Financial Planning in a Volatile Market
“Financial planning” is a broad term that can often be used very loosely. I have heard from clients who received an investment proposal and the company referred to this as a financial plan. An investment proposal basically says, “here is what your money is invested in now, and here is how we think it should be invested.” This can be valuable, or, depending on who it is coming from, it may be a means to selling commissioned products. But this is not a comprehensive financial plan.
Anyone using or considering the services of a financial professional should understand what a true, comprehensive financial plan entails, especially in today’s unpredictable market.
The process involves several analyses, such as assessments of cash flow and taxes, but ultimately boils down to one objective: ensuring you are on track to achieve your goals. Goals will vary from person to person. Often we, as financial advisors, are working with individuals to fund their retirement, prudently manage an inheritance, or save money on taxes.
The Rebalance Approach to Financial Planning
Developing a plan starts with us, as the financial advisor, getting to know who our client is and what he or she is hoping to achieve. We want to understand what brought you to the point of seeking professional services from a wealth manager. For some people, it may be retirement on the horizon, an inheritance, a marriage, or other life events. For others, it may be more investment focused (i.e. making sure one is not taking more risk than necessary, achieving healthy returns, and avoiding excessive fees.) Whatever your concerns and objectives may be, they help inform the rest of the financial planning process.
Next, we proceed with a thorough fact-gathering process to help us get a complete picture of your financial situation. That will include a detailed understanding of your income, expenses, assets, liabilities, and other categories such as your insurance and estate plan. We will also dig a bit deeper into your goals and work with you to refine them.
With all of the facts in place, we then perform a detailed analysis to gain an understanding of whether you are on track for the goals we have discussed (no matter what is happening in the stock market). Our comprehensive analysis extends beyond assessing your investments, encompassing the seven major areas of financial planning as outlined by the CFP Board:
- Insurance Planning: Identifying and managing risks through various insurance products, including life, health, disability, and property insurance
- Investment Planning: Developing investment strategies to achieve long-term financial goals, considering risk tolerance, time horizon, and investment objectives
- Retirement Planning: Developing a plan for retirement income and withdrawals, including savings strategies, retirement account types, and Social Security planning
- Tax Planning: Minimizing tax liabilities through tax-efficient investment strategies, charitable giving, tax-loss harvesting, equity compensation planning, and other techniques
- Estate Planning: Ensuring the orderly transfer of assets and minimizing estate taxes, including wills, trusts, and other estate planning documents
- Cash Flow, Debt, and Budgeting: Managing income, expenses, and debt, creating a budget, and developing strategies for debt reduction
- Education Planning: Planning for the costs of higher education, including savings strategies and financial aid options
If you are not on track to achieve your goals, we will look for the best ways to improve your chances of success or reassess your goals together. If you are on track, it is often reassuring to get that affirmation, and we will still look for possible areas for improvement.
Implementing the Plan & Taking Action
Our recommendations may involve changes we can implement directly for you (such as adjusting your investments to reduce your risk profile), actions you will need to take (such as discussing ideal travel spending with your spouse), or collaboration with other professionals (such as CPAs and estate planning attorneys for trust updates).
We will make it clear what we can and cannot implement for you and will always help guide you in the right direction when outside assistance is needed. Part of our role is to ensure you have the tools and resources to implement the plan effectively.
During periods of stock market volatility, we pay special attention to your risk tolerance, ensuring your investments align with both your financial goals and emotional comfort level.
Financial Planning as a Tool for Stability
A good financial plan is both interactive and ongoing. It is a collaboration between you and your financial advisor, ensuring your preferences and values are considered. The best course of action varies from person to person!
Life is dynamic, children grow, jobs change, tax laws change, and markets can be volatile. You should feel comfortable reaching out to your advisor as life events arise so the financial plan can be updated to keep you on course. Therefore, true financial planning is an ongoing process, not a one-time event.
It prepares you to face uncertainty and focus on your priorities. True financial planning is not about reacting to market movements, it is about preparing for uncertainty and staying focused on your long-term priorities.
Author’s Note: For more information, please take a look at this video from our Director of Financial Planning, Christie Whitney, CFP®.
