Financial resolutions for 2025

Sébastien: Hello everyone and welcome to the “In Your Interest” podcast. My name is Sébastien Mc Mahon and today I’m joined by my colleague Philippe Millette, Assistant Vice-President in Canada for Individual Savings and Retirement at iA Financial Group. Hello, Philippe.

Philippe: Hi, Sébastien. How are you?

Sébastien: I’m good. How about you?

Philippe: I’m very good, thank you. I’m very happy to be here. So, thanks for having me here today.

Sébastien: Yeah, sure. It’s your second time with us, I think.

Philippe: Second time here. But as we were talking about, we work together very, very often. Virtually, in person and here today. So, I’m glad to be here.

Sébastien: Yeah. And here now it’s January, and January means New Year’s resolutions. So that’s what we’re going to be talking about today: financial resolutions for 2025.

Philippe: That’s right.

Sébastien: Alright, so when we think about resolutions, you know, if you listen left and right, it’s kind of an important theme right now. You always hear that every action that you take is a vote for the person that you want to be in the future. Of course, the idea here is not to run a marathon like in two hours, but it’s to become a runner. And not to read like 60 books next year, it’s to become a reader. So how do we translate that to our financial habits?

Philippe: That’s a very good question, Sébastien. And you were talking about making resolutions. When we’re talking about investing for retirement, when we’re talking about building wealth for the long term, the number one resolution is to have a game plan. Okay? You must have a financial plan. And two plans that you should have right away and as soon as possible: how much money do you need for retirement? And once you’re retired, that money that you have accumulated will last you for how many years?

Sébastien: Yeah.

Philippe: So, these are the two plans that you need. So, first resolution: you should have those plans. Second resolution: if you have those plans, stick to those plans. Yes, you can review. Yes, you can update. But you have to stick to the plan. You have to stick to the strategy because that’s the only way to make money, to build wealth over time. And a third resolution, and it’s third, but it’s probably the most important: to build a plan and to stick to a plan, you must have a financial advisor.

Sébastien: Yeah.

Philippe: If you don’t have a financial advisor, I really encourage you: find a financial advisor. That’s the most added value that you can bring to your plan, to your success over the long term.

Sébastien: Yeah. And you need a financial advisor for a few things. First, just to have the right plan, you need to ask yourself the right questions. And of course, there’s just so much information online and with the ChatGPTs of this world now. But having a financial advisor who’s used to working with people in your situation, who can help you to project yourself into the future, that’s very useful. And also, you know, helping you manage your emotions is also a very, very important part. We’ll discuss that in a few minutes. But, you know, just so that people relate here, personally I’ve been through this experience recently. Of course, I’m familiar with the markets. I’m familiar with all of the concepts here, but at some point we all have some blind spots. Like fiscal planning. You know, I know nothing about that. I want to make sure, you know, that my spouse is involved in the plan. So, what better way than to work with an advisor, sit down with that person, go through the options, go through the objectives, and then after that, maintain the habits that you forge and also revising that plan quite often because there are stages to life. Your children are getting older, for example. You have a new kid or you have a new objective all of a sudden. You know, even financial professionals like ourselves, we benefit immensely from just having this relationship in our lives.

Philippe: Yes. And in my opinion, in my mind, the number one reason why you should have a financial planner, even if you know about markets, you have some expertise and you’re used to investing your own money yourself and you’re quite successful, that doesn’t mean that you don’t need a financial advisor. Because the financial advisor, the added value that that person will bring to you… See the financial advisor as a coach, someone that you can discuss with. And at the end of all that, it will help you manage your emotions. And that’s really what a financial advisor is bringing. Yes, there is the expertise, but managing the emotions. Because if you’re not capable of managing your emotions, you will react to short-term events and you will forget about long-term trends, and you will forget about the long-term objectives that you have. So really, a financial advisor will help you to do what is the most important: to be successful. When comes the time to build wealth, it’s first: start early and don’t stop.

Sébastien: Yeah, yeah.

Philippe: Stay invested. Stay put.

Sébastien: Yeah, exactly, exactly. And I have maybe two examples here. The first one is really relatable. If I bring you back to 2020 when Covid hit and markets were going, you know, down in an unpredictable way in early 2020. You know, if someone said: “Alright, late February, early March 2020, I’m taking my money out, I’m going to cash, I don’t know what’s going on.” And then, if you did that, after a month or two, you know, markets are even lower than they were. And you say: “My God, I made the right decision! I saved a bunch of money here.” But typically, will that same person jump back into the markets at the right time or will they take their time? So, “Right now there’s still some uncertainty. I want to be prudent.” And let’s say that person reinvests at the end of 2020 because, you know, now things are starting to make more sense. So, we ran that experiment: if you just stayed invested through 2020, or if you just did what I described, and the person who had stayed invested for all of the year was way ahead of the person who had stepped out at the right time, but did not get back in at the appropriate time. So, there’s two decisions here that need to be made. And usually when it’s time to buy, you don’t want to buy. So that’s the issue with the thing. It can be easier to get out at the right moment than to get back in at the right moment. And another way to show how this compounds over time. I have some data here from JPMorgan, the largest bank in the world. And I have a study here from what they had in their books from 2001 to 2020, so, their client base. So between 2001 and 2020, the typical 60/40 portfolio, so 60% stocks, 40% bonds, was up on average 6.4% a year. So that’s 6.4% per year for 20 years. And the average investor is only up 2.9% a year over that same period. So, someone might say, well, 6.4% versus 2.9% is just 3% a year. That’s not too much. But if you just spread this out over 20 years, that means that the average investor after 20 years is up 77%. So, if they invested $100,000 in 2001, in 2020 they have $177,000. But if you had just invested in the 60/ 40 portfolio and did nothing, absolutely nothing, you would have a return of 245%. So that means $345,000 in your portfolio after 20 years. So, it compounds, and the time effect is just so important here that every decision that you make along the way, which is based on emotion, can be very costly in the end.

Philippe: That’s it. That’s the best example you could give. What is the outcome? What is the ultimate consequence of being emotional? You’re not getting the return you should be getting, by doing nothing, by doing nothing, by just staying invested. And all the studies point in the same direction. You just mentioned one, but just Google and go on the internet and you’ll find a bunch of studies and it’s all the same conclusion. People, on average, make only 50% of the return they should be expecting for the investor profile they have, so the risk they’re willing to take. They get only 50% of the return and there’s only one reason explaining that: emotions.

Sébastien: Yeah.

Philippe: Being in and out of the markets. And people should also realize that the more decisions that you’re making, the higher the risk to make a wrong decision. And the only decision that is not wrong is to stay invested.

Sébastien: Yeah. I agree. Yeah. And there were some stats that we were looking at before this, showing that clients who have advisors versus those that are investing by themselves, they tend to have 290% more assets at the end of their lives. So that means pretty much like four times the assets. And one of the reasons why people sometimes don’t have an advisor in their life, it’s because they want to save fees and they want to invest by themselves. So, what’s the resolution we can make here, based on the fee situation?

Philippe: Well, you’re talking about fees. And every time we talk about fees, we talk about how much fees you pay. But we’re never talking about why are you paying fees.

Sébastien: What you get in return…

Philippe: What are you getting in return? And what’s important is the net result. And the fees are for the expertise of a portfolio manager. But the fees are also for the services of a financial advisor. If we look at the performance of people that don’t have a financial advisor, they make less money. Their wealth is on average three times lower than what it should be. So really, the fee is also for the services of a financial advisor. And those services, we never talk about the long-term impact, positive impact of having the support of a financial advisor. And I’d like to bring something else, Sébastien. Having a portfolio manager–you were talking about a study–that same study said that people that do business with a financial advisor invest more. So, it’s not only that they make higher returns because they better manage their emotions and expectations, but they invest more because there’s something else that we do when we become too emotional. “Oh, the markets are not good. The economy is not good. I’m not going to invest in my RRSP this year.” But you have a financial advisor. You have this discussion with your financial advisor. He brings you back to your plan. He says you have to invest year after year. This is the amount that you have to invest. He will convince you of the need to invest and not to skip one year or two years. So financial advisors, it’s not only about the long-term return. It’s about the discipline to constantly invest in your future.

Sébastien: Yeah, to avoid outsmarting yourself.

Philippe: Absolutely.

Sébastien: Alright. So, thank you. It was a pleasure to talk once again. Before we leave, any last words of advice here?

Philippe: You know what, Sébastien? I like to keep it simple. And just like we said today: find a financial advisor, work on a plan and stick to it.

Sébastien: Yeah, that’s the gospel right there.

Philippe: That’s it.

Sébastien: Alright. Thank you. Very inspiring. Thanks again, Philippe. Thanks to all of our listeners. We’ll see you next week with another episode of the “In Your Interest” podcast.

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