Storm in the financial markets? Here are 3 things you can do now.

3 THINGS YOU CAN DO NOW

It is no secret that the financial markets have had a rough year so far. Instead of belaboring that, I want to share three things you can do now that may make a difference to you and your family going forward.

Establish or fuel a “war chest”

If you don’t have a “war chest” consider building one now. Your war chest should be made up of cash and bonds and is designed to help weather a decline or period of volatility in the equity markets. The “war chest” is based not only on your expenses and cash flow needs but also on your risk profile and time horizon.

Start by analyzing your expenses and determining the proper size of your liquid savings. For our clients who have little to no current cash flow needs, their war chest may only need to be a year or two of household expenses. For those individuals who are taking money from their accounts for living expenses, their war chest could be closer to nine years of living expenses. After you have determined the appropriate level of your war chest, adjust your portfolio to create the cash and bonds necessary to get you to your number.

Once you have a well-stocked war chest, stick to your plan. Having an appropriate-sized war chest in your portfolio is meant to help you weather these challenging times. Don’t make the common mistake of trying to time the market because pulling out and missing just one day can significantly reduce returns over time. We believe patience is the key. Now is NOT the time to abandon your long-term financial plan with reactionary impulses. If you have built your war chest properly, you may not need to sell any equities when the markets are volatile to meet your cash flow needs.

Use protective financial guardrails

As you most certainly appreciate on windy or mountain roads, there are guardrails along the sides to protect you and keep you on the road. Similarly, having financial guardrails and knowing how to use them in volatile financial markets can help you.

One example of a financial guardrail is properly managing your cash flow. Your cash flow needs in retirement vary depending on many factors, such as inflation, medical expenses, and unexpected life changes you may encounter, and even the best budget needs monitoring.

During challenging times in the financial markets, large fluctuations in asset values can compound an already complex situation. Correctly estimating your cash flow needs and continually adjusting them based on inflation, life changes, and the performance of the financial markets will help you determine what cash withdrawal strategies are appropriate for your situation.

There are many potential guardrails that can help you during hard times in the financial markets, and they are not always the same for every situation or family. Knowing where your guardrails are in your financial plan is important so you can make the appropriate course corrections.

Don’t let taxes surprise you

There is nothing worse than dealing with inflation, a tough market, watching your assets and purchasing power decrease, and then getting surprised by a much higher than expected tax bill at tax time. Make sure you do a thorough review of all your income sources periodically. You also want to be aware of income that could cause cost increases to benefits such as Medicare. There are many tax mitigation strategies you might be able to take advantage of to lower your tax bill, and you should explore them earlier in the year while you still have time.

Don’t let taxes surprise you

There is nothing worse than dealing with inflation, a tough market, watching your assets and purchasing power decrease, and then getting surprised by a much higher than expected tax bill at tax time. Make sure you do a thorough review of all your income sources periodically. You also want to be aware of income that could cause cost increases to benefits such as Medicare. There are many tax mitigation strategies you might be able to take advantage of to lower your tax bill, and you should explore them earlier in the year while you still have time.

GREATER PEACE OF MIND BY BEING PROACTIVE

Even amidst volatile times, you can still take steps to improve the situation for you and your family. In summary, build up your war chest; revisit your financial situation regularly, adjusting as necessary; and review your tax liabilities periodically and well before tax time. These are a few proactive things you can do to shore up your finances and provide greater peace of mind during periods of market uncertainty.

Have A Question?

If you have questions that are specific to your family’s situation, feel free to contact us and we will do what we can to help.