In the last issue this column
covered some of the things to consider about your future
plans before you sit down with a financial advisor, insurance
salesperson, broker or others of that ilk.
The suggestion was that this time
out we'd look at fleshing out a post-retirement budget.
Before undertaking that exercise, it's worthwhile contemplating
just how unpredictable the financial future actually
is. You don't have to look far back to see just how
turbulent things can be. Here are a few examples of
decisions your colleagues made based on the prevailing
financial trends.
• In August 2000, a
67-year-old Edmonton specialist � having made a bundle
(on paper) in dot-coms and on Nortel � got out of practice
and moved to Hawaii. He and his wife bought a home in
Maui and settled in for what they thought would be endless
winters of visits from their six kids and their grandchildren.
He's back in part-time practice again, his net worth
decimated by the market drop.
• A couple of years
earlier a Halifax ob/gyn had a different idea. Her college
professor husband was originally from Montreal and they
found they were spending eight to 10 weeks a year in
the city. They considered buying a condo there but instead
purchased a hotel suite with a small kitchen in what
was then the first hotel project in Old Montreal in
10 years. They can stay in it up to 12 weeks a year
and the rest of the time it's rented out as a hotel
suite. Not only has the purchase tripled in value, it's
providing them with almost $20,000 a year in rental
income in what's become one of the hottest tourist destinations
in the country.
• A New Westminster,
BC, doctor-couple had big plans for their retirement.
Their three children lived spread out across the continent
� one in St John's, another in New Orleans and a third
had just enrolled in a MA/PhD program at Stanford University
in California. In 2003 they invested almost $200,000
in a luxurious mobile home. With oil now over $50 a
barrel and rising, they've decided to take the monster
off the road and are considering alternatives.
WHO
KNEW?
None of these physicians made bad financial decisions.
Based on the prevailing financial realities, each plan
seemed "a good idea at the time."
Some investment decisions turn
out to be good ones for the wrong reasons. The Edmonton
doctor who got wiped out in tech stocks, for example,
finds that the home in Maui has appreciated $150,000!
Not only that, the Canadian dollar has appreciated so
much against the US dollar that it costs them 20% less
to live there than it did when they bought it.
The choppiness and unpredictability
of anything to do with money and investments in the
short term is the reason that financial advisors urge
you to take the long view. Plan 10 or 15 or 20 years
out, they caution. Even apparently sound medium-term
planning though, can have its pitfalls.
A case in point is the article
titled "Doctor,
you can make money in the market" (page 30, Vol
1 No 17). As you may recall, the article suggests that
you design a portfolio of big company stocks in several
industries to mirror the wider market. Stock markets
have done better than other investments over the last
100 years. True enough, but there are exceptions. Between
1972 and 1985, for example, stock market indices were
almost flat. We could be at a similar stage now. Current
markets in Canada and the US have made little progress
in the last three years and there's no sign that the
drought is about to end anytime soon. Next time: back
to post-practice planning.
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