By: Nicole T. Strbich, CFP®, CPWA®, EA - Director of Financial Planning
Managing your finances and planning for your financial goals can seem daunting during normal times, but it can be even worse during times when there is turmoil in the world and volatility in the stock market. Throw in the fact that you may be planning to buy a house, change jobs, add to your family, or retire and it can become more distressing. However, there are moves and plans that you can put in place to help ease your stress level and improve your finances along the way.
Tip #1: Keep your finances flexible
Consider what resources and investments you have access to if you should need them. Accumulate funds in accounts where you do not have early distribution penalties or surrender fees. Make sure that you have emergency savings in place that would cover 3-6 months of expenses. Create a “what-if” plan so you will know where to look first if you need funds.
Tip #2: Plan ahead for expenses when possible
While we know that not all expenses are planned, when you know you will have an expense for a repair, purchase, or trip, set aside the funds in advance or consider a payment plan. This will allow you to avoid depleting emergency funds, creating credit card debt, or selling stocks in a down market. If you are looking to buy a house or car, set a limit based on what is reasonable for your finances and avoid exceeding it.
Tip #3: Make sure your asset allocation is in line with your goals and risk tolerance
When deciding how much of your portfolio should be in stocks vs. bonds, you should anticipate what your distribution needs will be in the next 5 to 7 years, what your risk tolerance is for these funds, and the goals for these funds. At any one time you should always have at least the next 5 years of your planned distributions held in fixed income (bonds) or cash, to avoid being forced to sell stocks in a down market to raise cash for your short-term distribution needs. Once you have this allocation structure in place, rebalance it during the good times and use it to remind yourself of why you should not panic and sell stocks during the bad times.
Tip #4: Look for opportunities
Consider moves like harvesting tax losses in taxable accounts as a way to save losses to match up with gains later. If you are a candidate for a Roth conversion, consider completing the conversion while stock prices are lower to increase the potential value of the transaction. If you have excess cash above and beyond the amount needed for your upcoming expenses and target asset allocation, consider adding to your stock allocation.
Tip #5: Work with a trusted financial planner
Look for someone who is a fiduciary and one who doesn’t only look at your investments (or just tell you want you want to hear). This individual should also assist you with planning for your financial goals (like retirement), planning for your taxes in the short and long term, assisting you with your estate plan and working with your estate attorney, and planning for how your investments can help you reach your goals.
Putting plans in place for your financial goals can help to reassure you and provide direction during large events in the stock market and the world. Please contact our office if we can provide any assistance to you during this time.