When we look back on the past two years, there’s one word we’d use to describe the market: volatile. Yet as we look ahead, the only thing we’re sure of is that the volatility is here to stay. But that doesn’t mean it’s time to panic. In fact, at Vance Wealth, we don’t think it’s necessarily a bad thing – because we prepare for this kind of market every day. We take extraordinary measures to protect our clients in difficult times and create a plan that empowers them during the best times.
We strive to use our insight and market knowledge to make a difference at every opportunity, and regardless of the headlines, we help our clients stay on track to create the life of their dreams. “When you have a clearly defined plan that includes all your expenses, savings, and sources of income, you know what’s coming in and going out. You can prepare for these downturns because they’re built into the plan,” explained John Vance, President of Vance Wealth in Santa Clarita.
“If you don’t have a plan for a bad economy, you should get the support to put that in place now. It can improve your financial outcomes significantly, but more importantly, it can help reduce stress when times are the toughest. Nothing is more valuable than that.”Whether you need a complete financial plan or just an update, here are three strategies we use to support our clients during turbulent times.
1. Practice Financial Discipline
Good habits are important in any financial climate, but they’re critical in a tough one. For a while, people have been feeling pretty flush with cash, which can lead to bad habits. That’s ok for a short period of time, but it’s dangerous in a volatile economy. “That doesn’t mean you should beat yourself up about past spending habits,” John explained. “Instead, focus on how you can make better decisions today by putting the right habits in place now.
That way, if times get tough, all you have to do is stay the course.” Especially in a volatile market, good financial habits start with a plan. At Vance Wealth, our advisors work with you to evaluate your current financial plan and take a more purposeful approach to your spending. We can help you cut back on unnecessary expenses and show you how to adequately build up your cash reserves. Once you create more intention around your habitual spending and saving, you’re better prepared for the ups and downs of a turbulent market.
2. Evaluate Your Current Portfolio
Once we’ve dialed in your spending and saving habits, we’ll re-evaluate your portfolio to see where we can make small adjustments while staying the course for long-term gains.
First, we rebalance your accounts to ensure you have the proper asset allocation and optimal risk exposure. Next, we might use additional strategies, such as tax-loss harvesting, to minimize future taxes. You might think it’s a good idea to halt new investments in a volatile market. But it’s not time to stop investing, stall your growth, and bury your head in the sand. Instead, it’s just time to revisit your investment strategy.
At Vance Wealth, we continue to save and invest through contracting markets because that’s how you build true wealth over long periods of time. The difference is we make smaller investments weekly or monthly, so we can buy into the market at different prices and monitor our progress. So, for example, we might invest $10,000 a month over five months instead of investing $50,000 all at once.
This is called a Dollar Cost Average approach and is a more conservative strategy to implement during volatile periods. When this approach is used in conjunction with a comprehensive financial plan, you can confidently continue to invest despite a volatile market.
3. Focus On Your Health
In an economic downturn, we can expect to see increasingly stressful and fear-provoking headlines, potential losses in the housing market, layoffs, and business closures.
There’s a lot of emotion involved when the economy starts to affect our money or livelihoods. But, it can be even more painful when it affects the livelihoods of our family, friends, and community. That’s why some of the best advice has nothing to do with money at all. Instead, the focus should be on your physical and mental health if you want to make sound, unemotional decisions concerning your financial future. To optimize your performance when it counts, focus on developing healthy habits such as meditation, good quality sleep, exercise, stretching, and proper nutrition.
These daily practices will strengthen your ability to withstand uncertainty and change and help lessen the emotional toll. Beyond The Basics While these three steps are vital in protecting yourself from a volatile market, the best approach will always be a comprehensive financial plan. If you don’t have one in place, now is the time – because hope is not a strategy, especially in an economic downturn. In fact, turbulent times are part of a good comprehensive financial plan. If you already have a plan in place, now is a good time to reevaluate. Many people think that when your accounts are losing value, their plan will be disrupted by any amount of change. On the contrary, a volatile market is a good time to re-evaluate, and if you want to change advisors, it’s important to know that your investments are simply transferred – not sold.
That means you can get a second opinion on your investment accounts, tax strategies, and retirement while continuing to build wealth according to plan. Volatility creates opportunity, not just with investing. This holds true for financial planning or tax planning opportunities that did not previously exists.
Don’t wait for a losing market to see if your financial plan is properly preparing you for the good and the bad. Instead, create a plan you can be confident in during any market, so you can focus on what matters most: achieving more in life and business. Book a complimentary consultation with a Vance Wealth Advisor.
The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.