Staying the course in Volatile Market doesn’t mean Standing Still
Consider Portfolio and Planning clean up during volatile markets
When markets are as volatile as what we’ve been experiencing, it can actually be a good time to make progress toward your long-term financial objectives.
No matter what’s happening in the economy and financial markets, we’re always on the lookout for ways to bring you closer to your goals; even as we remain focused on executing your financial plan, we’re never standing still.
With that in mind, the current situation presents us with opportunities to “clean up,” or fine tune a few aspects of your portfolio and how you access money to sustain your retirement.
The checklist below outlines the three main categories in which we might have room to optimize: asset allocation, tax efficiency, and retirement strategies.
Staying the course doesn’t have to mean standing still
TOPICS WE CAN DISCUSS:
Asset allocation
Consider rebalancing. Reevaluate risk tolerance. Review active versus passive holdings. Review high-cost versus low-cost holdings. Address concentrated equity positions.
Tax Efficiency
Review funds for tax efficiency. Review accounts; possibly rebalance to original policy asset location. Evaluate the merits of a Roth conversion.
Retirement Strategies
Discuss strategies for spending in retirement. Discuss withdrawal order from taxable and tax-advantaged accounts. Discuss spending rates. Review clients’ liquidity buffer. Assess the impact of any new laws and regulations such as the SECURE Act and the CARES Act.
Asset Allocation
Assessing this dimension includes rebalancing the portfolio considering any change in the risk tolerance due to market volatility or change in the financial status. This also provides an opportunity to review overall portfolio for any concentrated equity positions, diversification requirements and the cost.
Tax Efficiency
You can examine the tax efficiency both at the fund level and at the account level.
Fund Level: Are the funds tax efficient or not (for example funds with high turnover rates are not tax efficient)? If they are not, can they be replaced with the funds that are tax efficient?
Account Level: This might be the time to consider rebalancing in a way similar to rebalancing the assets. For some, it could make sense to consider a Roth Conversion. In converting a traditional IRA or 401(k) to a Roth, you have to consider the timing for the payment of taxes.
Retirement Strategies
Investors close to or in retirement may be worried about the adequacy of their nest egg to fund their lifestyles after a market downturn drastically downsizes their portfolios. This is good time to revisit strategies for spending in retirement, withdrawal order from taxable, tax-advantaged accounts and spending rates.
Ideally investors close to or in retirement should have cash or lower-risk assets to cover living expenses for 12 to 18 months. It might be beneficial to explore the options to maintain a safe liquidity buffer.
Remember: Recoveries have rewarded patience
If you’ve ever taken an economics course, you might remember this basic principle: Economies and financial markets, such as the stock and bond markets, move in cycles. That is, you can count on markets to experience lows, when prices fall, and peaks, when prices reach their highest. While no one has perfected the science of knowing exactly when those lows and highs will occur, you know the financial markets (and most global economies) will eventually come back around.
Which of these items—if any—we evaluate in greater depth will depend on your specific circumstances. The key thing to remember: Even during events that lie largely out of anyone’s control, you still have meaningful levers within your control to keep your financial goals on track. As you have questions about putting any of the above topics into practice, please contact us, as we’re here to help.