Article updated March 2024.
Your financial plan is your roadmap to your financial goals. But it’s more than that. In times of extreme volatility, or a major correction, your financial plan is your peace of mind; it can save you from making financial decisions harmful to yourself.
2022 was one of the poorest market performing years in over a decade. Inflationary pressures along with conflict in Europe caused both equity and fixed income markets to fall and that left many investors wondering, “what should I do?” On top of that, the Fed underwent one of the most aggressive rate hiking campaigns in recent history to try and tamper inflation to normal levels. The increase in rates caused many problems for individuals with variable rate mortgages, lines of credit, etc. All in all, a bad year all around.
For people without a financial plan, it was time to panic. They saw their life’s savings eroding day by day and many decided to commit their investments to cash, in their minds, to save what they could before all was lost. But those with a financial plan didn’t panic because we could look at the plan and answer the question we heard most often: “Am I going to be okay?” Those that did this, saw the market rebound in 2023.
Plans help us anticipate the unexpected; we create and include worst-case scenarios, so we can not only discuss but illustrate how a bad year in the markets impacts a client’s financial outlook. In the midst of the 2022 market slide, we could show clients by the numbers that they were going to be okay. They were still on target to reach their financial goals. As a result they didn’t panic, but held on to their equities and were rewarded when stocks rebounded, so well and so quickly, in fact, that the market registered a double digit percent gain the following year.
Again, most people who tried to time the market, lost. Asset allocation helped, but generally, portfolio values were still down. They got out on the way down and didn’t get back in until the market was already well into its recovery.
Nobody knows what is going to happen in the markets on a year to year basis, but we do know that:
- Markets trend upward over extended periods of time, no matter the so-called “black swan” or unexpected, events.
- Market corrections in the neighborhood of 10 percent occur frequently.
- Sticking to a financial plan created by a qualified advisor answers the questions that would otherwise keep you up at night, and therefore can keep you from responding emotionally and making irrational decisions driven by fear.
Your financial plan is not a static document. It changes, grows, and adapts to your life’s circumstances. At age 30 you might be buying a house or saving for your children’s educations, while at 65 you’re likely getting ready for retirement. Your financial plan should reflect wherever you are in life, and consider different scenarios. What if your child is accepted at a high-price private university? What if you get to 65 and decide to continue working? If you create a plan and stay disciplined to the process, you will be able to accommodate those circumstances based on choice rather than financial limitations. Your financial plan takes the guesswork out of life decisions.
IMPORTANT DISCLOSURES
The information included in this document is for general, informational purposes only. It does not contain any investment advice and does not address any individual facts and circumstances. As such, it cannot be relied on as providing any investment advice. If you would like investment advice regarding your specific facts and circumstances, please contact a qualified financial advisor.
Any investment involves some degree of risk, and different types of investments involve varying degrees of risk, including loss of principal. It should not be assumed that future performance of any specific investment, strategy or allocation (including those recommended by HBKS® Wealth Advisors) will be profitable or equal the corresponding indicated or intended results or performance level(s). Past performance of any security, indices, strategy or allocation may not be indicative of future results.
The historical and current information as to rules, laws, guidelines or benefits contained in this document is a summary of information obtained from or prepared by other sources. It has not been independently verified, but was obtained from sources believed to be reliable. HBKS® Wealth Advisors does not guarantee the accuracy of this information and does not assume liability for any errors in information obtained from or prepared by these other sources.
HBKS® Wealth Advisors is not a legal or accounting firm, and does not render legal, accounting or tax advice. You should contact an attorney or CPA if you wish to receive legal, accounting or tax advice.
