Stock market volatility has rocked many investors’ portfolios since the start of the year. After a decades-long bull market, so much volatility may make you question your financial plan — and for good reason.
It’s easy to become lax during booming periods and forget that financial plans require regular attention, just like your toddler. Unlike your toddler, however, good financial planning does not need to become a full-time job or require you to get up at ungodly hours. Follow these seven strategies to keep your financial plan on track, especially when the market is behaving poorly:
— Plan regular reviews.
— Keep a long-term perspective.
— Invest in yourself first.
— Maintain an emergency fund.
— Put contributions on autopilot.
— Maximize your wealth at every step.
— Connect with a team of professionals.
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Plan Regular Reviews
The first step to keeping your financial plan on track is to review it regularly. “Think of it as preventative maintenance like a car or going for a cleaning at the dentist,” says Michelle Young, private wealth advisor at Ameriprise Financial. You want to catch potential problems before they create too much damage.
The five key items she says you should review regularly are:
— Your short- and long-term goals.
— Your current and anticipated annual expenses.
— Your current insurance protection, including employer-provided benefits, relative to your needs.
— Your risk tolerance and comfort level with investing.
— Your investing strategies, which should provide growth potential while also reducing the impact of inflation, taxes, fees and market fluctuations.
“Implementing digital tools that allow you to track your progress online anytime will also create accountability,” she says. But if it sounds like a lot to evaluate on your own, consider working with a financial professional who can help.
Keep a Long-term Perspective
“One of the best tools for keeping a financial plan on track is perspective — historical, rational and personal,” says Bill McManus, vice president and managing director of Applied Insights at Hartford Funds.
When volatility strikes, it can be easy to question your financial strategy, but it’s important to remember that you shouldn’t abandon your ship just because the waters get choppy. Staying the course is essential to long-term success.
“Taking a pause to consider historical perspective can be invaluable during these times,” McManus says. Even if this time feels different, looking at previous downturns can help put market performance into context.
It can also help to revisit your goals to remind yourself what you’re trying to accomplish, he says. Remember that your financial plan is designed to give you the best chance of reaching your goals despite any adverse market circumstances.
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Invest in Yourself First
“It may seem cliché, but one tried-and-true strategy that we at Vanguard stand firmly behind is always invest in yourself first,” says Nilay Gandhi, a certified financial planner and senior wealth advisor at Vanguard Personal Advisor Services.
Make sure retirement savings are a top line item in your budget. Gandhi says you should ideally be saving between 12% to 15% of your salary, including employer contributions.
“If you can’t swing it, remember that contributing at least enough to receive your employer’s full match, and increasing that percentage rate by 1% to 2% each year can help you gradually build up to this recommended savings rate,” he says.
Jenna Faust, a certified financial planner and principal at CliftonLarsonAllen, recommends evaluating if pre-tax or after-tax contributions to retirement accounts make the most sense based on your income and tax bracket. You might also consider opening a taxable investment account for any extra cash flow. This will provide even more tax planning flexibility in retirement by giving you another income source you can tap.
Maintain an Emergency Fund
An emergency fund is a buffer between your investments and life’s curveballs.
“When life happens and investors face income loss or unplanned expenses, emotions often take over and rational decision making goes out the window,” which can lead to damaging long-term choices like early retirement withdrawals or taking on high interest debt, says Ashley Weeks, a wealth strategist at TD Wealth.
To help prevent this from derailing your long-term financial plan, he recommends maintaining an emergency fund throughout your life.
Ideally, your emergency fund will have enough to cover six months worth of basic living expenses, he says. It should also be kept somewhere easily accessible — like a high interest savings account — but separate from your primary checking account.
Put Contributions on Autopilot
One of the biggest challenges with keeping a financial plan on track is that it requires constant vigilance. You must review it regularly, as Young said, but also keep tabs on your expenses to ensure you don’t go over budget with 27 subscription services. There is some good news, though: Retirement savings don’t need to require constant attention.
“One of the best ways to keep retirement savings on track, even when mental bandwidth is stretched, is to put recurring contributions on autopilot,” Weeks says. Your employer-sponsored retirement plan will automatically take contributions out of your paycheck, but you can also set up recurring contributions to individual accounts, such as your individual retirement account, health savings account or even a taxable, non-retirement brokerage account.
“The greatest benefit of setting up recurring contributions is that it takes no ongoing effort, and contributions are made before the money can be spent,” Weeks says. “It also preempts the temptation to try and time the market, which almost always results in underperformance.”
[READ How to Determine Your Investment Risk Tolerance]
Maximize Your Wealth at Every Step
A diversified portfolio is important. But to supercharge your finances, you need to maximize your wealth every step of the way, from investing and borrowing to spending and saving, says Brian Barnes, founder and CEO of the brokerage M1 Finance.
He says you can do this by:
— Automating your monthly finances.
— Making the most of your cash with high interest savings.
— Being prepared for unexpected expenses.
— Earn cash back on purchases you would be making anyway with a rewards credit card.
— Borrow money at low interest rates only when needed.
Connect with a Team of Professionals
This one requires little explanation but frequent reminders: If you’re worried about keeping your financial strategy on track, perhaps the best thing you can do for yourself and your finances is find a team of professionals who can guide you.
An integrated team of tax and wealth professionals can help you uncover opportunities in your financial situation and review your personal financial plan regularly to ensure you stay on track, Faust says.
“Advisors consistently provide insight on market changes and offer strategies or product solutions to help with the client’s situation,” Young adds. “A second set of eyes or a different perspective on your current financial plan could also be a big help to catch items you may not know about and could benefit from.”
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7 Strategies to Keep Your Financial Plan on Track originally appeared on usnews.com
Update 02/23/23: This story was published at an earlier date and has been updated with new information.
