It’s a cool fall morning as I type these words. I am watching the sun slowly peak its warmth through the northeastern corner of my basement window, and I am thoroughly enjoying the scalding hot coffee from my Disney Cruise Lines coffee mug. There’s a cartoon caricature of Captain Mickey ™ smiling at me. I note these details because it is this exact mug that came home with my family and I from our Disney Cruise in the middle of January 2020. It is a memento reminding me just how much has happened since we departed from that cruise ship. The word coronavirus certainly wasn’t foreign at that time, but it also wasn’t local. My family and I stepped off the ship in Miami on January 14th in what was an incredibly normal and warm setting in Miami. We landed in the frigid climate of Omaha on the 15th, unpacked and went right back to our routine laden lives of work, school, work, school, etc. Two months later to the day, life as we know it shifted. E-learning was now a thing, and our economy started its official spiral into what ended up becoming an official recession[1].
The economy’s slide amidst the pandemic has created disruption throughout many areas. Jobs have been lost, businesses have closed, and schools throughout the country have created schedules unique to their local health climate. The global equity markets have not been immune to this slide either. The Standard and Poor’s 500 Index – comprised of the 500 largest companies in the United States – peaked at 3373 on February 4th and bottomed at 2237 on March 23rd[2]. That’s a peak to trough movement of an astonishing 35.56%. Combinations of all of these factors – job losses, economic disruption, e-learning, market volatility, and more – have brought new urgency to sound financial planning.
This post will kick off a five-week series where I will cover each of the 5 Pillars of Wealth and the five corresponding items my clients and I are discussing as we strategically work through the disruptions of 2020.
Pillar 1: Financial Planning
The financial planning pillar itself covers a broader base of problems to be solved. Medicare, and social security are among the issues to work through in financial planning, but those issues are age based in nature. In this scenario we will focus on general retirement planning, which can be addressed at any age.
Everyone I meet with receives the same question from me: “what is the most important thing to you about financial planning?” As you can imagine the answers vary substantially. The fundamental stance with generally everyone is they want to know everything they’ve worked for is safe, they can retire in comfort, and they can sleep at night. I’m not one to argue about how wonderful sleep is, so we start there.
- Determine your sleep at night number
This number has no right or wrong answer. What is the amount of money you need to have in your checking or savings account, for you to sleep at night? Everyone has ‘a number’ and that number can change at anytime. Determining yournumber and understanding it’s flexible is step one to working through the financial planning .
- Revisit your retirement goals
Have they changed? Has the pandemic shifted your timeline? Is there a fundamental reason for the change (i.e. you no longer have the assets you need)? A comprehensive review of everything you want to accomplish needs to take place, so the plan can be recreated or updated accordingly.
- Update the net-worth statement and retirement plan contributions
The net-worth statement is where the most recent values of all your assets will be discussed. It’s also where you and your financial planner will note changes in contributions to retirement accounts and savings accounts. The decision to suspend the matching programs for entities throughout the country has been common this year[3]. Understanding what is currently being saved, how this savings rate affects future projections, and the current market value for everything you own, are all items discussed when updating the net-worth statement.
- Revisit your investment strategy
This is where the portfolio customization enters. There’s not a single default answer I can give to the masses here, nor should there be. What is your current allocation, and does this allocation have a purpose? Is there an opportunity to rebalance and purchase securities at a discount? Did you go to cash in the spring? Are you reinvested? Are you in cash to prepare for the election? When is your plan to get back in? I could go on, and on, and on. In my opinion, the most important question was first: does your allocation and strategy have a purpose? If the answer is yes, then the purpose needs to be revisited to correlate with #2 (above). If your retirement goals have changed then a change to your allocation may be in order – it depends on how drastic the changes are. If your retirement goals haven’t changed, redefining the purpose of your investment strategy – similar to redefining the objectives to your class lecture – is critical.
- Implement, Execute, and Monitor
Having a forthright and comprehensive discussion about everything noted above is one thing, taking action and holding every party accountable is another. Whatever is discussed and decided upon regarding your retirement planning should be implemented, executed, and consistently monitored – especially if you’ve made changes due to the disruptions this year has caused. It is no coincidence the final two steps in The Practice Standard for the Financial Planning Process of the CFP Board® are: Implement and Monitor. Monthly, quarterly, semi-annually, or annually – whatever you are comfortable with – it is your right to request a monitoring schedule that you allows you to sleep at night. After all, this is about you.
Our team of wealth advisors here at BerganKDV are fee-only fiduciaries who are dedicated to helping you navigate all areas of your financial life. Want to learn more about what we can do for you? Start here.
Diversification and asset allocation do not ensure a profit or guarantee against loss.
The views and strategies described may not be suitable for all investors. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for accounting, legal or tax advice. References to future returns are not promises or even estimates of actual returns a client portfolio may achieve. Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation.
The views expressed are those of BerganKDV Wealth Management. They are subject to change at any time. These views do not necessarily reflect the opinions of any other firm. Investment advisory services and fee-based planning offered through BerganKDV Wealth Management, an SEC Registered Investment Advisor.
[1] Retrieved on 17 October 2020 from: https://www.cnbc.com/2020/06/09/us-officially-in-a-recession-but-its-different-than-2008.html
[2] Retrieved on 17 October 2020 from: https://www.barrons.com/market-data?mod=BOL_TOPNAV
[3] Retrieved on 18 October 2020 from: https://www.marketwatch.com/story/new-blow-to-workers-some-companies-are-cutting-401k-contributions-2020-04-02?mod=article_inline
