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How To Control and Take Your Personal Finances to the Next Level With Travis Forman

How To Control and Take Your Personal Finances to the Next Level With Travis Forman

VENTEUR spoke with Travis Forman, Director of Private Investment Strategy and Portfolio Manager at Harbourfront Wealth Management, about personal finance. He is the practice owner of Strategic Private Wealth Counsel, which has been named one of the fastest-growing wealth management practices for AUM % growth for two years. Forman holds 25 years of wealth management experience and holds in-depth expertise in the area of alternative investments. He has been instrumental in developing a collection of private investment pools that span personal debt, private real estate, and private equity. 

In less than five years and throughout the pandemic, Forman has led the growth of Willoughby Asset Management's private pools to over one billion in AUM. His mission is to make a difference in the lives of his clients. He is dedicated to the growth of portfolios owned by retirees, entrepreneurs, and working professionals. 

Travis Forman, Director of Private Investment Strategy and Portfolio Manager at Harbourfront Wealth Management

Personal Finance Generally

What is financial literacy, why do so many people struggle with it, and how can we become more financially literate?

Financial literacy is having the knowledge, ability, and skill to make critical financial decisions in the short-term budgeting sense and the long-term financial planning process. 

People often struggle with financial literacy due to the stress and emotions that come with it. At least until recently, financial literacy was never taught in school and was something that many of us received far too late in our lives. There needs to be more importance placed on being financially literate, often due to a lack of available resources. Thankfully, this is beginning to change. 

At the start of my career, I participated in programs to help push the financial literacy needle forward. I visited grade 11 and 12 classes to educate students about bare finance essentials. For anyone outside of school, the best way to educate yourself is to read financial materials and attend educational events hosted by advisors and other financial institutions. With the internet, too, many financial planning and resources are available online. Still, you do have to put in some work to make sure you are doing things correctly. Mistakes in your financial planning process can have significant repercussions down the road, unfortunately.     

How can we manage our money more confidently, and what would this look like in practice?

To manage money and finances more confidently, the two routes are: personal money management and seeking support from an expert, typically known as a financial advisor. 

With either route you choose, the below steps are a good starting point to help you determine where improvements can be made.

Firstly, track your spending. Then, you'll be able to gauge, more accurately, how much money is going towards non-essentials (entertainment, dining, daily coffees, etc.) vs. the essentials.

Next, create a monthly budget. Ensure it considers your spending habits, income, and ability to save or invest. It's often quoted that you should "pay yourself first." That means, instead of waiting until the end of the month to make savings contributions or investments, do this immediately when you get paid. Investing and saving don't happen by accident. It needs to be prioritized.

Building up your emergency savings is also vital for your future. This is money that you can use when unforeseen circumstances strike. Generally, it should be about 3 to 6 months of monthly expenses. Even if your contributions are small at the start, this fund can save you from risky situations like being forced to borrow money at a high-interest rate or being unable to pay your bills. 

The last tip is to create a complete financial plan combined with an investment strategy. Over time, even small contributions to your investment accounts can lead to significant savings, thanks to the miracle of compound interest. Make your money work for you, but ensure it aligns with your long-term investment objectives and risk tolerance. 

How does our health affect our wealth, and what can we do to ensure we're on track to a prosperous future? 

There is a correlation between your health and your wealth over a long period, especially when you don't have enough of one. So at the end of the day, planning for your financial future, getting it all on paper and making sure you are actively working towards goals is something that can reduce your stress and emotional wear over the long run.

Simply put, the less you plan and prepare, the more stressed you will likely become over time. And plenty of research shows that high-stress levels lead to increasing health complications. 

On the other side, as we age, we need to have a giant safety net in place in case more difficult health complications arise. Whether that comes in the form of valid insurance policies that you have in place for decades or simply amassing more significant emergency savings, it needs to be prepared and planned for. 

That's how you ensure you are on track for a prosperous future by planning for it - those without a plan are way more likely to fail in the long term. And, just like getting regular checkups from your doctor, you need regular checkups on your financial situation to ensure everything is in order and if you need to make some changes. 

Budgeting and Saving

What three out-of-the-box strategies can you share to help us improve our budgeting, and why these three?

One can follow many strategies, but the proper method depends on your goals and financial situation. 

Ultimately, I'd recommend getting a good grasp of the core elements that affect your ability to budget and save.

Understanding what tax bracket you fall under will also help, as you'll know immediately how much will be taken from your paycheck each month and year. With that information, you can identify your monthly and annual savings goals and not just your spending needs. Once this is accomplished, you can figure out the ultimate question: where do you want this money to go, and what do you want it to do for you over the short- and long-run?

If you want to invest:

  1. Open an investment portfolio if you don't already have one.
  2. Make sure you're in the correct type of investments that are adequately diversified because it reduces the impact of market volatility and makes your returns more efficient over the long term.
  3. If you need it, seek advice from a professional money manager. Your primary goals might be to preserve capital, manage risk, and gain peace of mind, but it will take time to happen.

With the wrong advice, it can take you longer.  

What strategies should we use to save more, and why might these be the most effective?

We mentioned "pay yourself first" above, which is the first thing you should do. Automate it if possible so you don't notice the savings coming from each paycheck. Once this is in place, one of the best strategies to use to save more money would be through investment portfolios. The return a savings account can provide vs. an investment portfolio is incomparable over the long term.

For those looking to build out a portfolio that can withstand future market complications, alternative investments are an excellent addition to your portfolio should you meet the investing requirements, for example, for those looking for bond-like returns without some of the downside risks we have seen. Lately, some alternative Investments have historically provided higher, stable returns, allowing you to meet future goals while protecting against excessive downside risk. 

Another critical strategy is to ensure your portfolio is diversified across different asset classes, not simply owning a bundle of stocks and bonds. While a traditional stock and bond portfolio may have been sufficient in the past, today's markets require a unique approach.

What should we look for in a bank account, how might this change based on our financial situation, and why?

Choosing a financial institution to look after your hard-earned money is one of the most important decisions a person can make. The bank you choose will determine the level and quality of service you are given and pay you different amounts of interest on your money.

As your financial situation changes and hopefully grows, your financial needs will likely become more complex. For example, while starting, investing $5,000 comes with little risk to your long-term capital. But as that number increases, making a financial mistake becomes more costly to your long-term financial future. 

There is much information and trend-following investments, which can be the exact opposite of what you should be doing with your money. While there's a ton of hype about investing in things like cryptocurrency or "meme-stocks," for example, it might not be the best decision to put 100% of your hard-earned capital into something so risky. Of course, if you have $5,000 and lose it all, it will hurt, but not as much as $50,000 or $500,000. 

As your net worth grows, you will need guidance, and there are plenty of other types of financial opportunities you might not even know you are missing.

Handling Debt

What steps should we take to reduce our current debts, and why? 

If you stick to a plan, it can be simple to reduce debt faster than you think. To keep things simple, cut unnecessary expenses. In a matter of months, your financial outlook can be very different.

First, you should note down all of your fixed and recurring expenses and any additional ones that may come through in the foreseeable future. These are the items that require your financial attention. Small amounts can add up big over time, and there is probably more automated spending every month than you think–it’s best to know and cut what you do not need.

What are three commonly made debt reduction mistakes, and how can these mistakes be avoided? 

In my experience, the three most common mistakes when it comes to debt reduction are:

1. Thinking You Can Deal With Your Debt Quickly

It likely took you a long time to get into debt, so you need to be kind to yourself and understand that it is a process that will take some time.

2. Not Decreasing Your Expenses

While this may be difficult, it will pay off to stick to a budget. This will allow you to have some money left over to pay off your accumulated debt and eventually turn those debt payments into savings.

3. Taking On New Debt

The assumption that having more credit will get us out of debt is a serious misconception that leads many people into deeper debt, not to the freedom from debt they desire. 

Investing

What are some out-of-the-box tips can you share to help us better approach personal investing, and why these three?

There are many tips for personal investing, but my top three are:

1. Accept That You Will Lose Money in the Short Term

The stock market goes up and down like a rollercoaster. It would help if you remembered that you couldn't control that and enjoyed the ride you were on. In the end, your patience will be rewarded. 

2. Follow the News Sparingly

Talking market heads generally want to buy your attention, and nothing like fear and greed buy watches. That is a terrible way to get investment advice and one you should not follow.

3. Stick to Your Long-Term Investing Strategy but Be Open to Pivoting When Necessary

This can be based on unforeseeable factors or large-scale events that could strongly affect current market conditions. 

4. Focus on Your Saving Rate

While most investors focus on getting a high return, your savings rate matters the most when you start investing.    

What are intelligent places to park cash, and why?

Right now, high-interest savings account (HISA) rates are an excellent place to park cash, getting you about 3% of your money without locking in for more than one day. Those rates are likely to rise with the coming central bank policy moves. If you're in one of the HISA accounts, it will automatically ratchet up as they raise rates. Suppose you're looking to park longer than a year. In that case, you can also get GICs at 4-5%, depending on the offering institution, rates we last saw for guaranteed investments a very long time ago.

If you're ok with slightly more risk, however, an excellent option might be private credit mortgages. These short-duration loans generally come with a conservative loan-to-value ratio and are typically floating-rate investments. This gives excellent inflation protection without the capital compression risk seen in public equity markets. 

Should investments into VC funds be included in one's portfolio? 

Venture capital investments can significantly add alpha generation to your portfolio over the long term. Still, they are generally geared towards high-risk, high-return investors and only those with an extended time horizon. Given that most VC investments also have a lock-up period and liquidating your position is either not possible or comes with significant fees, the investor needs to realize the money they put in will likely not be accessible, possibly for several years. However, it works for those who can accept volatility and potential illiquidity.

Keep in mind VC holdings likely have a higher probability of drawdowns than private equity (PE) holdings as most PE investments are post "J curve" and are in the growth or buyout stage. In contrast, VC investments are at the very beginning. Of course, the earlier you get in, the more significant the return optionality can be. It will depend on your investment objectives, risk tolerance, and time horizon. 

Taxes

What tax complications can entrepreneurship present, and how can entrepreneurs protect themselves from the beginning? 

Entrepreneurship is not an easy endeavor, which is why you don't see everyone doing it. And from a tax point of view, while there are a few things you can do when the time is right, like incorporating your business and utilizing the tax code to your advantage or utilizing insurance policies to offset future taxes, there aren't a whole lot of options when it comes to protecting yourself against taxation. 

Death and taxes, right? 

Insurance

What types of insurance should we consider being covered by, and why?

You should consider three types of insurance: life, critical illness, and disability. 

Life Insurance

Life insurance is essential because it provides financial support to your family to cover day-to-day living expenses in the event you pass away. Your family can use the funds however they deem fit, including paying off debts or a mortgage, sending children to college, or paying medical bills, for example. There are also different types of life insurance, some of which can be used for minimizing estate taxes. A common misconception is that you should wait until you are older to get life insurance. One thing we profess with all of our clients is that the younger and healthier you are, the cheaper your life insurance will be, so it's not a terrible idea to start as early as possible if it makes sense.

Critical Illness

Critical illness is also important as it offers a lump sum tax-free payment when a covered illness is diagnosed. These funds help Canadians in two ways. First, they provide funds to preserve the quality of life. Second, they provide members with the funds necessary to consider treatment options. 

Disability Insurance

And finally, disability insurance is a monthly payment that replaces your monthly income if you can't work because of an injury or illness. This monthly payment provides 60 to 70 percent of your income to maintain as much of your standard of living as possible until you can return to work.  

Topic Contributors

Questions based in part on topics and comments provided by:

  1. Jen Hemphill, Accredited Financial Counselor at Association for Financial Counseling and Planning Education (AFCPE®)
  2. Herman Thompson, Jr., CFP®, ChFC®, Certified Financial Planner® at Innovative Financial Group
  3. Leslie H. Tayne, Esq, Financial Attorney and Founder/Managing Director at Tayne Law Group
  4. Linda Hamilton, Executive Vice President and Chief Operating Officer at Iroquois Federal
  5. Ann-Marie Anderson, Financial Advisor at PHP Agency
  6. Paul Dilda, Head of Retail Strategy, Products and Segments at BMO Harris Bank at BMO Financial Group
  7. Matthew Benson, CFP® Owner and Certified Financial Planner™ at Sonmore Financial
  8. Josh Richner, Outreach and Marketing Coordinator at National Legal Center
  9. Ken Tumi, Founder at DepositAccounts.com and expert at LendingTree
  10. Martin A. Federici, Jr., Chief Executive Officer at MF Advisers, Inc.
  11. Ba Minuzzi, Founder and Chief Executive Officer at UMANA
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