World and national events continue to have an impact on our financial lives. If you’ve been needing to double check that your financial plan is still on track, or if you’re wondering whether you should make certain adjustments to your strategy, keep reading.
Here are a few recommendations for ensuring your financial plan is on solid footing heading into the next several months of continued uncertainty.
Don’t panic.
If you’ve been watching the market this year with gritted teeth, wondering if you should be selling, don’t. Pulling money out of the stock market in a panic is an understandable reaction to volatility and uncertainty, but it’s rarely the best course of action. Historically, stock market downturns have always been temporary. Long-term investors will always fare better by staying in.
What to do:
Persevere in your plan. Work with your wealth manager to understand your risk tolerance, prevent emotional investing behaviors, and implement strategies to protect your portfolio from adverse outcomes. These strategies could include investing in assets that are lowly or negatively correlated to the equity markets. Your wealth manager or financial advisor will be able to help you identify the best asset mix for your goals and objectives.
Be patient, not paralyzed.
If you’ve lost money in the recent stock market skirmishes, you might feel antsy to do whatever it takes to get it back as quickly as possible, or you might be having a deer-in-headlights moment, unsure what to do, so you’re not doing anything at all. Having fear of the stock market is an emotionally based, versus a data-based, response, but it can often mean investor paralysis. The best thing to do now is to look to the future, rather than getting stuck in the past wallowing over your losses.
What to do:
Even if you feel burned by recent losses and you’re nervous about reinvesting (or continuing to invest), don’t just stuff your money under your mattress. There are ways to invest that will position you to participate in the eventual rebound. Markets can take time to bounce back, but they will, if history says anything about it. Consider starting or increasing your monthly contributions (called “dollar-cost averaging”). This “dipping your toe in” strategy can help you feel more secure, while ensuring that your money is working for you.
Prepare for inflation.
If you’ve been paying attention to the financial news, you’ve likely heard that the Federal Reserve recently announced that it’s raising the acceptable hurdle rate for inflation: shifting from a precise inflation target to an average inflation target of 2%, keeping interest rates steady while supporting the growth of the labor market. While there’s much debate about whether and to what extent consumers and markets will be affected by inflation, it’s worth discussing some inflation-prep for your portfolio with your wealth manager.
What to do:
Talk with your wealth manager or financial advisor to assess what impact inflation could have on your portfolio, and to learn his or her recommendations. Two investments you might consider during an inflationary period include Treasury Inflation-Protected Securities (TIPS) and commodities.
