Uncertainty, Change and Financial Guidance

Blog post #472

As the saying goes, the only things which are certain are death and taxes.

In providing financial advice, and for you to deal with your financial future, it is important to distinguish between things which should remain relatively permanent (which should not change), and things which are subject to change (and should be reviewed for changing).

What are principles and things which should not change?
  • You should strive so that your investments be low cost and the money be readily available (be liquid).
  • Your portfolio should be managed with your short and long-term goals in mind.
  • Your portfolio should be managed to be tax-sensitive, to strive to obtain solid after-tax returns. We strive to do this.
  • Your fixed income investments should be high quality. You should not utilize high yield or junk bond / low quality investments.
  • You should be broadly diversified across many asset classes. You should generally have some assets in International investments, as the US does not always outperform International asset classes.
  • Your allocation to stocks should not change due to your emotions or concerns about the financial markets. You should generally not make portfolio decisions based on your emotions or fears.
  • You should always be emotionally prepared for stock markets to decline at least 10% at some point during every calendar year and to drop more than 20-30% every few years. These types of temporary declines will repeatedly occur, often when they are not expected, as part of the stock market’s long-term trend to move higher.
  • Your stock allocation should be set at a level that you are comfortable with, to be able to handle these types of downturns. You should not change your overall allocations frequently.
  • Some advice should rarely change….you should not email your social security number or other sensitive personal data. You should not repeat passwords for important online accounts. You should always use strong passwords.
What are some principles and things which should change or be subject to change?
  • As your financial circumstances change over time, your asset allocation to stocks may change. As we plan with you, your need to take risk may change, which should prompt changes in your asset allocation.
  • You, or your financial advisor (us), should regularly monitor your portfolio for rebalancing. That is a good reason to make some investment changes (some adjustments).
    • When an asset class or specific investment does very well, you should likely take some profits and rebalance the money into other, under-performing assets. This helps to put in place the discipline of buying low and selling high.
  • If you own individual stocks, you should not be afraid to take profits, even if you must pay capital gains taxes. Very few investments go up forever. Don’t be greedy.
  • Estate planning and tax planning strategies should be subject to change, as the laws in these areas change quite frequently. You should consult with experts in these areas.
  • You should review your mortgage and interest rates frequently and be willing to change through refinancing. You should take advantage of opportunities when they are presented to you to refinance. Like now.
  • You should review your use of credit cards for rewards and cash back benefits. If you have premium or point rewards cards, you should review your spending and what cards are best to use. What was good in the past may not be best now.
    • Are airline miles the best way to get benefits from credit card spending? How can you earn the most points or cash-back for groceries? Are you getting at least 1.5% on everyday spending (non-restaurant or travel related) for your credit card purchases?
  • One major key to being financially successful is your level of regular savings. Are you saving money? Are you spending more than you earn? Are you contributing to retirement and college savings programs (as appropriate), as soon as you can? If you need assistance to change in these areas, please contact us.

Change can be hard. We know that. We can help you deal with change, when it is needed.

We would be pleased to discuss any of these topics with you.

Talk to us.  We want to listen.  We want to assist you, your family members and friends.


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