Financial Planning and Analysis During Times of Volatility

Stableford Capital Financial Planning can guide you through the Bull or Bear Market

Making decisions about your financial future is one of the most important aspects of your life, but with all of the decisions about health, career, family – and let’s be honest, the more appealing decisions about vacations and what your next car will be, financial planning and analysis often gets pushed down on the list.

In times of volatility, the financial news outlets respond to the public’s fears by reporting on more complex concepts which only serves to make financial planning and analysis – and ultimately investing decisions both more challenging and worrisome for many. Understanding these key terms is important to understanding your financial choices and help you make better decisions.

Key Money Related Terms Every Investor Should Know

There are key concepts that every investor should consider in the context of their financial plan. Many complex-sounding terms are actually fairly simple and knowing how they apply to your finances can result in better dividends for you and your family.

Dollar-Cost Averaging

A smart strategy during times of market volatility, dollar-cost averaging is the practice of investing a set amount of money at regular intervals. One of the most common ways is to have money diverted from a paycheck into a 401(k). The set amount invested buys more shares when the stock price goes down and fewer shares when it rises, thereby evening out the average price you pay and ensuring you don’t buy in bulk at the higher price.

Automatically diverting money weekly or monthly into your investments removes the urge to try to anticipate which way the market will go and also eliminates the emotional roller coaster of trying to time the market.

Opportunity Cost

No matter what you decide to do with your money, assessing the bottom-line opportunity cost can help you make better financial decisions. Opportunity cost involves looking at the value of each investment choice. This is particularly important as you consider long-term investments.

Investors should look at the profitability of various investments and weigh which one is likely to yield the greatest return. The difference between the expected returns of each option (the potential profit that is forfeited by not investing in one of the options) is called the opportunity cost.

While most people are more likely to consider the opportunity cost with bigger investment decisions like purchasing a home versus renting, the opportunity cost is often overlooked when deciding on vacations or investing in the newest version of personal items like a cell phone or laptop. Yet using this tool will help you to make the best use of your money.

Diversification

The ability to invest in different asset classes – generally speaking stocks, bonds and cash – is one that many investors understand. The key idea when doing financial planning and analysis is to reduce your exposure to risk when building your portfolio.

However, be sure to diversify among those asset classes. For example, when investing in stocks you can vary your investments by company size, industry and geographic location.

During market cycles that are volatile, having a diversified strategy can bring great peace of mind as the various investments will act differently enabling your asset allocation to be smoothed out.

Planning During Volatility: How a Financial Advisor Can Help

For those who have been watching the market volatility with grave concern, having a planner who can partner with you on your goals and help you navigate unpredictable market cycles is particularly important. While not right for everyone, especially those who enjoy researching different investments, know when and why to use certain account types and understand various tax saving solutions,  having a financial counselor brings peace of mind to many.

 

There are 3 key benefits to seeking out a financial consultant during a volatile market:

 

1 – Fiduciary – Your Best Interest

Your financial advisor is there to guide you through turbulent market scenarios to help you make informed decisions that align with your goals. It’s a key advantage to have an advisor who will be there the next time that you need advice or answers and even more important to find a trustworthy advisor who has your best interest in mind.

For this reason, consider using the services of a fiduciary or fee-only financial advisory firm – meaning that they don’t earn any commissions or fees from the investments they recommend. When you know and understand your numbers, then peace of mind follows. But keep in mind that investments are part of a financial plan, not the whole picture.

2 – Proper Expertise

Choosing an advisor that has years of experience will more than likely mean that they have weathered previous periods of market uncertainty. This is particularly important when doing financial planning and analysis. If you’re fortunate enough to work with a planner whose firm allows for a holistic approach to wealth management – one where you have access to the talents and knowledge of a cohesive unit, then you will have the added benefit of years of experience from different perspectives.

3- Gut Check – The Voice of ReasonFinancial Counseling - Stableford Capital financial Planning Worksheet

When the market swings between highs and lows, the human response is often emotional. Whether its elation which can cause investors to recklessly ‘double down’ or devastation, which brings fear and the desire to sell, sell, sell – your planner acts as the voice of reason.

Having an advisor provide that gut check when the market experiences volatility is more than having someone keep your financial goals in mind. An advisor can help you to understand the history of the market and provide the necessary context for you to make adjustments based on your end game, not in response to what is happening at that moment.

Concerned about the uncertainty of the market and how it impacts your specific wealth considerations?  Download the Stableford Financial Counseling Fact Sheet  and checklist to help you start evaluating your financial situation or call us at 480.493.2300 to help answer questions you may have.

Nathan Faldmo
Nathan Faldmo
Nathan is Stableford Capital’s Director of Advisory Services. Before joining Stableford, he was a Senior Associate with Bernstein Global Wealth Management and he served the U.S. House of Representatives as an intern for the Committee on Ways & Means. Nathan is a Certified Financial Planner.

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