Amidst the positive narrative playing out via recent stock market records in the US (including strength in European markets) the “next episode” in the markets and economy could be more of a letdown. Use this time amidst the market’s gains to identify what to worry about and actions that can be taken NOW to craft a better ending to the story.
The following is a non-comprehensive list of “constructive worries” (or concerns) that if managed year-round can greatly increase the ability to cope with inevitable market declines or letdowns – and enjoy more the experience of investing over our lifetimes.
Numero Uno (or #1) Asset Allocation.
- Plain and simple, establishing and sticking with an Asset Allocation (percentage amounts of stocks, bonds, cash, real estate, business assets) is at the forefront of lessening worry over a portfolio. Asset allocation is defined at the inception of an investment plan and can be adjusted over time based on goals. Defining an asset allocation will not eliminate declines in a portfolio; but, done right, it can allow a portfolio to recover and stay on track after big and even prolonged declines.
#2 Behavior amidst investing.
- Behavior can be taught and improved by getting professional advice, doing research – or a wise combination of the two. At least two behaviors, worry and fear, can lead to fatal investment decisions. Another behavior, discipline, can be difficult but crucial to long-term saving and investing success.
#3 Cash and having enough cash. (A subset of #1)
- Worrying about having enough cash – no matter your level of income – can be torture. Creating an emergency fund, a rainy-day fund, or a “peace of mind” amount of cash on hand can take several years but the earlier this item is tackled the better. Spending is the biggest factor (along with level of income).
- Especially with the recent tax law changes, have a clear understanding of how small things done today can affect your future tax burden. Be informed about the taxes around various savings vehicles:
- traditional vs. Roth IRAs
- pre-tax vs. after-tax 401k
- saving for healthcare and HSAs
- which types of insurance to choose
- the taxation of retirement income today or someday
- taxes on an inheritance
- …the list goes on.
There are at least several more items for the “list of worries” that can be added in another edition of TGIF 2 Minutes. But notice a few items NOT on the list above: Tariffs, Federal Reserve interest rate policy, trade negotiations, politics. These things will always be a part of the economy and world markets – and they are mostly out of our direct control. ALL of the items #1 – #4 above are within our control or, in the case of taxes, can be managed.
Worry is mostly unhealthy – but it is also partly what you pay your financial adviser to do for you! I will be taking the weekend off from worry best I can – but be assured ALL of #1- #4 above are items I worry about A LOT for my clients.