Financial planning in Tennessee and beyond has revealed a developing trend among Gen Xers. Many individuals and couples in this demographic live well beyond their means, which can lead to a financially unstable retirement. Their short-term philosophy is to start saving more next year, but that year has yet to come.

As a fiduciary financial advisor in Greeneville, TN, I’ve observed firsthand the challenges when people need to save more for their future use. I know it takes discipline to live within your means. But, the rewards are substantial – a comfortable lifestyle and financial security late in life.

More recently, due to inflationary pressures, we’re seeing a disheartening number of clients make significant withdrawals to maintain lifestyles, often against our professional advice. These actions can have dire consequences during later retirement years. 

If the current behaviors persist, we anticipate some households will be in financial trouble to the point they have to reduce their standard of living or return to work. While relying solely on Social Security and pension assets may seem like a viable fallback plan, it can result in some pretty big compromises, which is not what you had in mind for your “golden” years. Nobody wants a 30-year retirement to be impacted by anxiety and stress. 

Capitalizing on Market Volatility: Investment Strategies For Today

Market volatility, often viewed as a deterrent to wealth accumulation and preservation, can also present major investment opportunities. When the market ebbs and flows, savvy strategies can reap significant rewards.

Following are a few investment strategies that we recommend to our GenX clients, especially during volatile market conditions:

Dollar-Cost Averaging: You can take advantage of price fluctuations by regularly investing a fixed amount in the market. When prices are low, you can buy more shares; when they’re higher, you buy fewer shares. Over time, this can result in a lower average cost per share.

Diversification: Allocating your investments across various asset classes can help cushion against the shocks of increasingly volatile markets. One asset might be declining in value while another could rise, which can offset potential losses.

Long-Term Focus: Historically, volatility has always been short-lived, in particular, when compared to long-term, more sustainable Bull Market investment periods. You can benefit from eventual market recoveries by maintaining a long-term perspective and resisting the urge to make rash, emotion-backed decisions during difficult times.

Harvest Tax Losses: Consider tax loss harvesting if you hold investments outside tax-advantaged accounts. This strategy allows you to offset capital gains by taking realized losses. 

Embrace Digital Assets: As a crypto-friendly financial planner, I see the potential in diversifying with digital assets. While they come with their risks, they can be a valuable part of a comprehensive financial plan for Gen Xers.

Rebalance Portfolio: Market shifts can throw your desired asset allocation off balance. Use these times to realign your portfolio to its original target allocation, ensuring you’re not overexposed to higher-risk assets. This allocation should be reviewed annually to maintain its effectiveness

Plan and Review: If you still need a financial plan tailored to living within your means, now is the time to hire a professional to help you produce one.

Remember, while volatility can open doors to profit-making opportunities, it may come with a price. Always consult with an experienced Greenville financial advisor before making significant investment decisions.

Capitalizing on Market Volatility through Tax-Advantaged Accounts

Market volatility shouldn’t be a signal to retreat but rather an opportunity to re-position yourself for higher growth rates in the future. By leveraging tax-advantaged accounts during these times, you can ensure your portfolio remains resilient and primed for success.

One of the primary tools at your disposal is tax-advantaged accounts. When the market fluctuates, here’s how to make these accounts work even harder.

Increase Your 401(k) Contribution: Even a temporary increase can yield significant results. For 2023, the maximum 401(k) contribution limit for employees is $22,500. If you are 50 or older, you can make an additional “catch-up” contribution of $7500.  

Max Out Your IRA/Roth Contributions: For 2023, the total contributions you make each year to your traditional IRAs and Roth IRAs can be at most $6,500 ($7,500 if you’re 50 or older). 

Consider a Roth Conversion:  When markets dip, consider converting your traditional IRA assets into a Roth IRA. You will pay taxes on the conversion amount, but they could be less if there is a decline in the stock market. The beauty of a Roth IRA is that all subsequent growth and distributions will be tax-free.  

Addressing Inflation and Rising Interest Rates

We’re experiencing an economic double whammy: inflation is at a 20-year high, and interest rates are rising.  This requires a three-fold approach:

1. Review your cash requirements.  Based on continued inflationary pressures, the dollar’s value has been devalued.  We recommend that clients maintain a three to six-month reserve. For any available excess cash, we recommend investing in the market.  Investing during recent lower prices could improve your future results. Review your fixed income, bonds, and fixed annuities. They could be losing value during periods of rising interest rates.  
2. With rising interest rates, now is the time to pay down or even pay off variable-rate debt. This proactive step can produce more cash for future investments. 

Final Thoughts: Persistence and Strategy are Key

Our brief message to Gen Xers looking for assistance with financial planning: quitters never win. 

To pursue your financial goals and experience the type of retirement you have dreamed of, you should stop taking withdrawals from savings, live within your means, and give your portfolio time to recover to a period when the financial markets exhibit more strength.

As an independent Registered Investment Advisor (RIA) and a CERTIFIED FINANCIAL PLANNER™ Professional in Greenville, I offer fee-only financial planning and investment services.  As a fiduciary, this ensures you receive unbiased advice tailored just for you.  Fiduciary is the highest ethical standard in the financial service industry.

We invite you to reach out if you seek guidance, especially in navigating volatile markets.  Together, we can craft a plan that ensures a comfortable retirement, reflecting your hard work and dedication throughout your life.