Every person deserves a financial advisor or planner who truly knows them and their families and has the time and commitment to maintain that relationship. When times are tough you can’t get advice from a corporation, or a computer model or a website. For those people who have sufficiently complex financial lives there is no substitute for thoughtful and nuanced collaborative decision making based on all of the challenges you are facing.

It is natural to wonder if you are doing the right thing when markets get challenging. The correction we are facing now feels both unique and like something we have been through many times before.  The particular factors we are facing are things we haven’t dealt with in a long time: high inflation, rising interest rates and war in Europe. Bonds are having their worst year in thirty years and stocks are now in correction territory. In another sense we have all been here before. Economies grow and contract, but they eventually come back and that comeback in prices usually happens when the economic news still appears grim. We don’t have to think back very far to remember. At one point in 2020 the US Stock Market was down 35% and it ended the year up 21%₁. I think our discomfort comes less from this correction than from the immense amount of societal change we are experiencing, which is the greatest since the great recession.

A financial plan is not a document you put into a series of graphs at a point in time. A good planner has tested and retested the possible outcomes through many different life events and market cycles and knows how to apply what is happening now to your specific financial plan. There are very few situations that prosper with a set asset allocation that doesn’t need re-examination over time. This is especially true for people moving through life changes like retirement and the challenges of later life and wealth transition.

As financial planners and asset managers we address these downturns using every tool at our disposal. We rebalance for our clients when there is sufficient difference between their targets for stocks and bonds and their current allocation. We assess whether the assumptions we made about the relative attractiveness of each asset class have changed. Should a moderate investor now have more in stock? Should we recommend bonds or guaranteed assets for our clients’ safe assets? The most valuable work, though, comes before that point.

The most important thing an advisor can do though is to know their clients deeply and to help them, through the planning process, to navigate their plan with the right level of risk. Too often the decision of how much risk to take is thrust on you-the client. You may have had the experience of being given a risk tolerance questionnaire and based on vaguely worded questions, to decide for yourself how much risk you should be taking. Those answers can be strongly influenced by what is happening in the markets right now or even just the human desire to fit in and choose the answer in the middle. Too often that choice, made with little thought, is left unexamined to determine your asset allocation throughout your life.

I was thinking about a client I have worked with for fifteen years. This summer they confirmed they were retiring in the spring and the plan had been to ease down their level of risk over a long period of time. They could tolerate a high level of risk, but they have modest expenses and little desire to leave an estate so there was little practical need to maximize return solely for returns’ sake – and at the cost of their own discomfort. I recommended a few steps specific to their needs:

• Reduce stock exposure as valuations were fairly high and this seemed to be a good time to take the first step.
• Move some assets from bonds to guaranteed assets like TIAA Traditional or the Federal Government’s Thrift Savings Plan “G Fund”. Bonds and guaranteed funds are likely to have a similar long-term return, but guaranteed assets may offer more stability in the short-term and can be used to fund guaranteed income, which is more attractive if you don’t prioritize leaving a legacy.
• Reduce the duration of the bonds in the portfolio so they are less interest rate sensitive and can better support cash needs at the beginning of retirement.

None of these decisions were made in anticipation of a correction, but they did soften the impact of today’s volatility.  My recommendations could only be made based on an understanding of all aspects of this couple’s life. This was just another step of a plan built on consultation over a long relationship.

Everyone deserves advice from someone they trust who takes the time to know you and your family. You are paying for that service. You should never hope that someone would call you if something needed to change or assume that everything is fine as long as the retirement checks or your statements arrive on time. A corporation can’t give you advice, only a person can do that. If you don’t have that person in your life; then come visit with us. Our hope is that every client we serve will invest with us in building a life-long relationship.

₁ In US dollars.
Data is calculated by rounded daily returns. US Market is represented by the Russell 3000 Index.
Largest Intra-Year Decline refers to the largest market decrease from peak to trough during the year.

Investing risks include loss of principal and fluctuating value. There is no guarantee an investment strategy will be successful.

This content is developed from sources believed to be providing accurate information, and provided by ReFrame Wealth, LLC. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.