Market volatility is never comfortable, but with the right mindset and a thoughtful plan, you can face downturns not as a victim, but as an opportunist. In this episode, we’re sharing our advice on managing your finances amid turbulent markets and giving you a helpful checklist to guide your decision-making when headlines make your stomach flip.
1. Start With Your Financial Plan: What Can You Control?
A market slump often triggers a wave of questions: Should I take money out of the stock market? Do I have enough safety? Should I pause my 401(k) contributions? Or, is now a good time to buy more? Before making any decisions, the single most important step is to revisit your financial plan or create one if you haven’t yet.
Assess Your Income and Expenses
Start with the basics. Is your job stable? Are you at risk of being laid off or considering early retirement? Do you have multiple income sources, or are you the sole earner? What about non-employment income, like rental properties? Now is also a good time to consider whether you might need to support adult children or help with family medical expenses.
Review Major Purchases
Are you planning large expenditures, such as a home renovation or a new car, that could be delayed if necessary? Identify what’s truly essential. Can you trim subscriptions or discretionary spending? Reflect on whether cutting expenses would have negative knock-on effects, such as deferring critical repairs.
2. Understand Your Financial Position: Emergency Reserves and Upcoming Life Events
Market downturns are a stress test for your liquidity and preparedness. Knowing where your money is and how easily you can access it matters, especially if your income is at risk.
Check Emergency Funds
How much cash do you have on hand? If you’re over 59½, can you access retirement funds without penalty? Have you contributed to a Roth IRA, and can you tap those principal contributions in a pinch? Consider all your potential sources of liquidity, including insurance and expected windfalls.
Scan the Horizon
Anticipate major life events, such as a child heading to college, upcoming weddings, or potential inheritances. Do you expect any healthcare needs for yourself or your loved ones? Being clear on your net worth, cash location, and upcoming demands means you can avoid selling investments at the worst possible time.
3. Revisit Your Investments: Why Are You Invested Where You Are?
Volatility is a natural part of investing, but that doesn’t make emotional reactions any easier. Now is the time to get curious, not fearful, about your portfolio.
Ask the Critical Questions
- What do I own, and why?
- Why do I own stocks, and what’s my goal?
- Has anything about my investment thesis fundamentally changed?
- If I didn’t own these investments, would I buy them today at their current price?
Think about what the stock market represents: real companies, selling products and services you likely use daily. Will people stop needing groceries or shoes during a downturn?
4. Actions You Can Take: Turn Uncertainty Into Opportunity
Once you’ve reviewed your plan, liquidity, and portfolio, what next steps might make sense?
Stay the Course With Contributions
Continue 401(k) or IRA contributions. By investing regularly, you buy more shares when prices are lower, which sets you up for a better long-term return.
Deploy Surplus Wisely
If you have a cash buffer, consider investing some of it while stocks are “on sale.” Or, consider a Roth IRA conversion while values are down, which can amplify future tax-free growth.
Harvest Tax Losses
Have some of your recent investments lost value? Tax-loss harvesting can reduce your taxes now and allow you to reinvest for the recovery.
A choppy market doesn’t have to derail your financial future, as long as you’re prepared. Remember, staying proactive turns uncertainty into opportunity.
Outline of This Episode
- [0:00] We discuss the importance of planning, reviewing its steps, and controlling expectations during unforeseen events.
- [4:29] Evaluate income, expenses, job security, income sources, and potential risks in financial planning.
- [7:14] Consider delaying major purchases or expenses if income is uncertain. Assess whether postponing could increase costs or cause issues.
- [12:53] Prepare for significant financial events that may impact your portfolio, like downsizing a home or receiving a large sum.
- [14:17] Evaluate your portfolio by considering your stock choices.
- [17:32] Avoid panic selling stocks, which often leads to long-term financial regret.
- [22:50] Take informed action for peace of mind; mindset and planning are key.
Resources & People Mentioned
Connect With Chad and Mike
- https://www.financialsymmetry.com/podcast-archive/
- Connect on Twitter @csmithraleigh @TeamFSINC
- Follow Financial Symmetry on Facebook
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