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Best Laid Plans
Financial planning in a volatile market By Brooke Preston
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his year has proven to be many things, but stable isn’t one of them. The Covid-19 pandemic brought an unprecedented stock drop, followed by a slower, less predictable recovery. With the virus still very much a threat, it’s impossible to predict how the market might behave for the rest of the year. The term “volatility” measures a market or security’s tendency toward a sharp rise or fall within a short period of time, typically measured by the standard deviation of the return on an investment (ROI). Volatile markets are usually characterized by wide price fluctuations and heavy trading—and in the case of Covid-19, automatic and temporary market freeze thresholds to prevent further proverbial bleeding. So how can individuals and families faced with so much uncertainty make smart investments? The answer isn’t one-size-fits-all. Depending on your net worth and age, your options and priorities will vary. And despite the rise of popular amateur stock trading apps like RobinHood, investments are not something one generally masters over morning coffee. Yet contrary to popular belief, financial planners and wealth management professionals are not just for CEOs and jetsetters.
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bucket of money serves as a backup reserve that typically is not as volatile as the stock market,” he explains. Early career: 20s and 30s First things first: If you’re one of the nearly three in 10 U.S. adults with no emergency savings at all or you’re carrying any highinterest debt (such as credit card balances), the experts agree you should work to pay that down in full and establishing an emergency savings account before investing a dime. Ignoring this advice will cost you more in interest over time and can leave you unprotected in the case of major, unexpected expenses such as a hospitalization or home repair. Sutliff advises prioritizing paying down high-interest balances—those with a rate of approximately 15 percent—for a guaranteed return, then balancing the paydown of lowerinterest balances with investing as much as possible into a 401(k) or other retirement plan, especially if your company offers a match. “This is an opportunity to invest for financial independence,” he says. “Pay yourself first.” Ruhlin agrees that contributing the maximum to a company retirement plan is a smart move, because otherwise individuals “are throwing away that free money.” At this age, she advises that young professionals’ retirement plans—401(k)s, IRAs and the like—
should be invested primarily in the stock market. “Look for index funds that invest in U.S. and foreign stocks,” she adds, noting that paying off student loan debt or saving for a down payment on a home are other smart priorities for those who can afford them. And for those lucky young pros who have already checked all these boxes? “Those who have managed to build up an adequate cash reserve early in their career should concentrate their investments in mutual funds that are more growth-oriented,” says Chornyak. Mid-career: 40s and 50s Just as with younger professionals, individuals in this age bracket should concentrate on debt repayment before investing. “Debt is the cancer that will kill your financial independence,” Sutliff says. “Pay off cars, credit cards and stay out of debt if you ever want to stop working.” Once debt is paid and some savings are accumulated, Chornyak says that middleaged individuals should contribute as much as possible into retirement accounts, while beginning to invest separately if they haven’t already. “You should also be accumulating money outside of retirement accounts so that when you retire, you will have flexibility to access money in a tax-efficient manner,” he explains. “I am a strong proponent of investing in well-diversified, actively man-
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Joseph A. Chornyak, CFP, managing partner at Chornyak & Associates, advises that “most individuals who have accumulated a nest egg should consider working with a financial professional in order to obtain objective advice and guidance.” If terms like “actively managed mutual funds” sound like gibberish, take heart: a good financial planner will not only invest your money, but help you make sense of your options and provide a clear picture of associated risks. Peggy M. Ruhlin, CPA/PFS, CFP and chair of the board of directors at Budros, Ruhlin & Roe, Inc., says that “wealth management is never one-size-fits-all. It’s not even one-size-fits-most. Strong advisors are going to truly customize each client’s plan.” Brian T. Sutliff, MS, CFP, ChFC and partner at Summit Financial Strategies, agrees and urges individuals to ask questions and do their research. “Columbus has an amazing amount of very good firms. Find one that works with your situation, someone you feel comfortable with. Talk to a few firms, and don’t hire the first one you talk with.” Before you run to a wealth manager, financial statements in hand, Chornyak suggests building a minimum cash reserve equivalent to three to six months’ worth of income, followed by saving at least an additional year’s worth of monthly expenses in conservative bonds like a mutual fund. “This additional
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aged mutual funds, rather than trying to pick individual stocks.” Adds Sutliff, “Most importantly, this group needs to have an investment blueprint for the future. You can’t just invest or buy stocks because you heard something good about them. That is gambling.” While mid-career professionals often feel overwhelmed by all they have to plan for financially—including kids’ college educations, life insurance to protect their families and their own retirement—Ruhlin points out that “a strong financial planner can be of tremendous help in setting priorities for these funding goals, figuring out how much of the family budget can be dedicated to each goal, recommending the best tools like a 529 plan, Roth IRA or HSA, and advising on the appropriate types of investments for each.” She also cautions against making fearbased moves during a volatile market, which can do more harm than good. “Strong financial planners are going to have their clients’ money invested in a well-diversified portfolio with appropriate cash reserves to get through market fluctuations. ... If your investments are not balanced or structured well, now is the perfect time to work with a financial planner.” Approaching or in retirement: 60s and older Retirement isn’t as straightforward as it used to be. As 401(k) accounts fluctuate with the market and Social Security funds are being rapidly depleted, many are forced to retire later or to go back to work part-time. According to U.S. Census data, around 15 percent of Americans now work into their 70s.
“Once you hit your 60s or 70s, it’s gotime. We work with families at this stage to determine how they will live comfortably with what they have saved, how to manage their taxes and estate, and begin legacy planning as well,” says Ruhlin. Chornyak urges older individuals dreaming of a timely and full retirement to plan wisely and save aggressively. “You should maintain a cash reserve of approximately two years of income needed to cover expenses, in order to avoid having to liquidate longterm investments when the stock market is down,” he advises. “In addition, a larger portion of your portfolio should be in dividendpaying, income-oriented mutual funds and less in growth-oriented mutual funds.” While mutual funds and long-term savings strategies may not be quite as sexy as stock’s siren call, they are tried and true. Chornyak reiterates that the stock market is volatile by nature, so staying the course over time generally outweighs any rash decisions that could backfire. A smart distribution plan is key to a comfortable retirement, adds Sutliff. “Don’t put too much pressure on your portfolio by taking too high of a distribution. If you need more than 4 to 5 percent of your investment portfolio on an annual basis, get a part-time job doing something you love, which is a huge positive in long-term planning.” “At all ages, it is extremely important to be patient and not let one’s emotions get in the way of common sense,” says Chornyak. “Don’t let greed and fear drive your long-term investment decisions. Keep in mind that long-term investing is a marathon, not a 40-yard sprint!”
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