I think it’s safe to say that we were all caught off guard at the beginning of 2020. By now we know we can’t predict exactly when economic instability or down markets will begin or end. Although this has certainly been a record year for anxiety and stress, we can do everything in our power to make sure we are prepared the next time the unexpected happens. I’m sure this is good news, especially if you’ve seen some volatility in your retirement accounts. In the midst of the onslaught of negative economic data (as well as other unwelcome news), here are three things to focus on.
1. Maintain Your Income AND Control Expenses
This may seem like an odd point to make about protecting your wealth, but the truth is your income is your greatest wealth-building tool. The ability to maintain and increase your income allows you to have more margin in your life to save toward an emergency fund and prevent the need to sell assets or take on debt to meet your basic needs.
If you are in the decumulation phase, meaning you are no longer dependent upon earned income and you are taking distributions from your portfolio, consider the following: tapping into your reserve fund and/or using the fixed-income portion from your portfolio to help maintain your cash flow to cover expenses. This strategy can be effective when you enter a bear market Additionally, be aware of the income you have that is not tied to your portfolio, such as Social Security payments, pension and/or annuities with a fixed income stream.
If you are still in the accumulation phase and experience a job loss or reduced pay, contact your providers regarding your mortgages, student loans, etc., and explore forbearance options.
This is also a perfect time to consolidate or refinance debt. List all your debts and the annual interest rates associated with each category: mortgages, credit cards, student loans, personal loans, or business loans. Next, investigate creative ways to refinance your high-interest loans and take advantage of lower interest rates. If done correctly, this can provide an immediate boost to cash flow and perhaps less financial stress.
2. Identify Your True Risk Tolerance
There is nothing like realizing where you stand on something until you are put to the test. Whether you wanted this or not, your risk tolerance is being tested right now! When markets are on the rise, it’s easy to get complacent and take on more risk than you are actually comfortable with. But when things start going south, your true feelings about risk tend to come to the surface. The best way to truly protect your wealth is to create a customized, strategic financial plan based on your goals and needs, analyzing potential scenarios that could wreak havoc on your finances.
3. Don’t Quit On Your Investments
It is tempting to want to pull out of the markets when it looks like your investments have tanked, but when you do this, you are locking in the low value of your accounts instead of letting them rebound before you withdraw.
Putting your money into a volatile market probably sounds like the last thing you want to do right now. We get it. But if you really want to grow your wealth, you should consider investing. Investing is not about timing the market, it is about time in the market. Over the long run, stocks grow your wealth. It is just hard to see when you are looking at it day to day.
If we look back at the 2008 financial crisis, we see that stocks fell by more than 50%. (1) But the market began to bounce back in 2009. Those who persevered saw their portfolios regain their original value in two years and reach all-time highs in 2019.
We’ve had 12 bear markets since World War II. (2) And guess what? We recovered from every single one of them. We can’t say when a stock has hit its high or low. But we do know that if you’re patient and keep on investing, the market should recover again and you will not have missed it.
We Are Here To Help Preserve And Safeguard Your Wealth
It’s been a challenging year—to say the least. When so much is out of your control, take advantage of what you do have control over by putting yourself in a better position moving forward. If you feel confused or overwhelmed, our team at Bridgerland Financial is here to help. To start taking control of your finances, schedule an appointment online or reach out to us at firstname.lastname@example.org or (435) 535-1630.
David Packer is founder and financial advisor at Bridgerland Financial, an independently managed financial firm in Utah. With 20 years of industry experience, David serves his clients by helping them bridge the gap between their working years and their retirement. He provides tailored, comprehensive financial plans to his business owner and individual clients so they can retire with confidence. David has a bachelor’s degree in finance and holds the Chartered Retirement Planning Counselor℠ (CRPC®) credential. Outside of the office, David loves to spend time with his wife and five kids and stay involved in his community. He currently serves on the board of directors of the Cache Valley Chamber of Commerce. He and his wife, Melonie, spent years as foster parents and eventually adopted their foster children. David loves playing and watching all kinds of sports, including officiating high school sports, and won’t turn down a good board or card game. Learn more about David by connecting with him on LinkedIn. You can also register for his recent webinar, “What We Do & How We Help” here.