By David Koch, CFP®, AIF®, CFA, Senior Wealth Advisor
Severe market volatility can impact investors differently long term, depending on where they stand in their own investing and spending lives. This quick-read blog piece is meant to provide a review of what you should be considering at present, depending on where you are in your life.
If you’re a Halbert Hargrove client, you’ve no doubt received communications from us on our paradigm of the 3 Phases of Financial Life – accumulation, transition, and decumulation. Our most recent Quarterly Insights, Volatility: What a Drag (Volatility Article) discussed at some length the various impacts volatility can have on a portfolio. (A re-read from today’s perspective can’t hurt!)
One point we emphasized that’s currently all-too-salient: How any need to spend down assets during a period of high volatility results in a “deep hole” that can be exceedingly difficult to emerge from.
Here’s what you should be thinking about – again, this depends on which of the 3 Phases you live in at present.
Accumulation
First, evaluate your job security. If you think you’re at risk, make sure you have emergency cash at the bank.
- Review your budget and make decisions on what spending is essential vs. what you can eliminate or trim right now.
- In brief, this is a good opportunity to tighten your belt.
If you’re in the fortunate position where you’re confident in your job security, keep contributing to your 401k or other retirement savings plan if you have one. You should also think about upping your contribution amounts if you can. This is what we described as “adding resources on dips” in our Q1 2020 Quarterly Insights: Those with a long-term investing time horizon can opportunistically take advantage of market downturns to “buy low.”
Transition
Review your financial plan. This is important: You need this knowledge to ground you during these market gyrations. This is also a chance to review your budget and time horizons. Based on what you know:
- For you, does this mean working longer? Saving more? Spending less?
- Go through these scenarios with your advisor.
Avoid trading in your portfolios. The market has already corrected. If you haven’t gotten out of the way, it’s probably already too late. Investment discipline is the byword here.
Decumulation
If you can pause or reduce distributions for a couple of months, that might be a good idea.
- Asset returns are going to be volatile. If you can match your spending with investment returns, your portfolio may last considerably longer.
- Here’s a truism that you’ve likely heard from us already: You can spend more in good years if you spend less during down times in the markets.
In sum: Don’t do anything drastic with regard to the markets and investing. As an HH client, you should already be well diversified.
True diversification means that there will always be something you can draw on if you need funds to support your current living expenses.
These are the tough times we help you invest and prepare for. Questions? We’re here.
For more information or questions, please contact Halbert Hargrove at hhteam@halberthargrove.com
