Debunking the myths of financial planning

Providing financial advice to individuals and business owners has put me in contact with hundreds of people who are concerned about their financial futures. While the individual situations of my clients vary, I’m frequently surprised by the degree to which people share the same concerns.

Based on the most common questions I’m asked, I’ve put together a list of what I feel are the top three “myths” about money management. It is my hope that by addressing them in this column, I might help to dispel some of the concerns and ease the intimidation that is so often associated with the investment industry.

Myth #1: Only the very wealthy need the services of a financial advisor.

This is perhaps the most dangerous of the untruths because it undermines what should be a basic goal of every Canadian: to take responsibility for his or her own financial future.

Strange to think that it was just a generation ago people felt planning for their retirement meant investing in Canada Savings Bonds and awaiting their Canada Pension Plan at age 65. That’s no longer the case. Today, governments are handcuffed by enormous deficits, inflation nibbles away at savings and the individual is struggling under the weight of an increasingly heavy tax burden. As the average Canadian struggles to meet the demands of daily life, there is less and less time to manage the ever more complex legal, financial and tax affairs which are important to one’s fiscal health.

None of this seems likely to change.

The good news is however, that there are average Canadians who are having success in meeting their financial goals, whether they be saving for a home, planning for the education of their children or grandchildren or preparing for retirement. What characterizes their success is a commitment to setting personal financial objectives and taking a disciplined approach to achieving their goals, in most cases with the aid of a professional financial advisor. For as little as $50 a month invested in a mutual fund or similar savings vehicle, one can begin a program of financial growth management. Money in any amount deserves prudent care. Whether it is $1,000 or $100,000, by putting their money to work in productive and creative ways today, Canadians from all walks of life are ensuring financial security and prosperity tomorrow.

Myth #2: Financial planning is complicated and requires a great deal of investment knowledge.

This is potentially the most intimidating aspect of money management for most people and a frequent barrier. Complicated tax laws, the bewildering range of investment products, the ups and downs of the stock market, can all be factors which frighten people away from taking control of their financial destiny. That’s a shame because, in reality, even the most inexperienced investor can be inaugurated into the world of money management with just a little time spent reviewing the basics. A patient and thorough financial advisor will take this time. For those who are especially keen, your financial advisor will often be pleased to provide you with educational material and recommended reading to enhance your knowledge. What many people find is that the more they understand and are able to take control of their financial situation, the greater their level of comfort in these uncertain times and the more positive their feelings about the future.

Myth #3: Investing is risky.

Any investment has an element of risk. The objective for the financial advisor and his/her client is to assess the level of risk each investor is prepared to take in making the selections for the investment portfolio. There is certainly a full range of products with varying levels of risk which would be suitable for very conservative or very aggressive investors, or anyone in between.

The other side of the equation is that many people fail to consider the risk involved in not investing their money or investing their money in only one vehicle, say GICs for example. With taxes and inflation taking a healthy bite from one’s savings, money that’s tucked away today may not be enough for tomorrow unless it is employed productively. For most people, this means participation in a variety of investment products — “diversification” as it’s known in financial circles — is the best route to increasing growth while minimizing risk. When you hold a well-rounded investment mix, you have a better chance of benefiting from capital gains, while protecting yourself from losses.