Podcast Episode 51: Time For a Change? | Built For The Long Haul.

If you have a good financial plan in place, it’s probably built for the long haul. Josh and Colin discuss the current reality of a bear market, rising interest rates, inflation and what it means to our clients in real life.

Episode Transcript

BARENAKED MONEY PODCAST: EPISODE 51

Time For a Change? | Built For The Long Haul

Announcer:
You’re about to get lucky with the Barenaked Money podcast, the show that gives you the naked truth about personal finance, with your hosts Josh Sheluk and Colin White, portfolio managers with WLWP Wealth Planners/iA Private Wealth.

Colin White:
Welcome to the next edition of Barenaked Money, where we get bare naked and talk about money. Well, metaphorically anyway. This is going to be a little bit of a timely podcast perhaps. It may resonate for awhile because we’re going to address some of the questions that we’ve been getting from clients during the market, all of the [inaudible 00:00:44] and volatility, which means the market’s dropped, so some of the conversations we’re having with clients and some of the answers we’ve been giving with regards to what to do. Josh, have you found that our clients have been asking about specific things repeatedly over the last few weeks as we deal with this market turbulence?

Josh Sheluk:
Yeah, well if you take a step back from the market, aside from specific questions related to the market and what’s going on there, how much money is my portfolio down and all that fun stuff, it’s a bit longer-term, what does this mean for me? What are the implications for my financial circumstances practically? Does this mean I have to work another five years? Does it mean I have to sell my house? Does it mean I can’t buy groceries at a nice grocery store for the next week? Those are, I think ultimately, the questions that are creeping into people’s heads.

Colin White:
Yeah, so it’s kind of more the planning aspect that some people are kind of connecting the dots with hey, my portfolio’s down. Therefore does this change my financial plan? As with all good questions, it comes with the same good answer. That depends, doesn’t it?

Josh Sheluk:
It’s a maybe. It’s a maybe, that’s for sure. Colin, I’ll ask this question to you first because I think this is probably, I think, first and foremost what people are thinking about is well, we had planned for, let’s just say a 5% rate of return, and here we are today, markets are down somewhere between 10 and 20% depending on which market you’re looking at. Does that mean I need to change my return expectations or does this mean I need to completely revise my financial plan because my return expectations, that 5% target that we were looking for, we’re not meeting that?

Colin White:
Well, I think it’s important to understand where those 5% targets come from, and again, depending on circumstances, it could be five or 6%. In that range is typically what we would recommend projecting as far as a rate of return as, I won’t use the word safe, but as a fairly reliable measure, but the key is over time. Now, in the long run we’re all dead, so it’s not what the rate of return is in the long run, but over meaningful periods in the market, it’s a reasonable expectation. I don’t think that this pullback necessarily affects what the long-term rate of return target would be for your portfolio.

Colin White:
In fact, you would argue with me that this increase is the short-term rate of return expectations because we’re going from a lower point. But again, to get caught up in those kind of cycles, and setting your rate of return expectations, again it’s difficult to adjust them appropriately for those shorter term fluctuations, but I’ll also agree that sometimes it takes longer to get to those rate of return projections. Is it worth rerunning or taking a look at your situation with lower rate of return expectations? There could be some value in that. Just understand exactly where you stand. But there’s all kinds of fancy words that start to get thrown around, Josh. Like there’s path dependency and end point bias and all these other things. Do you want to address any of those for the nerds in the crowd?

Josh Sheluk:
Yeah, yeah, sure, we’ll get there, but just to spend a little bit more time on what you’re talking about there, over we’re talking about 100, 150 years, returns on stocks on average have been eight to 9%, and so that’s a very long time horizon. As you said, in the long run we’re all dead, so when we look at maybe a 30-year plan for somebody and we’re thinking about a 5% rate of return, that’s what we think the average can be over that 30-year period of time. Again, we think that’s a fairly reasonable expectation, but I think there’s this misconception that’s out there that because the long run rate of return for stocks is eight to 9%, and I’m just using stocks as an example here, that most years you should come in at around that eight to 9% level.

Josh Sheluk:
But that almost never happens. It’s funny, because you look at prognosticators and forecasters, and often they’ll cluster their return expectations from year to year around that eight to 9% level, and they’re always wrong because it’s never eight to 9%. Sometimes it’s minus 20% and sometimes it’s plus 30%, and we’ve certainly seen that play out over the last several years where you had ’18 where it was minus five, and ’19 that was plus 20, ’20 that was plus 10, and now ’21, plus 20, so it’s just all over the map so that you can’t expect just to come in in line with that average every year.

Colin White:
Oh, come on, Josh. You’re missing a great opportunity here. What’s your favorite way to talk about averages?

Josh Sheluk:
Yeah, as my saying goes if your head is in the oven and your feet are in the freezer, on average you’re the perfect temperature, but you’re probably not that comfortable.

Colin White:
That really to me sums this up. People don’t understand when we talk about averages, right? I still remember the newspaper headline, Half of All People Make Less Than the Average Income. It’s like well, yes, that’s how averages work. To claim that as some kind of big revelation just indicates you didn’t do well in grade six math, so people misunderstand averages for sure, and I think that this market pullback maybe increases the short-term expectations for sure.

Colin White:
I was having a hard time pulling even a five or 6% expectation out of you not that long ago based on some very good market information. Again, it’s that time horizon, but things are tougher for sure. When you make a projection that’s no kind of guarantee of the future so it is very possible that you may have to change your plans, and some of that depends on how close to the edge you were planning and what else has changed in your world. Again there’s other things to consider.

Josh Sheluk:
Yeah, when you’re talking about your return expectations going forward, maybe adjusting, I always like to first focus on the bond side of people’s portfolios because it is easier to come up with a fairly accurate projection of future returns, so just about 12 months ago, we were looking at about a 1% interest rate on a 10-year government bond.

Josh Sheluk:
Today that same 10-year government bond is guiding at 3.5% and there’s a very high correlation, a high level of predictability between that interest rate and what the actual expected rate of return is on that bond going forward. All that’s to say is on the bond side for sure you should be expecting higher rates of return going forward. Yes, as I’ve been telling people, it’s been a bit of short-term pain here, but potentially for some long-term gain. There are two sides to that hey, markets are down, what do I do? It’s like yeah, okay, they’re down in the short run, but maybe that means that we will have a bit better returns from this point going forward.

Colin White:
But again, I guess it’s a good time to review, when we see adversity like this, what are the kind of reasonable actions that a thoughtful person may take at times like this, and what are some of the unreasonable urges that people have when things like this are encountered. Keep in mind, when we talk about planning for the future, again, plans are obsolete the moment they’re printed or the moment that they’re finalized because life keeps moving and your expectations as a client or as a person keep moving, and your health moves, and your family obligations move, so there’s lots of things that are in flux, but when something like this happens, what would you consider a reasonable reaction to something like this if somebody had an urge to perhaps change their plan at this moment, Josh?

Josh Sheluk:
Yeah, well, I think revisiting the plan, as you said, can be worthwhile. It can be worthwhile, especially if you have some imminent life event on the horizon. Like if you’re six months out from retirement or you’re buying a house in six months, maybe you want to re-look at your plan and decide if that still makes sense. What to me is a reasonable adjustment?

Josh Sheluk:
Well, if you have a discretionary expense that you don’t need to buy that new airplane or Ferrari over the next six months, then yeah, maybe you want to push that off a couple months or a couple years if you can, and if you don’t have the money set aside, because one of the things that you want to try to avoid is selling a big chunk of your portfolio when the market’s down. First and foremost I would point to that as hey, if you have discretionary expenses maybe you can defer them a little bit.

Colin White:
Yeah, no absolutely. For clients who can be flexible and take advantage when things are good, and make additional purchases during the good times and be more frugal during the not so good times, you get more money to spend. That’s the payout. You get to do more things, but that’s tough because again, people have lifestyle expectations that are very personal and therefore very important to them.

Colin White:
You kind of have to know yourself as to what is exactly of huge marginal utility, to steal an economic term, what’s really important to you and what’s going to give you a lot of joy and the kinds of things that your world would be okay if you waited a little while longer before you did them. Deferring major decisions on expenses is certainly one of them. I can’t believe you brought up housing, Josh. I thought you’d still be suffering from PTSD.

Colin White:
But yeah, seeing as how you’ve opened up the can, I guess I would comment that it’s in flux right now. There’s a lot of reasons to take your time in that space for sure, and make sure you’re footing and make sure you’re not pushing any limits. I don’t know if you flipped it to me, Josh, about the lawyer whose whole career now for the foreseeable future is going to be representing people in broken real estate deals?

Josh Sheluk:
I haven’t, but I’ve heard about that a lot from my cousin who’s a real estate agent, saying that a lot of deals are appraising lower than the agreed upon sale price right now, which I experienced that firsthand and we talked about that on a prior podcast, and if that appraisal’s lower then it’s tough to get borrowing. People have to find other sources of money that they’re potentially just manufacturing them out of thin air.

Josh Sheluk:
There’s been a lot of potential for broken deals and from what I’ve heard so far, the close dates are getting deferred more often than the deals are being completely broken, but yeah, as a seller, your recourse on a broken real estate deal is you have to sue the buyer. Yes, they were contractually obligated to purchase that property at a certain price, but if they don’t have the money they don’t have the money, and if they walk away from it then hey, you need to go back to that buyer and look for that money.

Josh Sheluk:
This is one thing that I found out just last weekend. That deposit that you put down on a place when you agree to the deal, the seller just doesn’t get that if the buyer walks away. It’s held in trust and there’s a whole bunch of hoops that have to be jumped through for that seller to get access to it, so yeah, if you’re a buyer or a seller it can be a little bit precarious right now. But also just deferring your purchase, it may make sense, but it may not because you have interest rates going up as well. There’s a whole bunch of things going on right now in the real estate market, and it just warrants caution with anything that you do, I think is our perspective.

Colin White:
Well, yeah, and I think that’s the lesson here. I mean, this is pretty standard volatility, historically speaking. These are the bumps you should be ready to deal with, and if you have a plan that does not allow to deal with these bumps or have some slack built into it, there’s a lesson. If you take a look at your plan and you go you know what? I’ve planned this too close to the wire, because this is going to impact some things that are really important to me, then this is the time to recalibrate and go back and say all right, I need to make sure that my base plan is more within my means and I’m more flexible with stuff.

Colin White:
That is absolutely a lesson that can be taken from times like this, because again, there’s people referring to these as extraordinary times. I don’t think we’ve hit the extraordinary times plateau. We’ve hit uncomfortable times for sure, but we’ve seen market pullbacks like this regularly and they’re going to happen again. If you recalibrate your plan at this moment to allow for these kinds of things, and this is where we talk about a cash wedge, having enough money set aside to pay a few months or a couple of years worth of expenses, not exposed to markets. That’s one way to deal with these kinds of things. But again, a wholesale change, because again, one of the questions I’m getting, Josh, is should I reduce my risk profile now?

Josh Sheluk:
Right.

Colin White:
Now for clients that were managing their money on a discretionary basis, we have latitude and we can move the risk profile on the account based on market conditions, and we look at that weekly as to whether something like that is warranted. But we have a range that we stay within, so for people who are having their portfolios managed on that basis, it’s largely being done for you. For other clients and other types of accounts, it’s being somewhat done, but again, it depends on the type of account. But at this moment in time, to say hey, I want to take some risk off the table, ostensibly that means you’re going to sell some equities and buy some fixed income.

Colin White:
This may not be the best time, again, they’ll sell low, time to make that call. Now if this has made you feel so uncomfortable, maybe you need to keep that note in your diary and when we do see the market pull back to more reasonable levels or start on the upswing here, that is the time to change your risk profile. If you have learned in the last few months that uh-uh, this isn’t for me, the smarter thing to do may be to wait it out and when we get back to more even footing, that’s the time. Problem is by then you’re going to feel optimistic and confident again and not going to want to make the change.

Josh Sheluk:
Exactly, so no knee jerk reactions to risk profile changes. Anything else you would suggest not to do with the financial plan?

Colin White:
I think the knee jerk thing goes right across the spectrum, like don’t assume you can’t retire. Again, if your retirement is largely based on the pension that’s coming in and this is going to affect some of the things in the periphery, it may not be a requirement that you work longer. But listen, it’s so tough when you get into the retirement conversation because some people, getting close to retirement, have remorse over maybe I shouldn’t be retiring. Oh yeah, this is a good reason for me to work longer. Listen, if you want to play that game with yourself, sure, knock yourself out.

Colin White:
Working longer if you’re not really ready to retire, this is the emotional cover, because some people feel that hey, if I don’t retire I’m a failure, and the market pulls back and it’s like oh, I have to work because the market pulled back. All your friends will nod up and down and go oh, yeah, yeah. I understand that. That makes sense. Well, if secretly you didn’t want to retire in the first place, here you go, here’s your cover. Those kinds of things become possible. Looking at the math and figuring out how much this market pullback has actually affected your near term cash flow, I guess, is the part to consider. Is there anything here that materially affects your cash flow for the say first two years of retirement?

Colin White:
That’s the question to ask, and if the answer’s yes, then you’ve got considerations to make. I’m going to retire but I’m not going to do the stuff that I was going to do in the first two years. I’ll wait. Okay, maybe that’s your answer, or I’m going to keep working until I can do the stuff I want to do. That’s a rational response as well. But a lot of it’s situational, I guess would be the answer. But to make a big change in your portfolio, change in your risk profile, or just out of hand dismissing some plan that you set for yourself, I think would be untoward. Call your advisor. Have a conversation with them.

Josh Sheluk:
Right. Now you mentioned path dependency awhile back, Colin, and explain what path dependency is for our listeners.

Colin White:
I was going to give that one to you. I thought you’d have more fun with it.

Josh Sheluk:
I’ll have fun with it. You start with the explanation and then I’ll piggyback off of it.

Colin White:
All right. Whenever we talk about rates of return in the market, it’s dramatically different. If you want to take a rolling 10 year rate of return in the various markets, it really depends where you start from, and furthermore, for somebody in retirement, it really matters greatly. If you go into retirement and the market goes into three-year decline and you’re cashing out investments for those three years, you have now dramatically impacted or at least noticeably, dramatic’s a big word, you’ve materially impacted the amount of wealth that you’re going to have over your lifetime. When we say path dependency, it’s hey, is the first three years of retirement going to erode your wealth or is it going to be the best three years the markets have ever seen? That compounds down the road for you, and we mitigate that with different things, but in broad strokes that’s what path dependency’s talking about. Josh, what are the numbers?

Josh Sheluk:
Well, let me just put it a different way for everybody, and a little bit more context around it. If you are spending your money, and actually let me just take a step back, so we talked about before, let’s again go back to a 5% rate of return assumption on your financial plan. We know for a fact, this is one thing that, we don’t guarantee a lot, we can guarantee that you will not get a 5% rate of return every year. Some of the years are going to be lower, some of the years are going to be higher. It really, really matters when you’re either spending or saving money, so you have cash flows coming into or out of your investment portfolio, whether those higher than 5% years are at the start or those higher than 5% years are at the end of whatever period of time you’re measuring.

Josh Sheluk:
Let’s take a 10 year window. If the first five years are awesome, and the last five years of that 10 year window suck, that has a very different outcome for different people than the first five years sucking and the last five years being awesome. Just to give you some context on who’s better off in each situation, so if you are spending your money, you’re in retirement, you’re drawing down your portfolio, you’re spending your money. Your portfolio’s going down in value. You’re takin money out of your portfolio. You want the good years to be closer to now. The more near-term the good years are, the better off that you will be because as you said, Colin, you’re not having to draw down your portfolio when markets are down.

Josh Sheluk:
You can kick that can down the road to a later time where hopefully the power of compounding has worked in your effect for a few more years. If you are a saver, you’re still accumulating wealth, you’re still adding money to your portfolio, believe it or not and probably counterintuitively, if you’re going to get the same average over time you want the worst years at the start because when you’re adding to the market, when you’re buying into the market, you’re buying in at a lower price. It’s hard to, I think, wrap your head around this, but the math works. Trust us. The path dependency thing, like you said, it’s very, very important because what you want to try to avoid if you’re a retiree, for example, is having to draw down during those really bad years early on in your retirement, because that’s impacting the value of the portfolio longer term.

Colin White:
Yeah, and just to be fair, like I said, we use some strategies that kind of mitigate that. By draw down, Josh is really referring to cashing out investments at low time. If you have something that is market exposed and you’re in a position where you have to cash it out while it’s down, then that’s where the impact is felt. We spend quite a bit of time planning, trying to avoid those kind of situations.

Colin White:
But listen, I don’t want to leave anybody with a sense of doom over this because again, if your portfolio’s robust enough and your plan has got enough slack in it, and your expectations are real enough, this really affects those who are really trying to be at the edge, like they’re trying to do everything that’s in their head and they’re trying to do it quickly. They only stop if somebody yells at them and says you’re gone too far. If you’re that person, this is really important. But if you’re the kind of person that’s a bit more laid back about things, if every month your bank account has more money in it than the previous month because you don’t spend what comes in, none of this matters to you. Bottom line.

Colin White:
If you’re the kind of person that every month you’re trying to find the extra 500 bucks, this matters to you more because again, you’re putting yourself in a financial scarcity, so you could end up having to cash things out. I guess being on a bit of a stream of consciousness and thinking back through conversations I’ve had with clients, this isn’t a great time to go off reservation. I’ve had clients who, Josh, you’ve had a couple of clients that told some good stories, and we won’t tell those stories because I think they’re too identifiable. But let’s just say there’s clients who had a plan and they underestimated what they were going to spend and come back with a materially larger spend than they were planning for.

Colin White:
They’ve already done it, so when they come to us and say ooh, you understand that means that you all ain’t going to make it, right? But no, no they don’t because they get caught up in the moment for whatever emotional reason. This is a bad time to go dramatically off reservation and spend a bunch of extra money that you weren’t planning on spending. I mean, I don’t want to be a buzz kill. I don’t want to make you feel bad, but that is a fact. This is not a good time to be doing that kind of stuff. Josh is just smirking there because we’ve had more than one client do that in the last six months, and we tried to do our best to wave them off, but once the rock’s rolling down the hill, the hot air balloon’s going to show up whether we like it or not.

Josh Sheluk:
Yeah, I was just thinking about one of our next topics, our Monte Carlo analysis, and smirking because our Monte Carlo analysis is not going to account for you putting gold plated floors for an extra hundred grand in your bathroom.

Colin White:
Yeah.

Josh Sheluk:
There’s limitations to what our statistics can actually do for this.

Colin White:
Listen, to make stuff up that’s got nothing to do with existing conversations I’ve had in the last six months, is oh, we decided to build a house for our daughter because she’s trying to raise two kids and the husband can’t find work, so we’re going to build them a house. That’s not a small thing. That’s not a “by the way.” That’s not a woke up this morning, I decided I’m going to do that.

Colin White:
That’s the kind of thing that should involve a little bit of financial analysis as to whether or not you’re actually giving up your ability to stay in the family home in order to support one of your children. If that’s the decision you’re going to make, fantastic, but know that’s the decision you’re making. Don’t go out and do something and assume nothing else is going to change, because math doesn’t sleep, or as my wife once yelled at me in an argument, math counts. Yes, math counts.

Josh Sheluk:
I’m surprised she’d have to tell you that, Colin.

Colin White:
There was more than enough irony to break the mood in that particular moment because we both had a big laugh.

Josh Sheluk:
Yeah. Let’s talk about, you mentioned the cash wedge thing, Colin, but when we are actually going through the plan, what are some of the strategies that you’re using with people to make sure that that slack is built in, or that flexibility is built in, and there’s not going to be a surprise when you have a 15, 20% market pullback?

Colin White:
Well again, it’s having enough of a shock absorber there that the expected spending is covered. If you can say that look, the next two years or the next 18 months, we have it looked after and there’s no market exposure here, sometimes part of that shock absorber is an unused line of credit, hey, if things really go sideways, using a line of credit for a little bit. Now having said that, the interest rate move has made that a little less tenable but it still is an option that people can consider using. I really, really want to take that trip to Europe, but not a great time to cash 20 grand out of my investments, so I’ll put it on my line of credit and we’ll deal with it over time kind of thing.

Colin White:
There can be ways to smooth things like that, and maybe it’s hey, I’ll put 20 grand on my line of credit. I’m going to cash out 2000 bucks every six months out of my investments until they get up to a good point. Then I’ll pay the rest of it off. There can be all kinds of ways to smooth those kinds of transactions. But a lot of it depends on the individual, and I touched on this before. If you’re the kind of person who’s perfectly flexible and content being flexible, that’s your best defense. If you’re going to say I’d like to get a new car this year. Ah, it’s a bad year to get a new car. I’ll wait until next year. If you’re that person, that’s the best way to deal with this.

Colin White:
But if you’re the kind of person that I’ve really got my heart set on it, I really need to buy that new car this year because this is exactly when I want to buy a new car, there you need to build more financial flexibility into it. Maybe you need to keep more cash on hand. Maybe you need to keep more line of credit available. A lot of it is an individual thing as to how you want to deal with it, and part of our role as an advisor is to help the client discover who they are. I’d say 93% of all my clients will utter the phrase, “I don’t spend extravagantly,” because everybody in their own mind, they identify themselves that way, and that’s so cute, and just for the record, some of you do. But I’ll never say it to you when you say that to me.

Colin White:
It’s in the eye of the beholder, so part of our role as an advisor is to try to help people understand how they’re going to spend money because at the end of the day, that’s going to make way more difference than market fluctuations because if you’re a flexible, easygoing person who always feels like they have a lot, if you feel abundance, you know what? You’re going to do great. But if you’re always operating from a place of scarcity, that’s a little tougher to manage and requires a little bit more cash on hand, so I guess there’s a range of solutions we might use. But the first step is understanding and helping the client understand how they’re going to make decisions.

Josh Sheluk:
Yeah, one of the math focused ways that we account for this is with that statement that I alluded to earlier, Monte Carlo analysis. This is actually a statistical technique that takes historical, not only returns, but also volatility, so the ups and downs, and tries to plan for some of those path dependency issues that we talked about before. Essentially what it’s doing is it’s running 500, 1000, whatever the number is that you pick, scenarios, and it’s kind of randomizing your results around what you would expect to be the average.

Josh Sheluk:
Again, you’re not going to get 5%. If we plan for 5%, you’re not going to get 5%. Sometimes it might be three, sometimes it might be six. Sometimes it might be two for 10 years and then eight for the next 10, so a Monte Carlo analysis helps sort of stress test and scenario test the plan and gives us a variety of different results so we can see what’s this look like under a worse than expected scenario? What does this look like in a better than expected scenario? And if we’re still going to be pretty good in a worse than expected scenario, a little bit of flexibility along the way is probably going to put you in a perfectly fine spot. Hey, by the way, one of the scenarios that it would plan for is this exact scenario that we have today where hey, markets are down 20% early on in your plan.

Colin White:
I think the other thing for people to realize, and I found it to be a very powerful quote. I’m pretty sure it’s Star Trek related, just for the record. It is possible to commit no errors and still lose. Sometimes you can do all the right things and still not be able to achieve all your goals because that’s just how the cookie crumbles. There’s no way to guarantee, and I guess that should be kind of the capstone comment here. There is no way to guarantee your financial success. All we can do, and all you can do, and all you can reasonably expect is to tilt the table in your favor and manage expectations.

Colin White:
The Monte Carlo analysis, I think does a reasonably job at explaining hey, here’s the range of outcomes you could have. You could be a multi-millionaire or you could be living with your kids depending on how long the projection you look at goes. I think that that’s what I take from a Monte Carlo analysis, because again Monte Carlo’s still built on averages. It’s still built on standard deviations.

Colin White:
It’s still built on a normal data distribution which probably is not as accurate as it could be but it does do the job, and the job is there’s no guarantees. I’ll use my movie quote again, Clint Eastwood. If you want a guarantee, buy a toaster. When you’ve got a plan, you go into the world, now you’ve got to start reacting to things and that’s what we’re dealing with right now. Just try to react positively, not destructively.

Josh Sheluk:
A couple of quick hitters. We kind of talked around this a lot, Colin, some concise answers from you. If you’re doing a financial plan right now, do you adjust your return expectations?

Colin White:
Me? No. But depending on client comfort, we may adjust the size of the cash wedge or adjust the amount of time we have money to cover expenses based on current situation.

Josh Sheluk:
Do you adjust the inflation expectations?

Colin White:
Well, that’s a tougher one because again, I think that there’s room at this point to assume a higher rate of inflation than expected rates of return. I think the inflation rate is going to exceed the indexing on a lot of pension and other types of income, so I think it’s worthwhile at least looking at a scenario where there’s a prolonged period where expenses are at a higher inflation rate than perhaps fixed pension income and things of that nature. But again, in the long run we’re all dead, but there probably is a period of time where that’s worth looking at and understanding how that would impact things.

Josh Sheluk:
Do you increase or decrease your expectations for returns on real estate going forward?

Colin White:
No. Again, the assumption on your house you’re going to hold for the next 20 years? No. If you have a real estate investment portfolio or an investment property that you’re trying to flip, then yeah. It would be an interesting conversation but probably impairing that a little bit for the next five years would make a little bit of sense, or again, manage the expectation that yeah, what you thought it was worth last year, it’s not worth that now. Maybe putting a lower number on the value right now, and then leave it and move forward at a reasonable inflated rate.

Josh Sheluk:
Sure. Yeah, and I guess the last comment I would make is a lot of this stuff is related. A lot of these factors are related. If you have persistently higher inflation, you probably have higher rates of return, nominal rates of return on your investments. You’re going to have a higher rate of indexing. Whether it keeps up exactly one for one or not, you don’t know, but indexing will increase the value of your CPP, your OAS, any private or public defined benefit pension plans. I shouldn’t say any but a lot of them have an adjustment for indexing there. There’s a number of what I’d call automatic stabilizers for many people that can help cope with higher inflation.

Colin White:
Yeah, well, it’s important to realize here in the people’s republic of Nova Scotia, they just sent a letter out here this month informing all participation in the provincial pension, the indexing is not happening. They redo it in five year increments, and right now due to the funding level of the pension that they’re not expecting to have an index increase in pensions for a period of time.

Colin White:
Managing expectations, so again, we’re in a situation where we’re kind of at an extreme end because inflation has shown up fairly violently, and pension plans don’t move quickly, so I think there could be a period of adjustment here for sure. But that goes right back to the most important thing about dealing with all this is your personal flexibility and your personal ability to manage expectations and how close to the financial edge you’re trying to live your life. If you’re trying to live close to the financial edge, yeah, you’re going to see a change, and it’s up to you as to how you deal with it. Do you think we covered it all, Josh?

Josh Sheluk:
I think we’re there. Key message is if you have some flexibility in the plan, you’re probably okay. If you have some flexibility in your spending, now might be the time to put it in place, but rethinking your entire financial outlook, your entire set of goals, your entire risk profile, probably not warranted here because any good financial plan is going to have some assumption for this type of volatility built in.

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