Inflation and interest rates continue to impact the economy and make headlines. While the news can be daunting, it is never too late to stabilize your finances.
A financial plan is your guiding light in a tumultuous market because it documents your short-and-long-term goals. If you don’t already have a formal financial plan, your financial team can work with you to outline your different goals and values, and the financial steps needed to achieve them.
Your financial plan should reflect where you are in life. If you are building your wealth, your financial strategies are going to look different from someone who is preparing to sell a business and retire. Whatever is important to you and whatever you want to accomplish should be reflected in your plan. Then when the markets shift, you can feel confident in your financial approach, and ensure your assets are protected during difficult economic times.
Finally, your financial plan can be your budgeting tool as you navigate rising inflation for your day-to-day expenses.
Now is a great time to either start your financial plan or review and adjust your plan with your financial team.
The economy can be unpredictable and the fast changes can play with our emotions – and it may feel like time is of the essence. Throughout history, there have been multiple events that have impacted the markets, and, ultimately, the markets have rebounded.
The economy is cyclical. Instead of quickly reacting to the day-to-day events of the market, lean on your financial plan and the goals you’ve already set in motion. Call your financial team and let them know your concerns. Ask questions about what they are seeing so you can ensure your goals are still on track.
For most investors, their investment portfolio is built on a long-term strategy, so volatility in the short term is less important than the long view. Keep your emotions in check to avoid over-correcting and instead, strategically respond to the market evolution with your end goal in mind.
When you create an investment strategy, understanding your risk tolerance is critical. This can be determined by several factors based on your short- and long-term goals. For example, you will likely have a higher risk tolerance when you’re building wealth as a new investor than when you’re maintaining wealth as you near retirement.
Either way, it is important to discuss what you are comfortable with in your meetings with your financial team. Your risk tolerance can also change with the flows of the market. Communication with your financial team is critical so you can rebalance your portfolio if needed. Remember, changes can always be made, but as mentioned earlier, you want them to align with your financial plan.
Check your tax efficiency
Another important part of your financial strategy is your tax efficiency. Taxes naturally play a big part in your expenses and your portfolio strategy. You may want to consider tax-loss harvesting. This is when you sell some investments at a loss to offset gains you may have realized from other investments, which can help reduce your tax bill. Or, you may want to convert an account to a different position to support your financial goals, which would also change your tax bill.
Turn off the noise
We live in a 24/7 news cycle, which can be overwhelming and produce anxiety. It is hard to escape the constant chatter that surrounds the economy; however, it is important to take a break. Rather than becoming consumed with the daily headlines, lean on your financial plan and team. A strong partner will provide consult and comfort in volatile times.
The different cycles of the economy are intimidating, but know they are cyclical and will rebound. As we head into more economic uncertainty, rely on your financial plan and team to steer you through.
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