Given the current state of the markets, we would like to outline what we are doing and what you can do to collectively prepare yourself to navigate the current downturn. Prior to diving into specifics, we want to remind you that our team put together a market commentary video this summer. Even a few months down the road, the core concepts of our commentary still hold. If you have not watched this video or need a refresher on our thoughts expressed there, feel free to go here to view: Market Commentary Video.
The above said, this year’s investment landscape has been rocky to say the least. Moments like these can be unnerving. For many of you, a prolonged market downturn hasn’t been experienced in more than 13 years. Despite that lengthy timeframe, the wounds of the Global Financial Crisis can still be fresh, especially in periods of volatility. For others, this is your first experience saving, investing, and living through a sustained down market after many years of consistent neutral or positive market growth. Regardless of where your personal investing experience falls, it is justified to feel as though you have little control over what happens next. While we cannot profess to know what the future holds, we can continue to prepare for what comes our way – this is the core of our approach as your advisors when it comes to investment management and financial planning. As such, below are some of the ways our team is controlling what we can and some suggestions on how you or others you know can do the same:
- Investment Rebalancing: Our investment management philosophy and process is built on a foundation of setting a target allocation that matches your risk tolerances and preferences. Generally, when markets move enough in either direction (up or down), opportunities may open-up to both buy low or sell high. As such, we feel the best way to supercharge the recovery of investments is to lean-into the opportunity to buy and sell when it makes sense to do so. Because of this belief, we follow a data driven process to do this for your benefit and will be continuing this approach in the following weeks and months. Remember: even when the market seems to be in “sell” mode, for every seller, there is indeed a buyer. Remaining invested but rebalancing as the market moves is the best way to not undermine the hard work you’ve done to this point with your personal finances.
- If you have not recently reviewed other accounts we do not manage directly (employer-sponsored retirement plans, for example), consider reviewing them with our team to see if a rebalance is warranted.
- Tax Savings: Down markets open-up new opportunities to potentially generate tax savings. Whether it is harvesting of capital losses (which may be deductible against income) or converting pre-tax IRA dollars to tax-free Roth long-term, our team will be working over the next few months to assess any and all potential avenues towards tax savings including the aforementioned. If an opportunity exists for you, we will be in touch.
- If you hear from our team with requests for financial data, copies of tax returns, etc., we appreciate in advance your willingness to best help us support the work for you in this area.
- Financial Planning: While experiences like the current provide moments of uncertainty, the Financial Roadmaps we create for our clients anticipate and prepare for this uncertainty. We do this by including many conservative safety nets in both the projections and resulting strategizing we are doing for and with you. As your advisors, we never know when a market downturn will occur but we will never be caught off-guard when they do. To best support the hard work you have done to this point and to position yourself to better navigate what’s ahead, consider exploring the following where applicable (and relying on our team to assist where needed):
- If working and not self-employed, make sure you are fully maximizing employee benefits. If self-employed, consider consulting your tax advisor for any potential additional savings opportunities for you and your business in 2023.
- Where possible, build-up your cash reserves. Yes, inflation does diminish the purchasing power of cash, but if something adverse occurred in your life (a job loss, major medical expense, death of loved one, etc.), cash on hand may save the day when you need it the most. Three to six months of your fixed, non-discretionary expenses is a good baseline to have saved in an emergency fund.
- Concurrently, review your expenses. While costs are indeed rising, now is a good time to see if there is any way to “tighten the belt” when it comes to where you are spending your money. Are there small expenses that can be stopped or curbed? Are there big expenses that can be delayed into the future? These are always worthy questions to ask but especially now.
- Pay down high- and variable-interest debt. If interest rates continue to rise, expect your variable interest rates to do the same. For fixed rate debt, one way to generate income/savings in a down market is to pay-off debt quicker.
- Assess the protection of your assets long-term. Difficult times can help us put into perspective the importance of protecting our assets. Consider reviewing your insurance coverages (life, disability, long-term care, property & casualty) and your estate plan to see if updates or changes need to be made.
- …and much more. Not every planning opportunity is covered here as some will be tailored to your specific situation. Where other opportunities exist, our team will work to identify them. Feel free to connect with us if you have questions on anything not listed here that you would like to explore together.
We hope the above information is helpful. We know the current times and resulting uncertainty present an array of challenges. We understand the heart of why you work with our team is to not go through these moments alone. Our team will do our part and we know you will do yours; we are always available to help when and where needed. If we together, trust the process (the above), the results (better days ahead) will come.