By Joe Arnold, AIF®
It’s no secret that things in our world are a bit uncertain these days. It feels like we’re constantly waiting for the other shoe to drop. Most of us dislike this level of uncertainty, but do you know what dislikes it even more? The market.
As of May 9, the market as a whole is down 16% for 2022, with many of those losses coming in April. (1) And even the big guns were not immune to this drop, with Netflix, Spotify, Amazon, and Google posting significant double-digit declines. (2,3) As a result, many economic leaders are predicting a recession by 2023. (4) We can point our fingers at many factors as the cause of our recent nail biting, such as rampant inflation, the Fed’s solution of increasing interest rates, and international unrest, but the fact remains that we have no control over any of that.
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.
Big-Picture Planning
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.
We also watch over your money like a hawk, and when it’s time to get out of an investment because the risk is rising, we will contact you about adjusting your allocation.
Beyond Basic Diversification
We’ve all heard about the importance of diversification when it comes to maximizing our investments. But diversification should involve more than just maintaining a balance between stocks and bonds, especially when traditional investments are volatile.
There are many alternative investments, but some of the most common include cryptocurrency, real estate, private real estate investment trusts (REITs), private equity, hedge funds, and precious metals (either directly or as an underlying asset in an exchange-traded fund). In general, the point of an alternative investment is that it behaves differently than stocks and bonds, which adds value to your portfolio by acting as a diversifier. We can help you add alternative investments to your portfolio, spreading out your risk even further.
Timing Matters
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”), (5) 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 who is monitoring your money, you are 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. Reach out to us today to schedule an introductory call by calling (440) 899-7535 or emailing me at jarnold@foundationwa.com.
About Joe
Joe Arnold is an independent financial advisor and the founder and president of Foundation Wealth Advisors, LLC, an independent firm whose advisors provide private investment management for individuals and families, as well as retirement plan consulting for small and mid-sized businesses. With over 20 years of experience in the financial industry, Joe specializes in providing objective advice to individuals, as well as transparency in building and managing company 401(k) retirement plans. He is committed to putting his clients’ best interests first in all decision-making and recommendations. Based in Westlake, Ohio, he serves clients in the Cleveland, Akron, and surrounding areas, as well as throughout the country. Joe received a bachelor’s degree in business administration from Cleveland State University and is an Accredited Investment Fiduciary® (AIF®) professional. He has been featured on national television, including CNBC and FOX Business, and quoted in various publications, including The Wall Street Journal, CNN Money, Forbes, and others. Joe lives in Rocky River, Ohio, with his wife, Allison, and their two grown children, Kevin and Keira. An avid golfer, he is a former Class A PGA of America teaching professional and NCAA Division 1 athlete. When he’s not working, he enjoys playing golf, reading, and honing his culinary skills. To learn more about Joe, connect with him on LinkedIn.
______________
(2) https://www.bloomberg.com/news/newsletters/2022-05-01/netflix-disney-and-facebook-are-tanking
(5) https://www.lifehealth.com/navigating-retirements-fragile-decade/