By Craig Childress, CFP®
Author of Practically Investing: Smart Investment Techniques Your Neighbor Doesn’t Know, Coreen T. Sol said, “Volatility in the up direction is not a problem—it’s only downward volatility that offers discourse.”
Unfortunately, that downward volatility is the toughest to deal with, both financially and emotionally. The market will always have ups and downs. However, short-term fluctuations, while certainly scary at times, should not be your primary motivation for investment decisions.
It’s difficult to stay calm when you see dramatic changes in your portfolio, but that is why there are strategies you can use to help make sure volatile times aren’t quite so damaging. With these four steps, you can feel a little more comfortable no matter how the market is trending.
1. Diversify and Maintain Your Income
This may seem overly obvious, but it can’t be overstated: your income is your greatest wealth-building tool. A consistent income stream will allow you to build an emergency fund and prevent the need to sell assets or take on debt to meet your basic expenses. A solid income stream is great, but multiple streams of income are even better.
Diversified income streams act in much the same way that diversified investments do. They allow for less demand and stress on any one income source, so if an unforeseen event like job loss or reduced pay were to occur, the remaining income streams can pick up the slack. There are many ways to diversify your income, including purchasing rental property, investing in real estate, and employing distribution-focused strategies to your investment accounts
2. Control Your Expenses
Another way to protect your wealth is to control your expenses. Budgeting and tracking spending habits are common ways to do this, but you can also consider consolidating or refinancing debt.
For those who are no longer dependent upon earned income and are taking distributions from an investment portfolio instead, consider reducing your expenses and your withdrawals during market downturns. This will help to maintain your income without selling any of your portfolio assets.
If you are still in the accumulation phase and dependent on earned income, focus on building an emergency fund to cover 3-6 months of basic living expenses. Beyond that, controlling your expenses is crucial to building and maintaining wealth. Some expenses will be non-negotiable (like utility bills), while others may have some room for cuts (eating out). Over time, your budget can be modified as needed so that you are better prepared to withstand potential fluctuations in income.
3. Review Your Risk Management Strategy
Next, it’s important to understand the major categories of loss that could jeopardize your assets and prepare a mitigation strategy to protect against each. Unmanaged risk can mean the difference between maintaining an ample emergency fund or not having enough when you need it the most.
Be sure you reevaluate your life, health, disability, and long-term care insurance policies as well. According to Fidelity Investments, a 65-year-old couple retiring in 2022 will spend an average of $315,000 in healthcare and medical expenses in retirement (5% higher than last year). (1) These expenses are often overlooked and can have devastating effects on your accumulated wealth.
Making sure you are adequately covered now will save you time, money, and energy in the future.
4. Stay Current on Public Policies
Remember to pay attention to local and federal policies that could impact your personal or business finances. For instance, the proposed tax portion of the Build Back Better Agenda contains many provisions that could affect you if you have significant estate assets, plan to retire, or expect to have large capital gains in the next couple of years. It is crucial that you stay up to date on changes like these so that you can amend your financial strategies as needed to protect what you’ve already built.
Talk to a Financial Advisor
Protecting your wealth doesn’t have to be difficult or overwhelming, especially if you work with experienced financial professionals. If you’re concerned about the current market volatility and want a second opinion, reach out to Oswego Wealth Advisors by calling 503-342-2249 or emailing craig@oswegowealthadvisors.com to get started. Together, we can create a wealth management strategy that you can rely on, even in volatile markets.
About Craig
Craig Childress is Wealth Manager and a CERTIFIED FINANCIAL PLANNER™ professional at Oswego Wealth Advisors, an independent firm in Lake Oswego, Oregon, dedicated to helping their clients remove financial uncertainty so they can focus on what matters most. With over 35 years of experience, Craig employs a personal approach to help people find solutions to their financial needs and concerns, set goals, clarify their values, and design a plan that aligns their money with their values. He does everything with purpose and intention, and cares deeply about his clients and their families, desiring to equip and empower them to work toward financial freedom and a fulfilling life. As a Fiduciary, Craig puts his clients first, always, and provides transparent guidance that makes a significant difference in their lives. When he is not serving his clients, you can find Craig involved at River West Church, serving the community here and abroad through the Lake Oswego Rotary Club, reading, gardening, or playing his guitar. He loves spending time with his family, especially his wife, Terri, and their grown children. To learn more about Craig, connect with him on LinkedIn.
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