The Importance of Financial Planning During a Bear Market

Financial planning is never more valuable than it is during times like these. But it needs to be an ongoing process rather than a one-time event. The best way to illustrate this is to get specific. Here is a short video that explains how we’ve been working with our clients and the type of planning we’ve done:

  Recession Preparation For more than a year now, we've been beating the drum on the need to prepare for a recession, including customized tools like our Recession Prep Scorecard™. The framework we created for that is just as applicable now as it was before this pandemic because it unpacks the essence of effective planning. We’ve found that one of the most helpful ways to think about your retirement security in light of negative contingencies is to organize potential changes into three categories:
  • First, there are the things you have total control over like your investment allocation and discretionary expenses.
  • Next are those things over which you have some control such as your income tax bill or the total amount of assets available to fund your goals.
  • The last category covers those events over which you have no control. These are events such as the ongoing global pandemic. Now, more than ever, we are all well aware of the extent to which broad events outside of our control can have a major impact on our personal finances.
The beauty of comprehensive wealth planning in a time like this is that it addresses all three categories. It's action-oriented so that you don't just have to passively sit back and feel helpless in the midst of whatever bad news continues to arise. Instead you have a plan which gives context for good decision-making and a means for evaluating how a drop in your investment values has impacted the ability for you to meet your goals.   Retirement Shock Absorber® We use what we call our Retirement Shock Absorber® which compares your total capital available with your total capital needed, which is the net present value of all your future expenses. The Retirement Shock Absorber® is the amount of excess capital which provides a buffer against unexpected circumstances like we’re currently experiencing. As the plan is updated, a market downturn like we've had will diminish the amount of their Shock Absorber but for the majority of our clients they still have a cushion remaining. They are still okay because they had a plan that was built to withstand even this type of volatility. (You can learn more about the Retirement Shock Absorber® by reviewing this section of our proprietary tools page.) If you need to make changes, you can re-evaluate your level of spending or find opportunities to invest in high quality companies selling at a discount. You can also find the silver lining of tax minimization by trading accounts to harvest losses.   Creating a Personalized Score We've distilled all of this down into a one pager we call our Recession Prep Scorecard™ We've used this methodology for all of our clients and, even if you're not a client, we'd be happy to provide a complementary scorecard for you to help assess your situation. If you're interested in a second opinion, just take a few minutes to complete this questionnaire.   Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.