By Marjorie L. Rand, CPA, CFP®, RICP®
These last couple years have been some of the most unpredictable years of our lives. 2022 is only getting more unpredictable. With the pandemic still affecting many parts of the world, a war in Ukraine, and an out-of-control housing market, there is a lot of uncertainty about the economy.
The stock market has taken some big hits with many stocks plummeting recently, which is only made worse by investors who sell based on recession fears. In the first 6 months of 2022, all three indices experienced significant declines: the S&P 500 fell 12%, the Nasdaq fell 23%, and the Dow fell nearly 8%. (1) Even the big tech giants were not immune, with Meta (formerly Facebook) and Netflix taking big hits falling 67% and 42% this year, respectively. (2) As a result, many economic leaders are predicting a recession in the near future. (3) We can point our fingers at many factors as the cause of the increasing uncertainty, such as rampant inflation, the Fed’s increasing interest rates, and international unrest, but the fact remains that we have no control over any of that.
Luckily, we’re here to help you take a deep breath and walk you through whatever our markets decide to do. Here’s how we are watching over your finances and taking proactive steps to help secure your wealth.
We don’t make investment decisions based on what everyone else is doing or what’s popular in the investment industry. Whenever we make planning decisions with you and offer investment recommendations, we do it with your goals at the forefront. When the markets get shaky, we go the extra step of reviewing your objectives to make sure you’re still on track and make educated decisions that are not based on panic or emotion.
This starts from the very beginning of our relationship with you. We use conservative return numbers when analyzing the potential outcomes of your plan because we know that corrections and bear markets will come again. We also use asset allocation “buckets” that divide your wealth into short, intermediate, and long-term strategies to help you make the most of a volatile market.
And in times like this, it’s even more important to have an emergency fund or a percentage of your portfolio that is either in cash or liquid enough if you need it for unexpected circumstances. While cash investments may not provide a lot of growth, having a cash contingency fund with at least one year’s worth of living expenses will protect you against having to sell investments at low values to free up cash.
We Know Your Risk Tolerance
Do you know that feeling in the pit of your stomach when you make a decision that was too risky for your comfort? Our goal is to help you avoid that feeling when it comes to your investments. Before investing any of your money, we determine your risk tolerance, the amount of risk that an investor is comfortable taking or the degree of uncertainty that an investor can handle. Like most things in life, your risk tolerance may change with age, income, and financial goals. We don’t want you to lose sleep at night, so we review your risk tolerance and how much risk you can afford to take and adjust your investments over time.
During bear markets, it’s important to remember that investors only realize losses when they sell, so it’s critical not to sell when the market is down. When you need to access your money is an important factor in avoiding those losses. For example, if you are a decade or more away from retirement, you can likely wait out a recession or correction and benefit from the recovery. If you need access to your funds in the next five years or are within your first five years of retirement (frequently known as the “fragile decade”), (4) a recession will make more of an impact on your money and your plans.
From a practical perspective, we make sure your portfolio’s allocation is set up with your time horizon in mind. If you need money in the short term, your portfolio will hold safe investments like cash or short-term bonds. Because retirement can last decades, you still want some of your money in investments that will produce long-term growth, but your portfolio will look very different from that of a 40-year-old in the peak of their working years.
We Are Your Emotional Support System
One of the most important rules in investing is to refrain from making emotional decisions. It’s easy to get swept away emotionally when the market negatively wreaks havoc on your finances. But if you stay true to your investment strategy and avoid making decisions when emotions are running high, you won’t run the risk of losing even more.
Remember, bear markets have happened before and they will happen again. As long as you have created a disciplined financial plan and have a trusted advisor monitoring your money, you’re doing your part to prepare. If you don’t have someone you can turn to when the market gets wild, we’d love to support you and help you build your finances for a strong future. Schedule a 20-minute introductory call or reach out to me at 908-895-2406 or email@example.com to see if I’m the right fit to help you on your financial journey.
About MargeMarjorie Rand is founder and financial advisor at Rand Financial Planning, a comprehensive, fee-only, fiduciary financial planning firm. Marge specializes in helping her clients plan for a secure retirement and navigate life’s many transitions through customized, tax-efficient retirement planning. She is passionate about empowering her clients to make the best financial decisions for their life and being by their side no matter what life throws at them. Marjorie spent many years as a CPA before founding Rand Financial Planning so she could be a go-to source for all her clients’ financial needs and help them avoid costly mistakes. She has a bachelor’s degree in accounting from Rutgers University and a Master of Science in Taxation from Fairleigh Dickinson University, along with the Retirement Income Certified Professional® (RICP®) and CERTIFIED FINANCIAL PLANNER™ certifications. When she’s not working, Marge enjoys boating, horseback riding, traveling, and hiking with her husband and her dog, Rangeley. To learn more about Marjorie, connect with her on LinkedIn.