Is My Comprehensive Financial Plan Coronavirus Proof?
While the general market commentary coming from Wall Street seems to be negative, there are ways your financial plan can survive, and even prosper in times of economic downturn. The coronavirus pandemic has sent shock waves through the global economy from the largest corporations to the average citizen living in Greeneville, TN who now may find themselves out of work. But that doesn’t mean your long-term financial goals need to change, just possibly the way you reach them (especially in the short-term).
If you’re worried about your current plan put together by a CERTIFIED FINANCIAL PLANNER™ or are looking to get your assets in order sooner rather than later, read on to learn if your comprehensive financial plan is coronavirus proof. If it isn’t, take these tips and learn how to create a plan that can withstand major market shifts such as pandemics and recessions.
This Likely Isn’t Your Financial Plans First (Or Last) Test
When working with a financial advisor to craft your financial plan, they took many things into consideration. After learning about your financial situation, lifestyle, age, and retirement goals, they were able to assess your risk tolerance and set up a plan that would work for you for the long-term. And chances are, your CFP® has been through many of the market’s ups and downs over their career. Your financial plan is stress-tested to withstand Bear Markets and successfully ride out periods of economic downturns. This is because, by definition, markets are fluid and have high points and low points. By planning for only one kind of economy, your financial advisor would be doing you and your future a great disservice. An experienced advisor will also be able to guide your plan in the right direction at times when you may be uncertain what your next move should be.
You Can Actually Benefit From The Current Market
While no one likes to see the economy suffer and leave many people unemployed and/or suffering economic hardship, there are some financial tactics that can be utilized during any down economy and/or recession. One of those tactics is for investors in the workforce to temporarily maximize 401(k) contributions and live on cash savings for the short-term.
This enables them to buy low during the downturn and reap the rewards during the recovery. This same philosophy applies to IRA contributions. If you have not maximized your 2019 or 2020 contributions, now is the time to do so. Another method of benefitting from this down economy is not to hold on to excess cash. Outside of your emergency savings and the savings you will need to live on in order to maximize your 401(k) and IRA contributions as mentioned above, you should move that excess cash to an investment account to maximize the benefits now at lower pricing that will see major growth when the market surges once again.
Emergency Savings Is Crucial
Sadly, for some, a sudden economic slowdown can be a major negative and life-changing event. For those who are unable to receive a paycheck due to missing work in the midst of the coronavirus pandemic, this can be the difference between having food and shelter or losing those necessities in a very short amount of time. Now more than ever the importance of having an emergency savings fund is very apparent. The same can be said for those with plenty of money tied up in investments, but no liquidity.
Additionally, those investments are likely at an all-time low and exiting the market now would be highly advised against by anyone in the financial planning field. Having an emergency savings is not only important to ensure shelter and necessities in case of lost income – but it can also provide an opportunity to capitalize on a down market if you can live off your savings as mentioned above. Without this extra safety net of cash savings, you could be missing out on some great investments at an all-time low that could prove to pay off down the road.
Don’t Make A Rash Decision That Can Wreak Havoc Later On
With all of the negativity around the economy and coronavirus in general, it may be tempting for some investors to jump out and “cut their losses” before the market gets any worse. The problem with this theory is that it’s not taking into account their long-term plans.
Remember, the decisions you make in a state of panic now will affect you for years to come and determine whether your retirement goals stay on-track or are completely derailed. If you find yourself glued to the television and internet for the latest financial and pandemic information, consider taking a break from the news and turning to your financial advisor. Remember, it’s their job to monitor the markets and make recommendations for your portfolio. And while it can’t hurt to stay informed, it’s hard to make objective decisions when being influenced by a barrage of negative and doomsday themed news reports created to draw attention and create panic.
Learn From Previous Recessions
This is not the first world or national event to drastically and negatively affect the markets. And it in all likelihood it won’t be the last. While this may be little consolation to some who keep watching their portfolios sink lower, it’s important to remember that we’ve been here before and came back stronger.
From the dot-com boom and bust in the early 2000s to the housing bubble and eventual bust in 2007-2008 causing The Great Recession, this is nothing new in the grand scheme of the history of the economy.
Historically, every recession has been followed by a period of economic growth and prosperity. While hard to envision at this moment, it’s the silver lining that most investors can hang on to while everyone rides this wave of uncertainty. And investors working with a CFP® can have the extra security of knowing they have a financial professional on their side – someone who helped build a plan able to withstand whatever the market has in store and then rise again.
At Sapiat Asset Management LLC, we are passionate about helping people reach their goal of financial freedom. We are the only, fee-only, fiduciary, Registered Investment Advisory Firm in Greeneville, TN. Contact us today for a complimentary consultation.
Sapiat Asset Management is a Fee-Only, Independent, Registered Investment Advisor (RIA), specializing in goal-oriented financial planning and investment management for Gen X Individuals & Families, their Businesses, & the Trusts that benefit them.