A number of things to do and 1 thing to NOT do

2022 has been a year of volatility. It seems like every month just a little bit crazier!

With that in mind and really no end in sight, let’s talk about 3 things you should do during times of market volatility, and 1 thing not to do.

 

Number 1 – Stress test your portfolio

This is really taking a look and seeing not just what your investment the pie chart looks like or what funds you own but what type of risks are you exposed to?

What is the downside loss potential?

If volatility continues, if we experience a bear market, what is your downside loss potential?

So when we talk about a stress test, this is much deeper than how much is in equities and bonds or how your portfolio compares to the benchmark.

It’s making sure it fits your personal benchmark.

What’s the average amount you want to make per year (rate of return)?

What’s your uncle point? (what’s the most you want to lose in dollars, not just a percentage)

What’s most important to you of the two? (hitting the rate of return or not taking the big losses?

What’s kind of your timeframe? (how long to see these results)

A stress test is often run using third party software looking at key indicators and stats to really figure out what the downside risk is and any hidden levers inside of your portfolio.

It is important, especially in times of market volatility to have a risk assessment of where you’re currently at, so stress test your portfolio. And compare it to your personal benchmark.

 

Number 2 – Check income plan

If you are taking income in retirement, then it’s important to know how that income is going to fare through the volatility. Is it guaranteed and/or protected income?

If you’re taking money from an account that is experiencing market volatility, then we want to know where’s that income coming from. Are they just kind of pulling it out of everything at a pro-rata rate or do they have a plan in place?

Our portfolio managers are very good at making sure that at least two year’s income is protected from the market volatility, whether that be in cash, or appreciated assets, or things that aren’t correlated with the volatility. (Learn more about this in the Retirement Shift)

You don’t want to be taking income out of something at the wrong time, because that’s when you have much greater sequence of return risk.

Sequence of return risk is simply the order in which negative years happen. Meaning negative years early into an income plan or right before you start and income plan can impact your retirement negatively.

If you’ve started or you plan to retire and take income from your accounts within a few years, then this is the time you need to really make sure you’re income is protected. A big loss early on in your income plan or right before you start income can be disastrous!

So check on your income plan and if/how your retirement income is protected.

 

Number 3 – Monitor your managers

In the M’s of money management, we talked about measuring your risk, managing your portfolio and monitoring both the economic trends but also monitoring your advisors/managers.

(Note:  We have a lot of other videos and blogs that go into detail about the M of managing – Secrets of Investing and the Power Hour from March where we talked specifically with our portfolio management team and what they’re doing right now to manage.)

Your managers should be monitoring what’s going on and investing accordingly, but it’s also a for you to be monitoring to make sure that your managers are doing their job.

If you’re paying someone to manage your portfolio, you want to know that they are doing it – what they are doing and why.

If you’re hearing things like, “you’re in it for the long haul,” “it’s a paper loss,” “you just have to ride this out,” anything like that should be a red flag.

While a lot of those statements are part true, you don’t want managers to sit and do nothing, what are you paying them for then?

This is when they should be earning their keep, what are they doing to position you in a way to not only reduce more losses or to protect you from the downside, but also puts you in a position that you’ll get better returns when the markets going up?

If your pie chart hasn’t changed, there’s nothing happening and you’re not getting any communication from your managers, except for some of those responses above, then this is the time you really need to evaluate whether they’re doing their job for you.

Watch some of the videos on what our managers are doing and how they manage. Then, let’s stress test your portfolio to see how it is being managed. If all is good, then you will be more confident to weather this storm, but if you find that your crew (advisors and managers) are asleep on the job, then you want to know that too so you can change course or get a new crew!

 

1 Thing Not to Do – Don’t be complacent!

 

There are way too many people that don’t even open their statements, that don’t pay any attention to what is happening.

Now, if you have done the first three things listed here, then you can kind of be okay with that.

But if those three things aren’t taking care of, then the worst thing you can do is just be complacent.

On the flip side, don’t be rash.

Whatever you do, stay put or make a change, you need to do it in coordination with your overall plan.

If you haven’t stress tested your portfolio, if you don’t know where your retirement income is coming from and how its protected, and if you’re not monitoring to make sure your managers are doing something and when you’re paying them to manage your money, then you cannot afford to sit back and be complacent!

If you have questions, the first step for not being complacent is to TAKE ACTION. Give us a call and we will start with number one and help you stress test your portfolio so that you can survive through any market volatility!

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