Happy New Year!
Or is it? It’s been unnerving for some investors to watch the markets gyrate up and down day after day as they have been for the last several months. And even though this one may be milder than most investors fear, we need to remember that bear markets (like the one we just entered) are inevitable. That’s why it’s important to plan ahead and be prepared for them. As we reflect back on lessons learned in 2018 and then look ahead to making resolutions for the New Year, with all the turmoil in the markets lately, it’s probably a good idea to add a few financial resolutions to your goals for 2019. Here are a few suggestions:
1. “Exercise” your retirement forecast assumptions –
Take a look at the key assumptions in your retirement forecast to make sure your plans are still on track. Will the lower market values prevent you from meeting your goals? It’s likely that, with minor adjustments made early (if any are needed at all), you may still enjoy a successful retirement in spite of where the markets may be headed.
Remember, bear markets are temporary. Historically, long-term markets trend upward. It’s important to revisit your long-term plan regularly, and to stick with it – even if you are already retired. And if you haven’t had a retirement forecast prepared or updated lately, find a financial planner and get one – lest you worry for no good reason.
2. Get your cash flow plan “in shape” -
The start of a new year should always be a time to re-visit what we spend on a monthly basis – especially after the “spending sprees” that usually happen around the holidays. If you are still working, review what you spend and look for ways to cut back so you can add to savings.
If you are retired, review your income sources with your financial planner to determine how predictable they will still be regardless of market performance. A good cash flow plan in retirement derives cash “inflows” from consistent and stable sources two-thirds to three-fourths of the time, leaving very little to “chance” with the markets.
3. Keep a “healthy” emergency fund –
Financial planning rules of thumb suggest that working individuals keep at least 3 months’ worth of living expenses in cash – set aside in a separate account so you don’t touch it on a regular basis. If you are able to add to savings in 2019, start here first.
Retired individuals should keep at least 6 months’ worth of living expenses in cash, and for those worried about a bear market, some planners suggest extending that to 1 – 2 years’ worth of spending, so there would be no need to draw down on one’s portfolio for cash flow needs until the markets recover.
4. Implement good investment “disciplines” –
If you’ve met your emergency fund goal and have more to save, implementing a systematic investment plan is a great strategy in a down market. Again, if you have a long-term view of the markets, buying “low” during volatile times can reward you down the road.
Another important strategy: rebalance your portfolio periodically. Rebalancing involves buying or selling portfolio investments in order to maintain a desired asset allocation, which is usually targeted to your goals and tolerance for risk. If you haven’t rebalanced your portfolio this past year, you were possibly taking on more risk than you should have before the markets turned volatile. Discuss this with your financial planner and also be aware of the potential tax implications (capital gains or losses) of rebalancing.
5. “Workout” a good debt management plan –
Take inventory of your debts and rank them by interest rates. During volatile markets, another good strategy is to use extra cash to pay off debt (especially credit cards), starting in order of the highest interest rates first. Why? For every dollar used to pay off a debt, consider it a return equal to the debt’s interest rate, which may be difficult to attain (short-term) by investing in the market.
6. Keep the rest of your financial plan “fit” –
While there’s not much any of us can do to control the markets, once we have taken steps to plan for them (up or down), another good resolution for the New Year is to make sure the rest of your financial “house” is “in order.” With your financial planner:
- Go over your expected taxable income for the year and make sure there will be no “surprises” come April.
- Take a look at your insurance portfolio (life, disability, long-term care, liability) to make sure you have the right amount of coverage for your needs at the right cost.
- Revisit your estate plan: have you named the right beneficiaries, and do you have the correct documents in place to make sure your wishes are followed if something happens to you?
7. Stay physically healthy -
Did you know that exercise has been linked to financial health? A study by the American Heart Association in 2016 found that individuals who exercised moderately paid about $2,500 less in annual health care expenses related to heart disease than those who did not exercise. One of the best things anyone can do for their financial success in retirement is to stay physically healthy as much as possible.
Taking control of your finances is a great feeling. Setting resolutions at the beginning of a new year can help you reach short- and long-term goals and even improve the way you feel. If you need help getting started, give our offices a call.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results.
The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.
Dollar cost averaging involves continuous investment in securities regardless of fluctuation in price levels of such securities. An investor should consider their ability to continue purchasing through fluctuating price levels. Such a plan does not assure a profit and does not protect against loss in declining markets.
Rebalancing a portfolio may cause investors to incur tax liabilities and/or transaction costs and does not assure a profit or protect against a loss.