There is a difference between planning for hard times and living through them.
We are in the latter.
We are living through the hard times we may have planned for but wished and hoped wouldn’t come. After an unprecedented run of a bull market, we knew that a market correction was coming, but that doesn’t make it any easier when it does, especially for retirees and those who require quicker access to their funds.
Market downturns will never be pleasant but there are strategies to help better handle these times of uncertainty. Today, our team wanted to bring you a few important points to keep in mind as we all navigate the changes in the market to help you come out the other side stronger than before.
1. Understand your investment plan
In the midst of any crisis or when things are out of order, take some time to center yourself and go back to the basics. Gathering the facts and assessing your current situation can alleviate some pressure and fear that may be bubbling to the surface. In terms of your investments that means your specific investment plan. Start by asking yourself these questions.
- How are your investments allocated?
- Is your plan aligned with your market risk tolerance?
- Has your risk tolerance shifted and what changes need to be made to accommodate that move?
- How does your plan support your current and future needs?
- In what ways will the market correction alter both your short term and long-term investment goals?
By taking the time to look through your plan, you will be able to apply a broader perspective to your investment journey. Evaluating your plan: where you are now, where you hope to be, and how you will get there will allow you to gain a realistic sense of where you are and the actual level of risk/loss you have incurred.
You may find that your plan is still aligned with your goals, even if it takes a little longer to achieve them. Or you may discover that there are some aspects of your plan that need adjusting like your risk tolerance or asset allocation. That is okay. The proper understanding of how your plan is or isn’t serving you will help you carve a new path forward.
Investments don’t sit still and neither should your plan. Your risk tolerance, asset allocation/location, and overall strategy will shift as your needs change and evolve. For example, your risk tolerance will often decrease the closer you get to retirement. Our team helps you navigate these nuances and changes to your investment plan so that you are confident and comfortable with it during each new stage of your life.
Diversify your income streams
Your assets aren’t the only thing that requires diversification, the rest of your income strategy does too. For retirees, take a look at the other sources of income you have coming in:
- Social Security
- Pension or other annuities
- Revenue from part-time work/encore career
- Investments (retirement accounts, mutual funds, ETFs, etc.)
- Real estate
Diversifying your income streams especially as you near retirement is a wonderful wealth-building strategy. Diversification decreases your risk of over-investing in one area and can help bring balance to your financial life. It is crucial to have multiple streams of income in retirement in order to help supplement when needed.
Diversification can also prove to be an effective strategy as the workforce is experiencing spouts of turbulence. With the Coronavirus impacting business’ bottom lines, many employees have been laid off. In fact, over 22 million Americans have filed for unemployment in the last four weeks and that number continues to rise.
Are you prepared for that to happen both financially and mentally? Have you established a healthy emergency fund? Are you applying for unemployment or if you are a business owner, CARES Act relief funds? There are a number of practical and important steps that need to be taken in order to get you on strong financial footing and our team wants to be there to help you do that.
Avoid emotion-driven decisions
Emotions play a key role in financial planning. They can be an asset when creating financial goals, dreams, values, and aspirations. Being in tune with your emotions and how they impact your financial life is a crucial skill to help you create a financial plan that truly reflects you.
But sometimes negative emotions can hinder financial progress and lead to making fear-based financial choices. While you should allow yourself to feel the emotions you experience, it is important to not let them dictate how you handle your finances.
With COVID-19, the stock market dropped, leaving many people uncertain about their investments and wanting to move either all or a significant portion of their assets to cash. Making a drastic financial decision like that would not only mean you would take your investments at a loss but also trigger a massive tax bill and potentially derail other aspects of your financial plan. Before you choose a financial path out of fear, go back to your initial plan. This will help you determine if or when a change should be made in your investment strategy and avoid a choice you can’t easily come back from.
Remember, you don’t have to let fear make a decision for you. When you make a financial choice from negative emotion, odds are that it won’t be a productive or positive outcome for you. The best way to keep fear in check is to create and update a financial plan that works for you. A strong plan can lead you to find success and achieve your goals even with some bumps along the way.
We also find fear stems from clients experiencing financial overwhelm. This can happen when all of your financial goals like wealth building, income, vacations, car, schooling, medical needs, etc. are all in one big bucket. By dividing those assets into different segments and assigning a risk tolerance to each one based on investment time horizon and liquidity needs it will make the ups and downs of the market easier to handle.
Work with your advisor
Your advisor will be prepared to help you navigate these uncertain and difficult times. By creating and cultivating a strong plan and relationship with your advisor, you will be able to work together to figure out the best way forward for you and your family.
We are always focused on your best interests here at Strong Tower and believe that a strong, tailored, and unique financial plan will be able to help you achieve your goals. Having a trusted advisor in your corner will help you adjust your plan as needed while still keeping you on track.
Are you ready to take the next step and create a financial plan that sets you up for success? Take some time to talk with our team today.