Investing is not something you can simply do in a vacuum and the goals of your portfolio should be tied to an overall financial plan. Overall, markets have been on the rise for the last ten years plus, but there certainly have been some hiccups along the way including the most recent effects of the pandemic.
Looking back in history, there are always events, incidents, political unrest, and other things that would make a good case for not investing. In many cases, these events tend to cause short term fluctuations and do not last forever. Depending on where you stand in terms of time horizon, these fluctuations could present an opportunity that may not be seen again or could be a tremendous stress.
Ideally you want to begin your investment process with an overall financial plan. This will provide you with the guidance needed to see if you are on or off track when markets take a change for the worse. Realistically we do not believe our investments will always go up, but at the same time there is a level of concern when they do not. Much of the anxiety we feel when our investments decline is not the loss of the money itself, but the fact of what those funds will buy us. Meaning, will our future goals be impacted by this decline in assets? Will we need to delay or adjust our retirement? This is where the plan comes in handy to provide you with a gauge to see if the market fluctuations could impede our goals.
Making adjustments is something that needs to be addressed with your portfolio on an ongoing basis, as we are all in a constant state of change. Events that take place may require you to make a change to your investments and others may allow you to keep things the same. Evaluating the changes to the markets and their impact on your overall plan is paramount and may be the driver to making adjustments that could lead to your success or failure in reaching your goals.
You must have an open line of communication with your wealth advisor as these events take place. As we have seen over the past ten plus years, many events that have taken place have not had a major impact on the overall success of the market. There have been significant short-term fluctuations at times, for example, the last quarter of 2018, but nothing that has lasted all that long or caused too much concern until the recent pandemic. The economic event we have been currently living through is unique in the fact that it is a health event causing an economic one. Anxiety is at an unusually high level because people are not only concerned about reaching their financial goals, but maintaining their health too.
Hindsight is always 2020, no pun intended. I look back over the years that I have been an advisor and recall several instances where clients were so concerned with short term events that they made rash and costly decisions. It is always wise to heed caution during a volatile incident, but you also want to make sure that it does not force you to do something that will sacrifice your long-term performance.
Flexibility and making adjustments over time are extremely important. You should make sure that your portfolio is an accurate representation of your time horizon, risk tolerance, and financial plan. When you know that this is true, this should help you feel more comfortable when markets adjust. It is those people that have not aligned their portfolio with these factors that may be in for a surprise. In cases like this, it may make sense to make some adjustments more quickly if your comfort level has gone out of range.
Many investors in recent years have made adjustments to the amount of equities they have versus bonds, simply because they have not been able to get the yield they need or expect from the bond market. This is a prime example of making an adjustment based upon market conditions and/or events. Many of these same people will most likely return a greater percentage of their investment assets to bonds when we see interest rates on bonds return to levels we saw in years past.
Developing and maintaining a financial plan and having your investments represent these goals will dictate if and when adjustments should be made to your portfolio. It all starts with having the proper risk, asset allocation in your portfolio, and plan for your future. I would be happy to discuss your situation regarding the asset allocation, risk profile of your portfolio, and overall plan.
Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time for this review. Be sure to share this article with friends, family, and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.