How to survive a financial crisis

Steps you can take to mitigate an economic downturn

By Jordan Kent

With skyrocketing inflation and a backlash of government-sanctioned interest rate hikes, 2022 heralded the beginning of a new economic and financial era, and the impacts will be felt by all Canadians for years to come. But this isn’t the first time we’ve gone through a crisis like this, and there are lessons to be learned for those who heed history.

To gain some perspective on today’s economic climate, I spoke with Richard Kluska, founder and senior portfolio manager at IP Private Wealth. Kluska has been in the financial services industry for 35 years and has seen the many peaks and valleys of the Canadian economy in action. Richard is known for pioneering the concept of ‘integrative planning’ in Ottawa. He created IP Private Wealth, a firm that provides an independent round-table of expert wealth management advisors for high-earning Canadians. This “multi-family office” approach has helped numerous affluent Canadian families navigate economic downturns and other financial stressors.

“Only 15 years ago, the world witnessed the 2008 financial crisis,” explained Kluska. “That was imposed on us, in part, by the creative financial engineering of US financial institutions; they had created specialized financial products that resulted in the loss in valuation worldwide.” In response to this crisis, all central banks—including the Bank of Canada–flooded the market with a massive influx of money supply, along with the lowest interest rates seen in the past 50+ years.

“What no one seemed to realize was that there would inevitably be a recoil effect: cheap money leads to inflation, and governments usually try to control inflation with a shock to the interest rates,” he said.

Boom and bust both affect the consumer
When the banks created an increase in cheap money in 2008, it resulted in increased asset prices—and that included real estate, stock markets, and commodities. Asset prices and risk appetite were fueled by money supply that had housing prices and stock markets hitting all-time highs for years, even during the 2020 pandemic.

“That boom lasted a long time, but that was until 2022,” Kluska said. “The negative impact of this is being felt now through inflation, supply shortages, and rising interest rates and taxes. All these issues are cloaked in the fears and excuses of the pandemic, but this economic downturn was a long time coming. That’s good news: it means it was predictable, and there are steps Canadians can take to mitigate the effects.”

However, cautioned Kluska: “While there are turbulent times ahead and there may be no one definitive forecast of the future, it is important to remember that we have been here before.” He stressed that reactive panic to every media story will result in greater losses and negative long-term impacts.

During economic boom times, Kluska has seen that weaknesses are easily masked, and during a downturn, a harsh light is shone onto every aspect of the market. He says that in good or bad times, a focus on the fundamentals can provide the needed anchor for any storm-tossed ship.

He shared this fundamental advice:

Have a plan
Do you have a comprehensive design/construction plan; business exit plan; comprehensive personal financial plan? “Any selling, buying, or retiring plan needs to be planned in detail—especially during a crisis. Failing to plan is planning to fail.”

Choose your partners wisely
The coordination of your financial partners and sub-trades are keys to success in financial and construction projects. Who is your “project manager” and what is their expertise in this critical area?

Buy quality
“Remember, price is what you pay; value is what you get.” You don’t have to buy the most expensive, but you also don’t want to buy the cheapest in dealing with your finances or you construction project. Cutting corners during a downturn will hurt you later when the paint starts to peel.

Have flexibility for the unknown. As in construction, life and business are dynamic. Situations change quickly and your plan needs to have the flexibility to adapt to these changes.

Monitor your progress on a regular basis. You cannot manage what you cannot measure. In construction and in finances, a clear blueprint is key–but equally important is the ongoing monitoring and re-evaluating.

Communicate with your stakeholders. Proper communication sets the stage for any project and keeps all members of the project on point. “The pandemic served as a reminder that we need to expect the unexpected,” Kluska says. “It’s crucial to have partner meetings, family meetings, and clear instructions for every situation – ones that can be initiated even if the key decision-makers are incapacitated.”

Treat your stakeholders with respect. “When we’re frightened and stressed, we go into fight-or-flight mode,” says Kluska. “It’s important to remember that your team is all united by a common goal. Everyone wants to succeed, and the entire team succeeds when the rest of the team succeeds.” Maintaining clear communication and keeping emotions out of meetings will allow for a smooth and timely completion of all your key life projects.

A final thought
Is this a rocky time in our economic history? Absolutely, believes Kluska. But with the right support and wisdom at our disposal, he says Canadians can weather the storm. “During these turbulent times, it is important to understand the concept of scarcity. Your after-tax disposable income and free time are your scarcest resources. Protecting both these resources is possible if you’ve got the right advice, the right plan, and the right teammates. If you don’t have those things in place yet, get started now. It’s never too late to right the ship and find your port for the storm ahead.”

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