Today we’re going to explore some tips and tricks to help you through the potential doom and gloom on the horizon as we near the end of the year.
The economic market in 2022 has been a grim, down year. We’ll see how the year ends, but we have every indication that a recession is coming in 2023. Various financial websites and media outlets are all relaying negative financial news. Jeff Bezos, the owner of Amazon, has a direct view of what’s happening in the economy and is warning Americans to “batten down the hatches.” Amazon, Facebook, and other large companies are laying off tens of thousands of employees in response to this year’s market and the coming recession.
While inflation is not increasing at the same clip it once was, it continues to rise at a decent rate and the Federal Reserve has yet to gain control. Until they do, interest rates will keep climbing and will further slow the economy.
The good news is that every time a “doom and gloom” economy strikes, there’s an opportunity to turn the circumstance around. We tend to focus on the negative of the position we find ourselves in, but let’s turn the page. You may not be able to travel back in time and do things differently, but what can you do moving forward to improve your situation? We cannot influence the entire economy on our own because we are not in control. We can control our actions and how we respond, which will be our focus today.
You may feel defeated as you reflect on this past year. Perhaps you’ve watched your 401K or 403B decline as you continue to pump money in wondering if there’s any purpose. When you buy shares, you’re dollar-cost averaging, which is a great idea when you do the math. But as you watch your portfolio suffering, your emotions get the best of you, and you wonder if you’ll ever be able to retire. You dread calculating the amount of money you’ve lost in a quarter and may avoid opening your statements altogether.
If you find yourself in this position, you may not be investing correctly. We’re going to be outlining three opportunities you have to respond to these circumstances in a productive way and to improve your financial situation. Before we do, let’s discuss what you should not be doing, whether you have a financial advisor or are on your own. Sometimes, putting a stop to the strategies that are damaging your portfolio can be a solution on its own.
Imagine you’re driving down a road in West Texas. The sun is out, you can see for miles ahead of you, and you’re cruising at 80 mph. The road is straight and you’re the only one driving on the vast landscape. If you suddenly approach a sharp curve or hit a big storm, you’re going to adjust your driving habits and speed in response to the conditions.
When it comes to investing money, however, we often pick up speed and continue driving the same way, no matter what the road brings us. Rain or shine, we’re driving at 60 mph. Whether the road is straight or has hairpin turns, we’re driving at 60 mph. This is called a “buy and hold,” and is a certain way to find trouble financially.
Most people are driving faster than they think when it comes to their portfolio. I recently consulted with a woman in her mid-70s whose investment advisor had placed 70% of her money into the stock market. When I asked her how comfortable she was taking on risk in the market, she informed me she needs that money for income and was quite uncomfortable, as she’s been watching her account decrease.
If you’re in or nearing retirement, there’s nothing wrong with risking a portion of your money. The key is ensuring you have the appropriate portion designated to risk and another portion placed in a safer, more stable vehicle. A client of ours gave us a great analogy. The portion of money you keep safe should feel like a smooth ride driven by a chauffeur: you don’t feel acceleration, quick stops, or sharp turns. Therefore, “buy and hold” creates a real problem for most people and is not the answer.
Reflect on what strategies you’re taking advantage of currently and in our next segment, we will discuss three wonderful opportunities you have to create a positive outcome amid a down market.
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