Considerations for Your Financial Plan in 2019
From historic stock market losses resulting in the worst December since the Great Depression, to the Dow logging its biggest single session point gain later that month, it’s not surprising that investors are nervous about what 2019 will bring for the financial markets. We explore what you should be thinking about in 2019 for your investment strategy and overall financial plan.
Amidst uncertainty and volatility, it’s natural for investors to be uneasy. Generally, the more that you can remain level-headed and focused on your overall investment strategy and financial goals, the better. As you think about your financial planning going into 2019, here are a few things to consider.
Ensure you have the right investment strategy in place
It’s important to have a comprehensive financial plan in place with an investment strategy that you will stay committed to regardless of market conditions. As part of that strategy, you should:
- Understand your tolerance for risk. This means having a clear sense for how much you would be able to stomach if the market dropped significantly.
- Ensure you are appropriately diversified. You can diversify away some of your risk and reduce your portfolio volatility by investing in a wide variety of investment types intended to perform differently under similar market conditions.
Stay the Course
Stick to your investment strategy and stay focused on time in the market, not timing the market. Moreover, focus on the areas of your financial plan that you can control.
- Look forward, not backward. Investors are oftentimes their own worst enemies, studies have shown. They typically underperform market indices on average by 3-5%, largely due to loss aversion and herd mentality, which result in decisions to buy high and sell low.
- Markets move in cycles. As long as you are diversified properly, remember that a downturn or even a bear market will pass – investments with broad market exposure will bounce back eventually as market cycles generally occur every five to seven years.
- Stay focussed on your broader financial plan. Remember that investing is only one piece of your overall financial plan and stay focused on the elements that you can control.
Look for opportunities in market dips or downturns
Oftentimes, downturns present opportunities. Those opportunities can include:
- Value Opportunities: Having an existing cash allocation as part of your overall investment plan may enable you to take advantage of lower priced investments, or bargains, whenever there is a significant market decline.
- Gifting: Gifting low cost-basis investments purchased during a downturn can enable you to transfer assets with high appreciation potential to your heirs, while minimizing the impact on your lifetime gifting exclusion amount.
- Tax-Loss Harvesting: Take advantage of tax-loss harvesting during declines to offset future capital gains or up to $3,000 of ordinary income.
Working with an adviser can be especially advantageous during times of market turmoil, as an adviser can help you not only create a comprehensive financial plan with a long-term investment component, but more importantly can help you stay committed to it and implement strategies to help you take advantage of market declines.
To learn more about considerations for your Financial Plan, visit Our Impact Planning Tool.