What’s next? We wish we knew exactly. In our business a crystal ball or a time machine would be so helpful. Experts on TV and in print are constantly issuing forecasts and proclamations, but most are embarrassingly wrong. There is so much we cannot know about the future, about the markets and economy.
As the old song lyric goes, “You don’t know which way the wind will blow, so how can you plan tomorrow?” While there are many things we cannot know about the future, there is much we can know about the present. So why not focus on what we can know? As your financial advisors and planners it’s our job to help you make good decisions based on what we can and do know. If we do this properly, we believe your financial future will be much clearer to you. Here’s some simple advice on what you can and should know.
Know where the markets are (in history)
It’s important to understand what investors are paying for companies and their earnings today. That’s what market prices are all about. At any moment in time, people may decide to pay more or less for the opportunity to participate in potential growth. At the time of this writing, when we look at all of the measurements that we trust, we come to the conclusion that the markets are now more expensive than at any point in history. We believe that investors have long since crossed the line from investing to speculating.
Many may disagree, but that is our perspective. Can the market continue to rise? Certainly, but the chances of a decline have become more likely simply because the market has risen so far so quickly in recent years. We believe that many investors are likely to be truly tested in their discipline during the completion of this market cycle. This is great time to thoughtfully consider where you stand in your approach to investing.
Know what you own (in your portfolio)
Is your portfolio aggressive, conservative, or moderate? Do you really know? Do you have a sense of what your investments likely will do if the market rises or drops? We can help you with that. Your advisor can walk you through a detailed analysis of your holdings and give you a reasonable picture of what can happen to your investments in both good and bad markets.
It is common for us to have conversations with investors who believe they are using a conservative approach, while in reality their accounts could potentially decline by 50% or more. If you have had a proper review and explanation from your advisor, you should not be surprised by how your portfolio behaves both in rising and declining markets.
Know who you are (as an investor and person)
Have you taken an accurate measure of yourself? Do you know how you will behave if we hit a rough patch in the markets? Modern investing research shows that most individual investor returns suffer simply because their emotions take over their investing decisions.
They tend to buy on euphoria as the market climbs and then sell in desperation when it plummets. Our goal is to advise you objectively and help put together a strategy that you can tolerate. Our interactive Riskalyze survey can help pinpoint your ability to take risk. Together we can put together an investment strategy that will enable you to stay in the game when the going gets rough.
Know where you are (in life)
It’s been about ten years since the financial crisis. It may seem obvious, but you’re now ten years older than you were then, right? Think about it. Things have changed for you; your relationships, your income, your home, your job, children, grandchildren, but most of all your age. Your outlook on life has likely changed and your ability to weather another difficult market may be very different than the last time.
If you’re near or even in retirement, the fact that you could be withdrawing from your savings may cause you to feel differently about potential losses. If the market declines while you’re withdrawing, the effect is exactly the opposite of when you were working, adding to your accounts and the markets were rising. If you’re younger, you should view market corrections as an opportunity to build your portfolio at lower prices. Keep investing over time. Avoid spending that bonus, or your latest raise. Find a way to save more and take advantage of opportunities as they arise.
Know your plan (for retirement and beyond)
Have you worked with your advisor to complete a financial plan? Do you know how long your assets may last? Do you know how much you need to save before and how much you can withdraw during your retirement? Have you considered the best time to begin receiving Social Security benefits or pension? Do you know what steps to take to pass on your wealth, to limit tax liability or to cover unexpected risks?
These questions can be answered by a good financial plan. We can help you. Our staff is highly qualified and our advisors are Certified Financial Planner ProfessionalsTM If you haven’t done so already, contact your advisor about how to get started in the planning process.
In a world of uncertainties there is much we cannot know, so let’s go with what we know and make your financial future clearer.
Thank you for your trust,