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5 Tips to Stay Calm During a Market Downturn

5 Tips to Stay Calm During a Market Downturn

Is the economy slowing down? How will rising interest rates impact my finances? Is a recession around the corner? Scroll through any newsfeed and you’ll hear these unsettling questions. And while the headlines can be alarming, we remind our clients of the benefits of staying calm, cool, and collected—keeping their eyes off the headlines and focused on the end goals we have set up for them. 

 

Stay Invested

 

Some of the costliest mistakes investors make come down to one thing and one thing only…their emotions! If you have a sound investment strategy, there’s no reason to “jump ship” in a downturn. This is called panic selling. Panic-selling is when you sell your assets when values are down to try and avoid further loss, with the intention of “jumping back in” when the market has recovered. The thing is, though, that we never know when or where the bottom is, nor do we know when it will recover.

 

Remember Big Dips Can Precede Large Surges

 

And, because the market has some of its best days right after some of its worst, most investors miss out on the recovery and end up re-buying similar assets at a higher price—plus the liability on tax events they may have triggered by liquidating their assets. Just consider those who sold at the bottom of the March 2020 COVID-induced drop and missed out on the miraculous, V-shaped recovery we saw over the next two years.  If fear prompts you to sell, you could miss the upside.

 

Take Your Eyes (and Ears) Off the Market

 

Where focus goes, energy flows. The more you buy into the headlines, the more emotionally affected you may be by them. But no matter how diligently we watch the headlines, none of us can control what will happen with the stock market. So, if you feel the noise in the media tempting you to make a financial move you might regret, just tune out the noise. And of course, connect with your financial advisor to discuss your concerns. This is often all that is needed to restore a sense of peace and confidence in the financial plan.

 

Focus on What You Can Control

 

There are some aspects of our financial lives that we can control with our actions, and others we cannot. As discussed earlier, we can’t predict market volatility – and we certainly can’t control it – but we can understand that its disruptions are temporary and won’t result in permanent loss. As long as your advisor is re-balancing and speaking with you about how they are handling your portfolio during the downturn, it’s unlikely there is much needed from you—except, of course, your trust in the process, the plan, and the long-term goals your advisor set up for you.

 

Lean on the Help of Your Financial Advisor

 

Your financial advisor is here to help you with more than just investment management, tax planning, and retirement planning. We are here to help you stay even-keeled and level-headed when major and minor events threaten your cool. Of course, we update, re-balance, and diversify your portfolio ongoing to make sure you stay on track to reach your goals, but if a market downturn has you worried, we’d be happy to go over your financial plans with you at any time.

 

Remember, the market moves up and down daily. Market downturns (and upswings) are par for the investing course. We’re here to help you make the most of each situation to maximize your returns long-term.

 

 

 

 

 

Are you on track for retirement?

 

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Is the 60/40 Portfolio Allocation too Risky Now?

Is the 60/40 Portfolio Allocation too Risky Now?

For over seven decades, the 60/40 portfolio allocation has been the stalwart strategy of retirement planners with a high degree of success until recently. More recently, the tried and true portfolio mix has come under pressure, mounting uncharacteristic losses that may indicate it has lost its luster. What has changed for the 60/40 allocation, and has it become too risky?

 

Background on the 60/40 Allocation

 

The 60/40 portfolio has been around for more than 70 years, but it was popularized by Vanguard founder and investing great John Bogle. The research and data available at the time showed it to be an optimal allocation using stocks to drive returns and bonds to provide ballast during volatile markets. It was considered a balanced portfolio that could achieve growth while minimizing volatility and downside risk. A 60/40 portfolio regularly outperformed all stock or all bond portfolios.

 

It worked because, during most of that period, stocks and bonds had a low correlation with one another. When stocks were performing well, bonds were underperforming, and vice versa. But in 2021, that equilibrium suddenly changed. In the final quarter of 2021 through the current month, stocks and bonds became highly correlated, with both performing poorly. Instead of a portfolio where bonds are tempering the slumping returns of stocks, they have now become an additional drag on it. That’s not what investors sign up for with a 60/40 portfolio allocation.

 

It’s important to understand that the 60/40 rule was established long ago under different economic and market conditions. It performed exceptionally well over the last several decades because it was a time of historic gains in the bond market. That’s because interest rates had been in a sustained decline since the 1980s. Not anymore.

 

That was Then. This is Now

 

With the recent surge in inflation, the likes we haven’t seen in more than 40 years, the conditions for bonds have changed to the detriment of 60/40. To cool inflation, interest rates must rise. When interest rates rise, bond prices fall, which they have been doing for most of this year. Interest rates will continue to climb depending on how long and high inflation will run, making it difficult for bonds to fulfill their role as a defensive hedge.

 

If you believe the experts, investors in a 60/40 portfolio should downsize their return expectations over the next decade. Vanguard forecasts a relatively low median annual return of less than 4% through 2031. That’s well below the 7% annual return target of a 60/40 portfolio, primarily due to declining bond prices. 

 

Is it Time to Consider Total Return Alternatives?

 

If high inflation persists, investors now have to worry about the possibility of negative returns on their investments. For some investors, especially those with longer time horizons, it may be time to change the allocation rule with less emphasis on bonds and more emphasis on total returns. Several bond alternatives provide diversification while enhancing total return opportunities.

 

Utility stocks: Utility stocks act similarly to bonds because they offer high yields and relative safety. Some of the better utility stocks have a record of steady earnings and dividend growth. While utility stock prices can be sensitive to rising interest rates like bonds, they offer higher total return potential. 

 

High-quality dividend-paying stocks: High-quality companies with a long history of paying annual dividends and increasing them over time are a reliable source of income. They also tend to be less volatile than the rest of the stock market, making them a great diversifier. The dividend acts as a cushion against declining share prices. 

 

Real estate investment trusts (REITs): REITs are professionally managed real estate portfolios that hold up well in an inflationary environment. Many are required to pay out up to 90 percent of their earnings as dividends, making them a reliable income source. 

 

Though it may not be entirely over for the venerable 60/40 portfolio allocation, it may be a while before it recaptures its magic, which calls for some rule adjustments in the meantime. The adjustments don’t have to be radical—perhaps moving from a 60/40 stock and bond allocation to a 60/20/20 stock, bond, utility stock, high-quality dividend stock allocation, or some combination of all the above. 

 

However, any changes to a long-term investment strategy should always be made in consultation with an investment advisor with the expertise and tools to help you assess your circumstances and create an allocation consistent with your investment objectives, time horizon, and risk profile.

 

 

 

 

Are you on track for retirement?

 

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand-alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

Protect Your Inheritance. Enhance Your Life.

Protect Your Inheritance. Enhance Your Life.

Whether it is expected or unforeseen, receiving an inheritance can be life-changing. Regrettably, it’s not always in a good way. That’s because the reality is that many folks struggle to preserve what they’ve inherited in such a way that enhances their life over both the near and long term.

 

In fact, the track record for Americans is pretty abysmal. Only two-thirds manage to increase their wealth after receiving an inheritance, and nearly 90% of families manage to waste it entirely when it passes to the next generation. 

 

Much of this can be attributed to two factors: (1) the heirs’ unwillingness or inability to act responsibly and/or (2) a lack of true understanding about what it means to be a steward of the family’s legacy. The latter tends to happen when family members lack a shared vision and purpose for their legacies. But almost always, it really comes down to poor decision-making and money mismanagement. 

 

Inheriting money should be a blessing, not a curse. But it takes the right perspective and the willingness to manage it with a clear purpose to get right. An inheritance that is honored and preserved provides the potential to change you and your family’s financial trajectory (and that of your heirs, as well). 

 

With this in mind, we’ve compiled a list of five things you can do to protect your inheritance and enhance your life so your family’s legacy is put to purposeful use.

 

 

1) Take a Step Back. Pause. Reflect.

 

There’s no rush in deciding what to do with your inheritance. It will be perfectly safe sitting in a zero-risk money market account while you take the time to evaluate your next steps thoroughly. While you might be tempted to make some moves right away, we encourage you to wait until you’ve consulted with your advisory team before you start dispersing the funds.

 

Primarily, this is because major money moves should never be made in isolation, but in the context of your overall financial picture. You need to see how the implications of your decisions could or will affect the other financial areas of your life. There may be better options for the allocation of your funds you aren’t aware of, or tax implications for your decisions that could come back and cost you. Making strategic decisions will be imperative in preserving and maximizing what you’ve inherited.

 

 

2) Build Your Dream Advisory Team.

 

Managing personal finances can be complex, and receiving a large sum all at once can magnify the complexities and implications of your decisions, especially regarding taxes and the estate.

 

Not only will you need an investment strategy based on your family’s goals, priorities, and risk profile., you’ll also need to consider the increased risk exposure you could have and how to protect against it. All of these considerations, and more, need to be integrated into a comprehensive financial plan that will optimize the value of your legacy. 

 

To build your dream financial advisory team, you’ll need to enlist the help of the following professionals: a financial advisor, a tax professional (preferably a CPA), and an estate attorney. Your financial advisor, or team of advisors, can then guide the other members of the team to make the planning and tax decisions that are best for you and your circumstances.

 

 

3) Clearly Define Your Life Ambitions.

 

Getting clear on what you’d like your life to look life is critical before you start spending. Plus, this is the fun part. You get to dream big and decide how you’ll align your resources with what matters to you most. Maybe it’s retiring early, fully funding your children’s’ college funds, or even investing in real estate. Have you always wanted to start a business? Travel more often. Buy a vacation home. Perhaps be able to work remotely doing something you’re passionate about. The way to get there is with the right planning performed up front.

 

Plus, we have found that the people with no clear vision or purpose for how they want to use their money tend to waste it on the “pursuit of more,” which ultimately brings no lasting fulfillment and leads to a lot of personal and financial disappointment. But people who set clearly defined goals that align with the purpose they see in their life are able to make smarter decisions about their money. They have clarity and conviction about how they want things to turn out, and put the plans in place to get them there.

 

At the end of the day, clarity on your big picture helps to streamline your financial plans and investment decisions. Any decision, strategy, or investment option that doesn’t get you closer to your goal should be eliminated.  

 

 

4) Addressing Immediate Priorities.

 

We know you are likely anxious to cross some financial to-dos off your list. Depending on your circumstances, there may be some things you can do right now to enhance your financial position while checking off some financial planning boxes. Remember, any financial decision you make should be made in consultation with your advisory team based on your long-term goals. So, if you are unsure, always err on the side of caution and wait until you have sought the appropriate counsel.

 

  • Pay off Smaller, High-Interest Debts

 

If you have the capacity to pay off smaller, high-interest consumer debts that will improve your cash flow, it may make sense to handle these sooner rather than later. Student loans would be the next in line of priorities, but depending on the amount, you may want to consult with your financial advisor before selling equity positions to reconcile these debts. You need to weigh the relative merits of your desired outcome with the realities of the decision to see what makes the most sense for your long-term financial security.

 

  • Bolster Your Emergency Fund

 

Increase your emergency fund to make sure it can be used for unexpected expenses, such as major medical bills, home or car repairs, or to cover living expenses for up to six months if you lose your income to a job loss or disability. 

 

5) Bigger Picture Goals to Consider

 

  • Funding Your Children’s College Education

 

If the funds are available, this would be an essential box to check off your financial plan. It can be far less expensive to pre-fund your children’s education while they’re young, and if you can do it with a lump sum investment, you can set it and forget it. Your financial planner can help you determine how much to invest now to cover educational expenses and the best vehicle to use. 

 

  • Funding Your Retirement

 

Depending on how large your inheritance is, if you have enough to pre-fund your retirement, it would be another critical box to check. Allocating a portion of your assets to secure your retirement will give you the confidence to freely allocate your other assets to pursue other goals. Again, your financial planner can help you calculate your income needs in retirement and guide you in developing an appropriate investment strategy. 

 

 

6) Honor the Legacy 

 

To honor the legacy bequeathed to you, you must become its steward, ensuring that it will benefit both you and future generations. Your success in accomplishing that will rely primarily on the decisions you make and how well you prepare the next generation for their eventual job as stewards after your passing.

 

Work with your estate attorney to develop a plan designed to preserve your estate and maximize it for your heirs. Include your children in any discussions having to do with your family’s vision and purpose for the legacy, as well as the values and attitudes about money you want to instill in your children. 

Most people who bequeath a large sum of money want to know that it will benefit future generations. After all, that’s what leaving a legacy is all about.

 

Creating Your Financial Strategy

At Platt Wealth Management, we know that life is about so much more than accumulated wealth and that real, impactful financial planning starts with what you want most out of life. That’s why our mission is to provide the financial expertise our clients need to think through and achieve the dreams they never thought possible. If this sounds like the financial advisory relationship you’re looking for, we encourage you to reach out and schedule your complimentary appointment with our team today. Or you can call the office directly @ 619-255-9554. We look forward to meeting you.

 

 

 

 

 

Are you on track for retirement?

 

Making sure you will be ready for retirement can be overwhelming. Funding your retirement accounts over the years is a critical part of your journey to the retirement of your dreams. An experienced Financial Advisor can help you navigate the complexities of investment management. Talk to a Financial Advisor>

Dream. Plan. Do.

Platt Wealth Management offers financial plans to answer your important financial questions. Where are you? Where do you want to be? How can you get there? Our four-step financial planning process is designed to be a road map to get you where you want to go while providing flexibility to adapt to changes along the route. We offer stand alone plans or full wealth management plans that include our investment management services. Give us a call today to set up a complimentary review. 619-255-9554.

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