Uncategorized Archives - Financial Planner and Investment Advisor for Busy Bay Area Families

Lately it seems as if every client or potential client I see asks about the possibility of a looming market correction.

Investors are loving these good times, but they’re smart. They know the market runs in cycles, and the good times can’t last forever.

The markets keep hitting record highs. We’re in the second-longest bull run in history. And yet there’s uncertainty, too, globally and in this country with our new president.

When people ask if a correction is coming and what they should do to prepare, my answer for most is: Stay the course.

Whether you’re still working or already retired, consistency pays off. Especially in uncertain times, when a market correction is on many people’s minds, it may be best to stick to your plan. If you overreact, you could end up making financial decisions that may set you back in your strategy.

Of course, if you’re worried that the plan you have in place is not the best, that’s a different conversation. Then it may make sense to make some changes. If that’s the case, here are a few steps to consider:

1. Get professional advice.

Perhaps you’ve been handling things just fine on your own with your 401(k) or 403(b). As you near retirement, however, it’s time to speak to a specialist who can help you take the focus from accumulation and growth and put it on income planning and asset protection.

Many financial professionals will consult with a potential client once or twice with no obligation, so you can get a feel for whether you’re a good fit. You should ask for an analysis to see if there are any redundancies in your current portfolio, if you are truly diversified and if you are paying any unnecessary fees.

You also should talk about risk — how much you can stomach emotionally, how much you can afford and how much is in your current portfolio. Your financial professional can use a program like Riskalyze to help assess and align your risk. That is especially important if you’re anticipating a market downturn and might be tempted to make trades based on your anxiety.

2. Set up a retirement blueprint.

A lot of people have piles of statements from different accounts, but that doesn’t always mean they have a strategy in place. In retirement, you need a detailed plan for your money. That plan should help give you more confidence that you’ll be OK.

People tend to get out of the market when it’s down, and by then they may have already lost money. Then they may get back in when it’s coming around again … but by then, most of the gains could already have been made. That bad timing can be very costly.

3. Know the difference between a pullback, a correction and a bear market.

Everyone is talking about a coming correction, but what exactly does that mean? It isn’t the same as a pullback — typically defined as a short-term decline of 5% to 9% from a recent high. And it isn’t as menacing as a bear market, which is a downturn of 20% or more that can last for months.

A correction is the middle ground — a 10% to 19% drop from recent highs. It’s a little scarier than a pullback, but it’s still temporary. It is sometimes an indicator that we’re going to have a bear market, but that’s not always the case. It can be an opportunity for investors hoping to get discounted prices. Unfortunately, it’s also when some people go wrong based on their emotions. Fight the instinct to flee.

4. Diversify.

The old-school equation for diversification is a 60-40 split between equities and bonds — and that’s not always a bad scenario. But these days, there are so many more options, both for protection and growth.

If interest rates continue to rise, it could have a ripple effect, and the bond market likely will suffer. In retirement, that may not help you as an inflation hedge, so it’s important to look at alternatives.

Are you ready to make a change or create your first real retirement plan. If so, find a financial professional who is focused on informing and enabling you, not selling you products. And be careful about what you read and hear. It’s good to have information, but what you see in the media isn’t necessarily tailored to your specific needs.

An experienced and knowledgeable financial professional with a retirement focus can help equip you to work toward your goals — while considering uncertainty in the market.

For today’s younger couples, taking a drive along the winding road of finances is a lot different than it used to be. There are so many choices—each one steering the young couple closer or further away from the dreams of a lifetime. Hanging in the balance are two individuals hoping that their decisions will be in their overall best interest.

To better understand some of the challenges facing young families, meet Raj and Priya Chopra. They’re both in their late twenties and were married three years ago. Priya is a registered nurse and Raj is a marketing representative for a medium-sized technology company. Up until this point, they’ve enjoyed a lifestyle supported by two incomes. Without children, they’ve been able to be somewhat carefree about their spending.

Now, however, they are contemplating buying a home and having children. This has certainly raised questions about the financial implications of enlarging their family, as well as their financial future. Although the Chopras’ jobs seem relatively secure, they have friends who work for companies that have experienced significant downsizing and who are less certain about their future employment situation. Moreover, some of their friends have lost jobs and are going through difficult transitions.

Discussions with family and friends have led them to the conclusion that uncertainty may be the defining characteristic of their generation. Emerging families like the Chopra’s are facing a new reality, one with much more uncertainty about the future than that faced by previous generations. Some of this uncertainty is tied to rapid technological changes and some is the result of the realization that they personally may be responsible for providing for themselves much of what was previously provided by others (e.g., pensions by employers; social programs by the government).

There are many issues facing Raj and Priya, and they’ll need to ask themselves some difficult questions such as: Will corporate downsizing eventually catch up to them? If Priya intends to return to work full-time after having a baby, how would they cope if one of them should lose their job? What about the world of work in general? Will they go through several career transitions over the course of their working lives due to an economy that might be changing constantly? Is there a way to protect themselves financially? How difficult will it be for them to save for a child’s education? What about saving for more than one child? They both participate in 401(k) plans at work, but will they be able to save enough for a comfortable retirement? What about Social Security? Will the system change significantly? Will they be protected should they become sick or disabled?

What can a young couple like Raj and Priya do? A good first step is to discuss the various alternative solutions to these difficult questions. By doing so, Raj and Priya will be able to arrive at a realistic assessment of what they should and should not do financially, what they can and cannot afford, and what sacrifices they might need to make to assure financial security for both today and tomorrow. They know that their spending choices will have to be made carefully, and that preparing for a bright financial future will require setting goals now.

As the Chopra’s continue down the road of finances and look to expand their family, they can be a bit more optimistic about their future. The financial decisions they make today will make them less likely to be caught off guard by sudden economic or personal “bump in the road” tomorrow.

Is your 401k optimized to help you meet your retirement goals? Want to learn how to save thousands in taxes by making tax efficient invstments? Is your family covered if something were to happen to you or your spouse? Need help making these decisions? Talk to an advisor with your best interest in mind.

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