Lately it seems as if everyone is concerned about a Recession. Investors enjoyed a decade plus of good times, but they’re smart — they know the market runs in cycles, and the good times can’t last forever. The markets have corrected at least -20%…and economic uncertainty remains globally and within this country. Whether you’re still working or already retired, having a financial plan pays off. Especially in uncertain times, when a recession is on many people’s minds, it is best to revisit your financial plan. If you don’t, if you overreact, you could end up making financial decisions that may set you back in your strategy. Of course, if you’re worried that the financial plan you have in place is not the best, that’s a different conversation. Then it may make sense to make some changes. If that’s the case, here are a few steps to consider:
1. Get professional advice.
Perhaps you’ve been handling things just fine on your own with your 401(k) or 403(b). As you near retirement, however, it’s time to speak to a specialist who can help you take the focus from accumulation and growth and put it on income planning and asset protection. Many financial professionals will consult with a potential client once or twice with no obligation, so you can get a feel for whether you’re a good fit. You should ask for an analysis to see if there are any redundancies in your current portfolio, if you are truly diversified and if you are paying any unnecessary fees. You also should talk about risk — how much you can stomach emotionally, how much you can afford and how much is in your current portfolio. Your financial professional can use a program like Riskalyze to help assess and align your risk. That is especially important if you’re anticipating a market downturn and might be tempted to make trades based on your anxiety.
2. Set up a retirement blueprint.
A lot of people have piles of statements from different accounts, but that doesn’t always mean they have a strategy in place. In retirement, you need a detailed plan for your money — and that plan should help give you more confidence that you’ll be OK. People tend to get out of the market when it’s down, and by then they may have already lost money. Then they may get back in when it’s coming around again … but by then, most of the gains could already have been made. That bad timing can be very costly.
3. Know the difference between a pullback, a correction and a bear market.
A pullback — typically defined as a short-term decline of 5% to 9% from a recent high. And it isn’t as menacing as a bear market, which is a downturn of 20% or more that can last for months. A correction is the middle ground — a 10% to 19% drop from recent highs. It’s a little scarier than a pullback, but it’s still temporary. It is sometimes an indicator that we’re going to have a bear market, but that’s not always the case. Technically, the markets have entered a bear market with a decline of at least -20% in 2022. Have you reviewed your Plan to understand how time periods like 1973-1974 or 2000-2002 may affect your financial life?
The old-school equation for diversification is a 60-40 split between equities and bonds — and that’s not always a bad scenario. But these days, there are so many more options, both for protection and growth. As interest rates continue to rise, the bond market will lose value; as it has so far in 2022 (decline -9%). In retirement, this will not help you as an inflation hedge, so it’s important to review and understand all of your options. If you’re ready to make a change or create your first real retirement plan, find a financial professional who is focused on informing and enabling you, not selling you products. And be careful about what you read and hear. It’s good to have information, but what you see in the media isn’t necessarily tailored to your specific needs (i.e. Suze Orman, Jim Cramer). An experienced and knowledgeable financial professional with a retirement focus can help equip you to work toward your goals — while considering uncertainty in the market.
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