Patricia Lovett-Reid

In the current economic environment, and with stock markets in a state of topsy-turviness, it may feel as if you have very little control. This week, before my MSN Money column takes a hiatus until the spring, I'm offering up my top 10 financial planning strategies to help you regain that sense of control.

1. Understand your financial plan
One of the major misconceptions about a financial plan is that it revolves around a single financial element — investing, say, or managing debt. But while investment strategies and credit management are important aspects, there is much more to a comprehensive financial plan. Your plan should also consider retirement planning, asset and income protection, tax management, estate planning, education funding, business succession planning, planning for major purchases and charitable giving. Each aspect should be seen as a spoke in a wheel — they need to move together to gain traction.

It concerns me that a recent TD Waterhouse Financial Planning Poll found that 61 per cent of Canadians do not have a formal plan in place.

A financial plan is the best tool available to help you take an in-depth look of where you are today, help figure out where you want to be in the future and help lay the groundwork of how to reach your goals.

Planning, saving and investing for retirement is even more critical now than ever before — we cannot afford to ignore it. While you don't need an advisor to have a plan, one can be very helpful, especially for those who do not have the time, experience or knowledge to create their own plan.

2. Tax considerations
It is not about what you make, but what you keep. The biggest single expenditure over our lives is taxes. Make your financial plans more efficient by taking advantage of various tax planning opportunities such as income splitting and optimizing all the available deductions.

On the simplest level, when contribution room is available, investing through an RSP compared with a non-registered account will make you eligible for a tax refund. We always hear about determining our proper asset allocation, but asset location can be just as important. The proper location of investments between registered, non-registered and TFSA accounts will help to reduce the tax bite. For example, as interest income is taxed at your marginal rate of tax, fixed income investments could be sheltered in the registered plan.

3. Investing
Buy and hold is still the most effective strategy for retail investors. Keep these investing tips in mind:

  • Recessions happen and are a normal part of business cycles. Stock market volatility is also a regular part of investing. Over the past 40 years, the S&P/TSX Composite Index has had seven peak-to-trough corrections of over 20 per cent. Yet, including recent declines, the S&P TSX Composite index has earned a compound annual total return of 8.23 per cent over the past 25 years. Those who panicked and sold out in the downturn not only crystallized their losses, but also missed out on the sharp uptrend that followed. Keeping a small reserve in money market instruments will help you take advantage of opportunities as they arise and manage risk.
  • Rather than lump sum investing, develop a monthly contribution plan to your RRSP. Link this monthly contribution to a systematic investment plan which invests a set amount into a basket of mutual funds each month. This will help you keep emotions out of the picture and dollar-cost averaging will help smooth the market volatility for your portfolio.
  • Boring is beautiful. If you are a do-it-yourself investor, then invest in a balanced portfolio of Canadian investment-grade fixed income and globally diversified, quality dividend-paying stocks. Avoid concentrated exposure to any one country, sector or stock. Ensure you have downside protection in your portfolio. By rebalancing your asset mix, sticking to quality investments, keeping a reserve for opportunistic purchases and using a disciplined stop-loss rule, you will reduce the volatility in your portfolio.