By Carrie Schwab-Pomerantz, Charles Schwab & Co.
Apprehension about how political and economic changes may affect your wallet is understandable.
In times of uncertainty, you can prepare yourself by sticking to some time-tested basics of money management.
Here are some practical things you can do to not only protect your money but also to help it grow.
I’m getting a lot of questions from readers who are understandably apprehensive about what’s in store for their money in this year. So much is up in the air: taxes, interest rates, health care choices and costs, the future of Medicare and Social Security. All of these things have the potential to impact the economy, the financial markets — and our wallets.
But here’s some good news. Although we can’t predict or control the future, we can prepare ourselves by sticking to some time-tested basics of money management. After all, even though we may not be aware of it, we all live with uncertainty every day. Always have, always will.
The best way I know to feel more in control is to take action. So here are some thoughts on things you can do to help ease your anxiety. Even as market forces change, these principles hold true. In fact, it’s in times of uncertainty that they’re probably the most valuable of all.
Regardless of what’s happening in government or politics, don’t panic. Think back to the dramatic market decline of 2008. It was an extraordinarily stressful time, but the investors who suffered long-term were those who panicked and sold at a low.
So don’t let your emotions lead you astray. Instead, let your situation, your personality, and your goals be your guide — and choose your investments accordingly. Money that you know you’ll need in the next three to five years shouldn’t be in the stock market. And if you’re close to retirement, make sure you have a healthy cash cushion.
Cover these basics
The unknown is always a little scary but there are some basic things you do have control over no matter where the political or economic winds blow. Here are three practical ways to protect yourself:
Beef up your emergency fund. Everyone should have an emergency fund to cover at least three to six months of necessary spending. But if you’re feeling uncertain about the future, and especially if you’re nearing retirement, you may want to increase your cash reserves even more.
Reduce your debt. An industry rule of thumb is that no more than 28 percent of your pretax income should go toward home mortgage debt, and no more than 36 percent should go toward all debt. However, in uncertain times, it may be wise to stay well below these levels. Certainly, if you’re carrying a credit card or other expensive, nondeductible debt month to month, make a plan to pay it off as soon as possible.
Be well insured. Insurance always seems like a colossal waste of money — until you need it. If you don’t have great health insurance, get it now. Ditto on auto, disability, and homeowner’s insurance, and possibly life or long-term-care insurance, depending on your situation. At the same time, be cautious about falling for sales pitches for products you don’t need (e.g., life insurance for a child).
Rebalance your portfolio
Periodic rebalancing is always important — but it’s probably even more crucial when markets adjust. This is because as “winning” investments gain in value and take up a larger portion of your portfolio, other investments shrink in comparison. This will change your asset allocation, potentially exposing you to increased risk.
One way to compensate is to sell a percentage of the asset classes that have performed well and use that money to buy more of the asset classes that have done poorly. This way, you’re not only taking profits, you’re actually buying low and selling high. Alternatively, if you’re adding money to your portfolio, you can invest in categories that have underperformed. Sounds counter-intuitive — but rebalancing is a cornerstone of smart investing.
Make a plan
Numerous studies have shown that planners prevail. They set goals, establish priorities, and obtain more wealth. To me, this just makes sense. Managing your money is too important to leave to chance.
If you’ve never worked with a financial planner, this could be your year. A financial plan can be a great way to organize your finances and make sure all the pieces are working together. Or if you’re not ready to go the formalized route, at a minimum take a hard look at your goals (Retirement? A new home? College?), and then crunch the numbers to make sure you’re on the right path.
Change can be disconcerting but it can also mean new opportunities. Yes, there are unknowns ahead. But if you’re smart and diligent, you’ll not only be able to roll with the punches and protect your money, you’ll be able to help it grow.
Lawton Retirement Plan Consultants, LLC (LRPC) Monday Morning Minute is crafted to provide decision-makers with important information about the economy, investments and corporate retirement plans in a format that allows a reader to consume the information in less than 60 seconds. As an independent, objective investment adviser, LRPC has access to many sources of research and shares the best and most relevant information with its readers each week.
Lawton Retirement Plan Consultants, LLC is a Milwaukee, Wisconsin-based independent, objective Registered Investment Adviser (RIA) providing investment advisory, fiduciary compliance, employee education, provider management and plan design services to retirement plan sponsors. The firm currently has contracts in place to provide consulting services on more than $400 million in plan assets. For more information, please contact Robert C. Lawton at (414) 828-4015 or email@example.com or visit the firm’s website at https://www.lawtonrpc.com. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser.
This information was developed as a general guide to educate plan sponsors and is not intended as authoritative guidance, tax, legal or investment advice. Each plan has unique requirements and you should consult your attorney or tax adviser for guidance on your specific situation. In no way does Lawton Retirement Plan Consultants, LLC assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations. Investors should carefully consider investment objectives, risks, charges and expenses. The statements in this publication are the opinions and beliefs of the commentator expressed when the commentary was made and are not intended to represent that person’s opinions and beliefs at any other time. The commentary does not necessarily reflect the opinion of Lawton Retirement Plan Consultants, LLC and should not be construed as recommendations or investment advice. Lawton Retirement Plan Consultants, LLC offers no tax, legal or accounting advice and any advice contained herein is not specific to any individual, entity or retirement plan, but rather general in nature and, therefore, should not be relied upon for specific investment situations. Lawton Retirement Plan Consultants, LLC is a Wisconsin Registered Investment Adviser and accepts clients outside of Wisconsin based upon applicable state registration regulations and the “de minimus” exception.
Additional Important Disclosures
Rebalancing does not protect against losses or guarantee that an investor’s goal will be met. The information provided here is for general informational purposes only and is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, consult with a qualified tax advisor, CPA, financial planner or investment manager. The Charles Schwab Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, Charles Schwab & Co., Inc. (member SIPC), offers investment services and products, including Schwab brokerage accounts. Its banking subsidiary, Charles Schwab Bank (member FDIC and an Equal Housing Lender), provides deposit and lending services and products. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.