It’s no secret that the financial markets have been quite volatile in 2022. The broad-based U.S. market averages, such as the S&P 500 and the Dow Jones Industrial Average, are both in bear market territory for the year.
Interest rates have risen sharply this year. That has adversely affected the prices of bonds since interest rates move inversely with bond prices: What should investors do in volatile markets?
Frankly, it’s an opportunity to re-evaluate your investments, your retirement plans, your estate plans, and the value of your financial advisor in Atlanta.
This article discusses these topics:
Why You May Need Atlanta Financial Advisors Now More Than Ever
How Does Investing Affect Retirement Planning?
Evaluate Your Retirement and Estate Plans
Use Market Downturns as Opportunities to Invest
Our view is that fast-fluctuating markets are no time to think of ignoring (or worse yet, jettisoning) your financial advisor. In fact, you may need their advice and counsel more than ever: Your wealth advisors in Atlanta can help you keep a long-term focus on your saving and investing goals. Perhaps more crucially, they can remind you that volatile markets are typically a short-term phenomenon.
Due to current markets, you might be seeing declines in your overall net worth, at least as measured by investments in stocks and perhaps bonds. It’s important to remember, though, that those losses only exist on paper until, and unless, assets are sold, and losses are formally realized. Economic cycles are just that, cycles. When the economy cycles up again, you’re likely to regain what now seems a loss.
Over the last century, the S&P 500 gained 10 percent per year on average, even accounting for periodic yearly downturns. Those who panic-sold on past downturns, afraid the slide was going to continue, likely lost out on the opportunity to be in the market for the next upswing.
Therefore, if you’re tempted to sell solely because markets are volatile, remember that’s almost never a prudent idea. If the markets turn up again and you have not reinvested, you will only have locked in the loss—and forfeited the chance to benefit from a recovery.
Meanwhile, there’s an excellent question to ask: How does the downturn affect your retirement planning?
The fact is that bear markets can affect retirees negatively because their retirement portfolios are likely worth less than before the bear market began. Many of them withdraw a certain percentage of their portfolios (predetermined to ensure that the money lasts throughout their lifetime). However, a significant drop in their assets’ worth may affect the percentage that they can safely take out.
Many retirement planners in Atlanta advise retirees and pre-retirees to adjust the asset allocations in their portfolios as they progress through their financial lives and near retirement. They may encourage a move toward more conservative investments, such as bonds and cash instruments, which typically aims to protect against the effects of a volatile stock market.
This reason is that volatile markets happen periodically in response to the economic cycle, world events, and more. In response, you need a long-range strategy throughout your life—but never more so than in retirement: a well-balanced portfolio with an allocation to bond and cash instruments can potentially provide protection against volatile stock markets.
Although bond prices can fluctuate, they tend to do so much less than stocks. In addition, interest rate hikes, which can send bond prices down, often positively affect bonds as an asset class (because the interest on newly issued bonds is usually higher). The principal in cash instruments generally does not fluctuate. However, the interest will generally rise in tandem with hikes in interest rates.
All asset allocation decisions need to consider many factors. These include the effects of inflation (which is currently at a very high level historically), your goals, your estate plans, and more. It’s also prudent to have at least an annual meeting with your financial advisor in Atlanta to evaluate your retirement and estate plans.
The review of your retirement plan should take into account your timing and goals. Both may need adjusting to keep on track. Similarly, you should review your asset allocation and individual decisions within the asset classes (individual stocks, mutual funds, exchange traded funds, individual bonds, and cash instruments).
Reviewing your estate plan should take all its facets into account. This usually includes either a Last Will and Testament or a trust. Thorough plans often factor in a power of attorney: This legal document designates a surrogate decision-maker for your health and finances should you become incapacitated later in life. These are a few examples of ancillary documents that may be part of your overall plan.
Reassessment should also take into account any changes in your beneficiaries (through the birth of children, change in marital status, or other factors). Planned changes in who or what you plan to leave assets to and any changes in the assets themselves should be included, as well.
There’s one very important point to make about market downturns: They potentially are an opportunity to invest—and it’s prudent to view them that way. If you reinvest your dividends in stocks you own, those returns can buy a greater proportion of a share that’s temporarily down.
Similarly, if you purchase stocks in a down year, you may effectively buy them at a discount. In a broad-based downturn (such as we are currently witnessing in 2022), some stocks with excellent economic prospects are battered in price along with those of lesser companies. That’s possibly a rare opportunity to pick up promising stocks cheaply.
There are multiple reasons why a fee-only financial advisor in Atlanta could provide a proven plan for your future. First, a fee-only advisor mitigates the conflicts of interest that can arise if your wealth manager works on a commission basis. Brokers and other advisors working on commissions are often more highly compensated for selling particular stocks or other financial products (such as insurance).
Meanwhile, those stocks and other products are not necessarily the best financial choice for your circumstances. A fiduciary advisor should always suggest the best financial choice for your situation instead. In addition, your costs are based on a transparent fee, so you generally should never be hit with an unexpected charge.
When you are building your nest egg, choosing the right wealth management team or firm can make all the difference. Our Atlanta wealth advisors can provide experienced retirement planning and investment management. In fact, Linscomb Wealth can help you maintain a long-term perspective during volatile markets.
Remember: downturns don’t last forever. The key is comprehensive, proactive financial planning for periodic downturns and beyond. Don’t let temporary storms harm your short or long-term goals. Contact us to discuss market conditions and your goals today.