind can be worth it.

Investors need to expect volatility and plan for it. The S&P 500 has averaged a 20% decline about every six years over the past 100 years. Bear markets generally precede a recession, though not always.

FP Canada—the governing body for Certified Financial Planners (CFPs)—recently released the 2020 Projection Assumption Guidelines for long-term financial modelling. The suggested assumptions are:

  • Inflation: 2.0%
  • Fixed income: 2.9%
  • Canadian equities: 6.1%
  • Foreign developed-market equities: 6.4%
  • Emerging market equities: 7.1%

These guidelines apply to straight-line assumptions and the equity returns have been reduced to allow for the variability of long-term returns and consider the risk of early stock market declines. Advisors using Monte Carlo probability simulations can add 0.5% to the equity returns.

Interestingly, the guidelines for 2020 have seen fixed income returns reduced from 5% to 2.9%, and Canadian equity returns drop from 7.25% to 6.1%. For conservative investors and advisors who have not engaged in recent planning with clients, relying on old assumptions about returns and sustainable spending could be a reason to revisit past planning.

Should you update your financial plans just because stocks have gone down? Probably not. You should update your financial plan from time to time simply to revisit all the potential inputs like income, expenses, tax rates, lifestyle changes, and so on.

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