Since the beginning of the year, many investors’ portfolios have been shaken by stock market volatility. Following a multi-decade bull market, such volatility may cause you to reevaluate your financial strategy, and with good reason. During prosperous times, it’s easy to grow complacent and ignore that financial goals need frequent care, much like your baby. Unlike your child, though, proper financial planning does not need you to work full-time or rise at obscene hours. Use these seven tactics to stay on track with your financial strategy, particularly when the market is doing poorly:
Arrange Regular Evaluations
Regularly reviewing your financial plan is the first step in maintaining its viability. Michelle Young, a private wealth adviser with Ameriprise Financial, advises, “Think of it as preventive maintenance, like servicing a vehicle or visiting the dentist.” You want to identify possible issues before they do irreparable harm. She recommends reviewing the following five topics on a consistent basis:
• Your immediate and long-term objectives.
• Your projected and present yearly expenditures
• The suitability of your existing insurance coverage, including employer-provided benefits, to your requirements.
• Your tolerance for risk and investment comfort level.
• Your investment strategy, which should provide potential for growth while mitigating the effects of inflation, taxes, fees, and market volatility.
Using digital tools that enable you to monitor your progress online at any time would also foster accountability, according to her. But, if it seems like a lot to examine on your own, you might consider consulting with a financial specialist.
Maintain a Long-Range Perspective
Bill McManus, senior vice – president and managing director of Applied Insights at Hartford Funds, argues that historical, logical, and personal perspective is one of the strongest instruments for keeping a financial strategy on track. When volatility occurs, it’s tempting to doubt your financial approach, but it’s crucial to remember that one shouldn’t abandon ship simply because the seas are rough. Continuity is vital for long-term success.
“At these moments, pausing to examine historical context may be important,” adds McManus. Even if this time seems different, examining past market declines might provide perspective for current market performance. According to him, it might also be helpful to review your objectives to remind yourself of what you’re attempting to achieve. Remember that your financial plan is intended to provide you the greatest opportunity of achieving your objectives, regardless of market conditions.
First Invest in Yourself
Nilay Gandhi, a certified financial planner and senior wealth adviser at Vanguard Personal Advisor Services, explains, “Investing in yourself first is a tried-and-true technique that we at Vanguard stand by.” Ensure that retirement savings are a primary financial priority. According to Gandhi, you should ideally save between 12 and 15 percent of your income, including employer contributions.
“If you can’t afford it, remember that contributing at least enough to obtain your employer’s full match and raising that percentage rate by 1% to 2% each year will help you reach this suggested savings rate over time,” he adds. Based on your salary and tax bracket, certified financial planner and principal at CliftonLarsonAllen Jenna Faust suggests determining whether pre-tax or after-tax contributions to retirement plans make the most sense. Consider creating a taxed investing account for any additional cash flow. This will provide you more tax planning options in retirement by providing you access to an additional stream of income.
Keep a Fund for Emergencies
A reserve fund acts as a buffer between your investments and unexpected life events.
“When life happens and investors face income loss or unplanned expenses, emotions often take over and rational decision making goes out the window,” says Ashley Weeks, a wealth strategist at TD Wealth. This can lead to damaging long-term decisions such as early retirement withdrawals or taking on high-interest debt. To avoid this from derailing your long-term financial strategy, he advises establishing an emergency fund for the duration of your life.
Ideally, he adds, your emergency fund should cover six months’ worth of essential living expenditures. It should also be stored in a readily accessible location, such as a high-yield savings account, but should be kept separate from your primary checking account.
Automate Contribution Management
Constant attention is required to maintain a financial plan on track, which is one of the most difficult obstacles. You must evaluate it often, as Young suggested, but also keep checks on your costs to ensure you don’t go over budget with 27 subscription services. Yet, there is some good news: Savings for retirement do not need regular monitoring. “Automating regular payments is one of the greatest methods to keep retirement savings on pace, even when mental capacity is limited,” says Weeks. You may set up periodic payments to individual accounts, such as your individual retirement account, health savings account, or even a non-retirement, taxable brokerage account.
“The biggest advantage of establishing regular donations is that it requires no continuing work, and contributions are made before the money may be used,” explains Weeks. It also eliminates the temptation to attempt market timing, which nearly invariably leads to underperformance.
Increase Your Wealth at Each Step
Diversification in a portfolio is crucial. To turbocharge your money, however, you must optimize your wealth at every stage, from investing and borrowing to spending and saving, according to Brian Barnes, founder and CEO of M1 Finance. Specifically, he suggests automating your monthly finances.
• Maximizing your cash with high-interest savings.
• Being prepared for unexpected needs.
• Earning cash back on purchases you were going to make anyway using a rewards credit card.
• Borrowing money at low interest rates only when necessary.
Connect with a Professional Team
This one takes no explanation but repeated reminders: If you’re concerned about keeping your financial plan on track, maybe the greatest thing you can do for yourself and your money is to locate a group of advisors.
Faust explains that an integrated team of tax and wealth specialists can help you identify possibilities in your financial circumstances and frequently assess your personal financial strategy to ensure you remain on track. Young adds, “Advisors continually give information on industry developments and suggest strategies or product solutions to assist the customer.” “A second pair of eyes or a fresh viewpoint on your existing financial plan might be of great assistance in identifying areas you may not be aware of that could be advantageous.”
