The current state of affairs has made this an unnerving time, especially if you’ve seen some volatility in your retirement accounts. Although we can’t predict exactly when economic instability or down markets will begin or end, we can do everything in our power to make sure we are prepared for when they happen. Since we are in the thick of the onslaught of negative economic data right now, 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%. 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. 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
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. Our team at ClientFirst Wealth Management is here to help. Reach out to us at (501) 603-0406 or firstname.lastname@example.org to schedule a complimentary consultation and start taking control of your finances.
About Edward P. Mahaffy, MBA, CFP®, ChFC®
Ed founded ClientFirst Wealth Management in 2007, after more than 23 years in the wealth management industry. Prior to launching ClientFirst, he spent 6 years as a portfolio manager and branch manager with Raymond James, 6 years as a vice president and portfolio manager with Merrill Lynch, and over 11 years as a financial advisor and fixed-income portfolio manager with Stephens, Inc.
Designated as a Certified Financial Planner and Chartered Financial Consultant, Ed holds a Bachelor of Science in Business Administration from The Citadel and earned his MBA from the University of Arkansas. He is also a member of the Financial Planning Association (FPA). Ed has had articles published in The Arkansas Banker as well as Barron’s magazine and is a member of the National Association of Personal Financial Advisors (NAPFA). He is also the author of How to Select a Financial Advisor: The Least You Should Know.At ClientFirst, Ed is president and senior portfolio manager.
The views expressed represent the opinions of ClientFirst Wealth Management, LLC (“ClientFirst”) and are subject to change. These views are not intended as a forecast, a guarantee of future results, investment recommendation, or an offer to buy or sell any securities. The information provided is of a general nature and should not be construed as investment advice or to provide any investment, tax, financial or legal advice or service to any person.
Additional information, including management fees and expenses, is provided on ClientFirst’s Form ADV Part 2, which is available at https://adviserinfo.sec.gov/firm/summary/120286.