Actively Stick to Your Plan
Are you a Builder? Protector? or Distributor of wealth? During times of market volatility, what adjustments if any to your portfolio or financial plan should you consider? Before we discuss potential financial plan moves, let’s briefly review the current state of global markets. The third quarter was a quarter to forget. It began with a strong rebound for risk assets as the stock market roared back during July and early August, but as inflation data, interest rates and the Federal Reserve became top of mind the stock market began a downward trend and finished lower for the quarter. Investors had a hard time finding any support in financial assets as growth equities, value equities, international equities, and investment-grade bonds all ended lower. The S&P 500, NASDAQ, and Dow Jones are now down 24%, 32%, and 20% respectively year-to-date (YTD). So, the question that investors are now asking themselves and their wealth management teams is what do we do now? The cliché answer that a financial pundit may say is “stay the course” and “invest for the long-term.” Well, we believe there is value in this message during times of volatility, however it is prudent to take into consideration an investor’s unique circumstance. We would answer Actively Stick to Your Plan. An investor may be a wealth builder, wealth protector, or wealth distributor, and based on their financial plan there may be opportunities in today’s markets to strengthen their financial foundation. Wealth Builders are investors who may have just started investing or have been investing for over 20 years. These individuals or households are actively trying to grow their net worth through contributions to savings accounts, retirement plans, investment accounts, real estate, etc… Wealth Builders typically have a long-time horizon before they need income from their portfolios, which allows them to potentially take on more risk. Wealth Builders should welcome opportunities like today as a market pullback provides an opportunity to buy more shares of an investment. We believe today is an opportunity for Wealth Builders to reevaluate their monthly budget to increase their investing contributions. Furthermore, investors may want to consider a Roth conversion, where it may make sense to pay taxes now compared to in the future for their retirement savings. Wealth Protectors are investors who have grown their net worth over time, are usually still working, but can see and smell retirement around the corner. These investors are usually not withdrawing from their investment portfolios during this stage but have begun the planning process of withdrawals. Wealth protectors should use a market downturn to analyze the risk and income of their portfolio as they plan for retirement withdrawals. Furthermore, wealth protectors may find contributing to a Health Savings Account (HSA) beneficial to lower current taxes and to access another investment vehicle that can grow tax deferred. Wealth Distributors are investors that have reached retirement or are using their portfolio for current income. Wealth distributors may want to check-in on their current withdrawal strategy and adjust if they are taking more income from their portfolio than needed or look for opportunities to increase their income on their investments. Wealth distributors have opportunities to buy equities and bonds at higher current yields. Therefore, investors may want to re-balance their portfolios based on current income needs and risk tolerance. We look forward to our next conversation to review your financial plan or possibly create one for your family, to see what adjustments, if any, may help you build a strong financial foundation. We thank you for your continued support of our firm. As always, “you do the dreaming, we’ll do the math.”
Do I Need A Financial Advisor Or Should I Go It Alone?
Do you need a financial advisor? The answer depends on different factors — the complexity of your finances, how comfortable you are managing investments, where you are in your wealth journey, and where you’d like to be. The advisor’s mission is to close the gap between where you are financially and where you’d like to be. But there are costs involved and not everyone needs the help. Making a confident decision about hiring (or not hiring) an advisor requires some information-gathering, plus a bit of self-reflection. What Does a Financial Planner Do? Effective financial planners provide guidance that helps you reach your financial goals. Investment management and strategy is a primary component of that guidance. You can tap an advisor for a comprehensive investing strategy and more specific services like: Household spending review and budgeting Retirement planning College tuition planning Assessment of and recommendations for insurance protection Consultation with estate planners, tax planners, and other advisors Financial planners are essentially personal finance mentors. They learn your situation, provide advice, and guide you towards informed financial decisions. Financial Advisor vs. Financial Planner The terms financial advisor and financial planner are often used interchangeably in conversation. Technically, though, they’re not exactly the same thing. Financial advisor has a broader meaning than financial planner. Advisor encompasses planners as well as stockbrokers, insurance agents, estate planners, bankers, and accountants. Working With a Financial Planner Your role in the advisor relationship has three main parts: You share your financial information and goals. You evaluate and then accept or veto your advisor’s recommendations. You fund the recommendations you accept. Before you choose a financial advisor, think critically about your ability to fulfill these responsibilities. Are you comfortable sharing your financial details, speaking up when you disagree, and investing money per your financial plan? Ideally, the answer is a resounding yes. If you’re not willing to be financially transparent and fund your choices, you may get limited value from an advisor. When to Hire a Financial Advisor One in three working adults and retirees currently consult with a professional financial advisor, according to a 2022 retirement survey from Employee Benefits Research Institute. Of those who don’t have an advisor today, nearly half said they intend to work with one in the future. The cue to engage an advisor is often a significant life event, such as marriage or divorce. But there are other prompts, too. These include increased financial complexity, lack of time or investment expertise, and even disagreement among household members about the shared financial strategy. Significant Life Events Life events that change your financial picture or outlook include: Marriage: Combining two sets of finances can get complicated. Messier still can be the process of setting shared financial goals. Divorce: You may need help recasting your outlook with one income instead of two. Becoming a parent: Kids change the expense structure of your household and add new financial goals, like paying for college. Inheriting money: You’ve lost a loved one and gained a windfall. You may welcome outside guidance on investing that windfall in this stressful time. Assuming caregiver responsibilities for an elderly parent: Your income or expenses may change. You might need to reevaluate your retirement plan. Starting a business: Starting a business has risk. You may need to balance that risk by getting more conservative in other areas of your finances. Selling a business: Selling a business reshuffles your assets and probably changes your income. Both outcomes affect how you should manage money and investments going forward. Starting a new job or getting a promotion: An increase in income unlocks more money to pursue your financial goals. You may need guidance on how to invest that extra income efficiently. Note that financial advisors can provide one-time consultations, as well as ongoing guidance. After a major life change, you may only need a short-term engagement. Typically, the outcome would be a financial plan you could implement yourself. For example, say you just became eligible to contribute to your 401(k). You could choose a financial advisor to recommend initial investment choices appropriate for your age, risk tolerance, and goals. Then it would be your job to activate those investment selections and monitor your performance. Increasingly Complex Finances Finances naturally get more complicated over time, even without big life changes. You earn more, invest in your 401(k), contribute to an HSA, buy life insurance, and so on. One day, you may start doubting your ability to manage it all. Financial advisors are particularly useful in this scenario. The good ones will take a comprehensive view of your assets and identify strategies to optimize your investment returns, lower your risk, or both. Lack of Time or Expertise Managing your money and investment portfolio can be like a second job — a second job you may not want. If you don’t have time for research and monitoring your portfolio, you can retain an advisor to do it for you. Your advisor does the tedious work and you get involved when it’s decision time. Similarly, you might not feel comfortable making investing decisions. After all, investing is a confusing subject. A good advisor can support solid decision-making and help educate you on best practices of money management. Household Conflict on Strategy Nearly three-quarters of married or cohabitating adults admit to financial tension in their relationship. That’s according to a recent survey by the American Institute of CPAs. Money conflicts may prevent you and your partner from moving forward on a wealth plan. You might retain a financial planner to smooth over those conflicts with objective, expert advice. How Much Money Do You Need to Hire a Financial Advisor? It’s a common question: Do you need a certain net worth to work with an advisor? Generally, no. Some advisors do enforce net worth thresholds, but many do not. Having said that, it probably doesn’t make sense to retain an advisor if you’re living paycheck to paycheck. But if you have $100 monthly or $10,000 monthly available to support your financial
Alone With My Thoughts – 08/15/2022
The definition of a bear market is pretty straight forward…a 20% drop over 2+ months from previous highs. That is what we are in and there have been only 3 bear occurrences since 2000, with one of them lasting just 33 days (2020). (Technically, the Nasdaq market has now entered bull market territory, having rebounded 20% higher than its recent low). The idea of being in a recession appears to come with a bit more debate…is it two consecutive quarters of negative GDP growth, or a combination of negative growth, high inflation, and an increase in unemployment. While we wait for the bureaucrats to argue the definition, let’s consider two things, one, once they label a recession, we are probably on our way out of it, and two, recessions should be viewed with respect to their level of magnitude. With a strong jobs report and now a cooling of inflation from recent highs, the economy appears to be hanging in there. If the recession remains mild, and inflation tempers, that could be the definition of a recovering stock market.