Staying the course Part I: Have a plan

by Britta Ferguson, CFP® CDFA Vice President, Financial Advisor Wealth Enhancement Group

It’s been a tough year for investors trying to see past the daunting headlines and navigate the volatile markets. With midyear elections on the horizon, concerns around inflation, and the impact of rising interest rates, it can be difficult to Stay the Course. And staying the course isn’t always for the faint of heart nor does it mean sitting back and doing nothing. Fortunately, there are opportunities for investors to maximize their financial situation before year end, regardless of the current environment. This 3-part series will help you reframe your mindset by broadening your perspective and leave you with actionable year end items that give a new meaning to staying the course.

Fear and Greed are the two most influential emotions that can lead to some costly mistakes. How does one remove at least some emotion from the equation? It begins with your mindset and a financial plan.

A financial plan is both a pulse check of your current situation and a roadmap. It shows if you’re on track with your goals, what improvements could be made by running different What If scenarios, and helps you define actionable items to achieve your lifestyle goals. Mindset is just as important.

For example, a common mistake by investors is focusing too much on “do I have the BEST stocks in my portfolio?”. This granular approach often leads to paralysis by analysis. Thinking big picture

helps investors avoid this pitfall. Instead, start with an assessment of your risk tolerance. Ask yourself:

• What does risk mean to me?

• How would I react to a large decrease in my portfolio?

• Is the potential loss worth the potential gain?

There are always trade-offs to every decision. Running different What If scenarios can be eye opening and test your comfort level. Once you’ve defined your risk appetite, move on to the next step: choosing an appropriate asset allocation.

Simply put, the asset allocation defines the amount one should allocate towards stocks, bonds, and cash based on their risk tolerance and goals. Stocks are more for growth and risk, bonds are more for safety and income, while cash can be used

in different ways. Defining the asset allocation is a great starting point for decisions regarding how the portfolio should be invested.

The asset allocation is most effective if coupled with rebalancing. Rebalancing is the proactive part of the portfolio that helps investors stay aligned with their risk tolerance, adapt to market cycles, and evolve with their life stages.

What people don’t realize, especially in today’s environment, is that market volatility creates investment opportunities. If the market declines, stocks typically go down in value, while bonds tend to be more stable and fluctuate less in value. Instead of waiting for the market to bounce back, rebalancing takes a portion of the bonds, and potentially some cash, to buy stocks at a discount and realign

the portfolio. This process challenges the average investor because it can lead to emotional trading (or lack thereof), requires consistent effort, and is time consuming. This is where financial advisors can really add value. This methodical, consistent, and unemotional approach has been proven over time.

To sum it up:

• Control what you can control and that’s your mindset and having a financial plan.

• There are opportunities for investors during all different market cycles.

• Being proactive, unemotional, and consistent can help you stay the course.

Stayed tuned for Part 2: Maxing out Savings and Part 3: Getting a Grip on Taxes of the Year End Wealth Checkup series.

Advisory services offered through Wealth Enhancement Advisory Services, LLC, a registered investment advisor and affiliate of Wealth Enhancement Group®. Wealth Enhancement Group is a registered trademark of Wealth Enhancement Group, LLC.