What the recent market volatility means for our next recession is a matter of debate among economists, but everyone can agree that an economic pullback will happen eventually. As a result, it is a great time for financial advisors to review their clients’ portfolios and ensure that their retirement income streams will be resilient throughout the next inevitable recession. To find out how financial advisors help clients recession-proof their retirement income, ThinkAdvisor recently spoke with Sightline Wealth Management Senior Vice President and Financial Advisor Paul de Sousa.
De Sousa recommended that financial advisors begin recession-proofing with a sensitivity analysis, which looks at what kinds of shocks the portfolio can withstand without it affecting the client’s annual withdrawal rate and long-term income projections. Then, make adjustments as necessary.
The next step, according to de Sousa, is a conversation with the client to discuss the results of the sensitivity analysis. Understanding that their retirement income stream will be unaffected by an economic downturn may stave off panicked reactions later.
“You can show them that their portfolios can withstand, say, a 15% shock and they can still withdraw the amount they planned to, and it won’t impact their retirement,” he explained. “They still have money at age 95.”
Because these analyses can take some time, de Sousa urges financial advisors to start conducting them now because no one knows when the next recession will occur. “There’s a lot of calm and peace knowing that when there’s blood in the streets and CNN is blaring about how everything is falling, you know ahead of time what will happen given a certain rate of returns,” he says. “There’s no better strategy than to have done that, but you can’t do that in the midst of the crisis.”
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Investment Industry Regulatory Organization of Canada (IIROC) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors primarily through fee-based accounts.
Sightline Wealth Management LP is a wholly owned subsidiary of Ninepoint Financial Group Inc. (“NFG Inc.”). NFG Inc. is also the parent company of Ninepoint Partners LP, it is an investment fund manager and advisor and exempt market dealer. By virtue of the same parent company, Sightline is affiliated with Ninepoint Partners LP. Information and/or materials contained herein is for information purposes only and does not constitute an offer to sell or solicitation to purchase securities of any issuer or any portfolio managed by Sightline Wealth Management or Ninepoint Partners, including Ninepoint managed funds.
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