June 15, 2023
Jonathan Strauss, CFP®
Reflecting on the recent market volatility caused by the debt ceiling negotiations, I'm reminded of a far more turbulent time: March 2020. I had been with WEIL about three years and had just obtained my CFP® certification. I remember walking out of the exam room, a newly minted CFP®, ready to take on any financial challenge that came my way. Instead, I stepped right into one of the rockiest and most uncertain periods we’ve ever seen. As our economy weakened and supermarket shelves emptied, a hidden virus was reshaping our world. This profound upheaval was reflected in the market's stark volatility (top-to-bottom, the S&P 500 declined 33.70%) and also in our conversations with clients. Despite the emotion and turmoil in the world at that time, the WEIL Team took counsel from the guiding principles learned over our collective decades (and decades) of experience: accept that the financial markets (as is true of so many things in life) involve volatility. This is not the exception. It’s the rule. Plan for that volatility ahead of time. If you’ve done the planning, don’t allow your emotional state to override your well-considered choices.
We go to great lengths to plan for the volatility we anticipate, as well as the volatility we don’t. We can never know precisely when volatility will occur, but we are certain it will arrive and we construct our financial advice and portfolios with that in mind.
Over the years, our experience has taught us that the unpredictability of life often serves as an unwanted catalyst for impulsive decisions, particularly in times of extreme stress. A few examples of volatility (market and otherwise) made more tolerable by good planning come to mind.
· Let's take, for instance, the immediate days following the passing of a loved one. The pain of loss can be so overwhelming that we often grasp at the tangible, attempting to regain control amidst the emotional chaos by focusing on practical issues like the distribution of an estate, deciding what to do with financial assets, where we want to live, and so on. But in these moments of deep grief, we are ill-equipped to make critical decisions. This is why we consistently recommend to our clients that they stay the course financially. Continue to conduct your financial life as you did before (where possible). Take time to come to terms with the loss and allow yourself to grieve before tackling any major decisions. While this pause may seem counterproductive in the face of tasks that need completion, it often saves people from decisions they might later regret.
· Sudden wealth is another example of where staying the course and planning can be incredibly beneficial. Whether it's an unexpected inheritance or a lucrative career transition, a significant shift in financial circumstances can be as disorienting as it is exhilarating. In the whirlwind of newfound wealth, it's incredibly easy to make impulsive decisions, often leading to unsuitable investments, extravagant spending, and/or premature generosity. We strongly advocate for continuing to live as you did, reflecting on your new reality and working with a trusted advisor to create a comprehensive, long-term financial strategy before making any major financial commitments.
· Succumbing to the emotional allure of “recency bias” can turn a perfectly suitable investment plan on its head. Seduced by tales of soaring value and promising trajectories, the siren song of "hot stocks" can call to investors (including, by the way, professional investors). The temptation to jump onto this accelerating train can be intense, fueled by the fear of missing out on, what appears to be, a golden opportunity. While investing in a high-flying stock or sector does not always lead to disaster, we have always believed that a well-diversified portfolio and investment strategy consistently yields better long-term results.
· A change in health or a job loss can affect a person’s financial stability. While health issues and job loss are scenarios few of us want to spend the time and energy to plan for, it's crucial to consider them when making a financial plan. This means establishing an emergency fund, ensuring adequate insurance coverage, being ready to adjust budgets and investment strategies in response to changing circumstances, and having estate plan documents that provide governance in the case of disability, as well as death. The objective, again, is to plan ahead for multifaceted outcomes including unexpected volatility, and then stay the course rather than being forced to make decisions while in a potentially heightened emotional state.
· We can’t leave out the incredible importance of planning for retirement, a rite of passage that can sneak up on us if we're not careful. Retiring is a phase we all anticipate, but far too many approach this major life transition with little more than a vague plan, leading to financial challenges that could have been avoided with proper planning. Whether it's underestimating healthcare costs, overestimating retirement savings, or failing to consider the kind of lifestyle you wish to lead, the pitfalls are many. We work with our clients to create a detailed retirement plan well in advance, supporting a smooth, secure, and enjoyable journey, one that does not depend on making difficult investment decisions with a shorter and less cooperative investment timeline.
· I have a personal story that illustrates the importance of planning and periodically reviewing that plan, so that when it’s time to settle your estate your heirs may stay the course. Earlier this year, my beloved grandmother passed away. Her health had been declining for a while, but she'd stabilized and seemed to be holding her own. A discussion revealed that her will hadn't been updated since 1992, despite significant changes in her life and the lives of her beneficiaries. Her will remained a relic of a bygone era. Recognizing the need for revisions, but without the full recognition of the urgency required, she scheduled a meeting with an estate attorney a few weeks out. Tragically, she passed away one week before the meeting could take place. The result was the inevitable activation of the outdated will, leading to unnecessary disputes among family members and a distribution of assets that didn't reflect my grandmother's current wishes. This poignant example serves as a reminder of the potential havoc wrought by a failure to keep one’s estate plan current.
Paraphrasing the oft-quoted phrase "Failing to plan is planning to fail" holds profound truth in the world of personal finance. The complexities and uncertainties of life necessitate thoughtful, well-informed planning that prepares us to tolerate volatility with confidence. As your financial advisors, we are here to guide you, provide expert advice, strategic insights, and a steady hand when the seas get rough.
We recognize that constructing a well-designed financial life requires not just work on our part, but on the part of our clients as well. We continue to be grateful for our clients partnering with us in pursuit of the best possible outcomes. As ever, please feel free to reach out to any member of the WEIL Team as the need arises.
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