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Volatility: Is it all bad?

Stock Volatility Chart
 
In light of the recent volatility, we thought this would be a good time to discuss whether or not volatility is all bad; we don’t think so.  When turning on the radio and television or logging into Twitter, Facebook, LinkedIn or Instagram, one would think that volatility is a terrible thing that requires you to panic and make changes to your portfolio immediately.
 
There appears to be a pre-notion that market volatility is nothing but a detriment to markets and investors.  This is further promulgated by all of the various mediums mentioned.  Although there are inherent negative aspects, this line of thinking can be dangerous. Acting solely on short-term volatility can do more harm than good. Volatility can drive the novice investor to question his or her own investment strategies, strictly due to short-term fear. It is crucial for investors to understand that volatility is inevitable and attempting to navigate around it is risky. Markets tend to move up and down in the short-term and volatility should not be the deciding factor as to whether or not investors should immediately exit. With a strong understanding of volatility and its causes, investors potentially can take advantage of investment opportunities which may result from volatile markets. 
 
Although volatility sounds terrifying, it is important for investors to develop a strong working knowledge of it so that they can make educated investment decisions. Market volatility is the statistical measure of a market or security’s tendency to rise or fall sharply within a short period of time. Measured by standard deviation, volatility can be caused by the imbalances seen within trade orders in one direction or another. Volatile markets are characterized by wide price fluctuations and/or heavy trading. It is important to note that there can be many catalysts behind the causes of market volatility. With that in mind, investors can leverage their time more effectively by learning strategies to deal with volatility instead of trying to prevent it.
 
One effective method commonly used in times of market volatility is to stay the course. This means that as an investor, you ignore the short-term chaos and leave your investments status-quo until the volatility passes. You stay the course despite the current overreaction of the market. Even though this may seem lazy and counterproductive, it may insulate you from losses associated with attempting to time the market.  It is virtually impossible to time the top to determine when to get out, and just as difficult to discern the bottom and when to get back in and invest again.  Typically, you would be better off to stay the course than attempt to time things and not be able to do it well.  This bad timing can further exacerbate your losses during these volatile times.
 
Market volatility can also create opportunities that an astute investor can use to their advantage. Volatility can provide entry points for those investors whose time horizon and investment strategy is long-term. Downward market volatility presents investors, who are bullish and believe markets will perform well in the long-run, with the opportunity to purchase additional shares at lower prices. Increasing your position at a discount can be a very powerful strategy. In effect, you are lowering your average cost per share of that particular security.  
 
This volatility provides an excellent environment for those with long-term time horizons, especially millennials and later generations, with an opportunity to increase their returns over time by making additional investments.  This may sound and feel counterproductive at the time, but could add significantly to the investor’s performance.  
 
It is usually difficult to go against what conventional wisdom may tell you, but investments tend to be one of the things people stay away from when they are on sale.  I would argue this is a great time to invest funds that you may have on the sidelines and liquidate and redeploy underperforming assets in order to get this money to work while the opportunity presents itself.  This thinking must be also in line with your risk tolerance, time horizons and overall objectives.  
 
Volatility should not been seen as an evil to your portfolio.  Assuming you have a plan that outlines your goals, objectives, and time horizon, you will want to maintain the course of the plan during both robust and difficult times.  It is ideal to make sure you revisit this at least annually with your advisor and make changes accordingly.  The first thing you should consider when volatility strikes is whether any of these areas have changed recently and you should update your advisor accordingly.  The goal is to have a plan before the storm hits and understand the plan to get you through the storm.  As we have seen time and time again, the storm always ends and brighter days with less volatility are ahead.
 
No matter how you elect to handle your investments during times of market volatility, it is very important to review your portfolio with a qualified financial advisor. Having a distinct philosophy for all markets will help you navigate without emotion. Please contact us if you do not have a plan to weather volatile times and would like to develop one.  This will not be the last period of volatility we see and you will want to make sure you are ready for the next time.  Contact Mitlin Financial at (631) 952-4466 x12 and allow us to help you navigate in a fashion that is conducive to your goals, investment needs, and risk tolerance.
 
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.
 

5 Habits You Should Start in the New Year

5 Habits Checklist

 

The New Year is underway, the holidays are behind us, and your financial situation is stabilizing now that you have paid all the bills.  Now it is time to begin to think about how you are going to help your financial future.  The New Year is always a good time to start new habits- realize I did not say “make resolutions”.  As a firm, we find that people who make resolutions typically end up retreating on them within 1 to 8 weeks of making them.  Habits, however, once started and continued will become a part of your daily life, and they tend to stick around for the long term.  Depending on the person, habits may take 21 to 60 days to become a part of your daily life.

There are five habits you should start today that will help you in reaching and attaining both your short term and long term goals.

1) Create a Budget

Take stock of how much income you have coming into your household each month and what expenses your income is paying each month.  You can do this by simply putting pen to paper or utilizing an online tool that will track this for you.  Each month, review the expenses and see if there are items that can be reduced or eliminated.  For instance, you may have forgotten about automatic monthly payments set up for services you no longer use.  This will put you in a position to review each expense and make sure it is a necessary one for your household.  In addition, you will have an excellent view of whether or not you are cash flow positive (having more income than expenses each month) or cash flow negative (having more expenses than income each month).

2) Start and Maintain an Emergency Fund

Years ago, our parents and grandparents frequently spoke about saving money for a rainy day.  The modern day term is an emergency fund.  Depending on your employment status, whether you are an employee or own your own business, and your level of comfort will dictate what size emergency fund you should maintain.  Each person is different, and we have recommended anywhere between a 6 month to 18 month emergency fund for clients.  This is money that should be kept in a separate account from the account by which you pay your monthly bills.  This account should be liquid, meaning you can use the money on a moment’s notice if needed.  A savings or money market account will work well for these monies.  You will want to determine what size your emergency fund should be and begin to accumulate funds until you reach that amount.  Once you reach the desired amount you should only use these monies for an emergency.  Things that may warrant you tapping into these funds may be the loss of a job or income, unexpected home or car repair, or simply any unexpected expense.  After the emergency is paid for, you will want to replenish this account at your earliest convenience.

3) Pay Yourself First

Ideally you want to pay yourself first each time you get paid, and then learn to live on the monies that are left.  There are a few ways to pay yourself first depending on your type of employment.  As an employee, you will want to take part in your company’s 401(k) or retirement plan.  A small business owner or independent contractor may want to consider setting up a retirement plan if they do not have one.  The last option would be for those that do not have, or cannot set up, a retirement plan and they would have to use either an IRA or brokerage account.  A good target would be to try and pay yourself 10% of your pre-tax earnings if you are deferring to a retirement account, which is preferred.  You may need to adjust this a bit if you are contributing after tax.

4) Review Beneficiary Designations Annually

We all face critical financial and life events that will impact us during the course of a given year.  You certainly would not want your assets to end up going to beneficiaries which you did not intend them to go.  Beneficiary designations should be reviewed at least annually, or if you experience a major life event or change.  Examples of times that you would want to review these designations would be: the birth of a child or grandchild, marriage, divorce, death, disability, or job change.  Whether you are digital or analog, place a reminder on your calendar to review this each year.

5) Rebalance Your Portfolio Annually

Rebalancing is something you will want to make sure you review at least annually; whether you manage your portfolio yourself or use an advisor.  Typically rebalancing has a tendency to get forgotten when markets are going up because people tend to get complacent and think there may be no risk in waiting.  Rebalancing will help you maintain your portfolio allocation and risk with its intended targets.  You may recall back in the late 1990’s, when technology investments were booming, the technology bust.  There were many investors that saw their portfolios assets allocation change from 10% allocation to technology stocks to 70% in a relatively short period of time.  In many cases this large allocation to technology was a huge overweight, meaning more money was allocated to that sector than you initially intended.  This was great while those securities were doing well, but what these investors did not realize was the risk they were imposing on their assets.  When the technology sector busted they had 70% of their portfolio at risk instead of the original 10%.  Had they rebalanced along the way, a good deal for this risk could have been avoided.

This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

2018 Happy New Year

New Year Photo Dream

 

Mitlin Financial Inc. would like to wish everyone that we work with a Healthy, Happy and Properous 2018! 

We hope that all of your dreams come true in the coming year.

Resolve to Get Your Financial House in Order

pexels photo 261460

The holidays and New Year are right around the corner. It is now the time to start thinking about what you can do to get your financial house in order for the coming year. The turn of the year is typically a time of reflection and planning to right areas that you may have let go astray in the previous year.

Implementing a financial plan is our top financial item you should resolve to address in the coming year. This vital item could have a tremendous impact on your financial future; not only for yourself in the coming year, but also for generations to come. 

The coming year should be used to design, develop, and implement a financial plan. Think about the amount of time that you spent last year in researching, booking, and mapping out your vacation. Was more time spent on planning your vacation or your financial future? I would argue that, in most cases, vacation won this battle. 

A financial plan is more than just a budget, reviewing your investment gains/losses, or even having a 180 page document that sits on a shelf or in a drawer. Your financial plan should be a living and breathing document. We have met with many clients over the years that have let us know they already have a financial plan, and we ask to review it with them. It is rare that we encounter someone with a plan that was completed recently and/or that they have actually looked at in the last few years. This is not a plan; this is merely a snapshot of their situation at a particular time.

The plan should reflect your current circumstances and address your future needs, wants, and wishes. At a minimum, the plan should review your retirement, education funding, estate planning, risk management, asset management, and emergency fund strategies. Ultimately, these are all fluid areas and simply taking a snapshot of where things stand today will not define your ability to get where you want to be in the future.  Some of the most important work that goes into a plan is the monitoring and updating of the plan over time.

In most cases, putting a plan together and reviewing your progress over time can consume a good deal of your time. We would recommend that you consider hiring a fiduciary advisor that can help you get started and monitor this process over time.

According to the CFP Board's Financial Planning Practice Standards, financial planning is a six step process as outlined here:

  1. Establishing and defining the client-planner relationship
  2. Gathering client data, including goals
  3. Analyzing and evaluating the client’s current financial status
  4. Developing and presenting recommendations and/or alternatives
  5. Implementing the recommendations
  6. Monitoring the recommendations

This process is a comprehensive overview of what a financial plan entails, and we cannot express enough the importance of step 6. You cannot develop a plan without monitoring and adjusting it as needed over time.

Mitlin Financial, Inc. believes this should not wait another year, and that you should start on your path to building your financial future. Be sure to contact us regarding your own situation and set up an appointment to see if we are a fit for you. Give us a call at (844) 4-MITLIN x12 and allow Mitlin Financial, Inc. to facilitate your financial future!

Disclaimer: This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.

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