How do you prepare in advance for market downturns?
Many people were blindsided during the recent downturn because they didn’t have a written plan in place to prepare for it. That plan should include at least five elements.
One, a written risk management plan which ensures that you’re not devasted financially the next time the markets take a big turn. Two: a written income plan that makes sure you don’t run out of money before you run out of life. This plan involves a lot of testing to make sure that your portfolio lasts as long as you live no matter the economic climate.
Third, health care can cause major losses in your portfolio if you don’t plan for it. If you’re married, there’s a 70% chance that you or your spouse will need expensive chronic illness care during your retirement. It is the number one cause of bankruptcy. We need to have a plan in place to make sure you’re not bankrupted by health care.
Fourth, we need to have a tax deferred plan. This deals with the many taxes we face and there’s a tax time bomb sitting in many of your portfolios. That includes an IRA, a 401K, 403B, 457 plan. You may ask “well how do I get my finances into tax free?” It may involve putting a plan in place to gradually move your money from “forever” tax to “never again” tax. The key is to have a tax strategy that is proactive and recognizes that we’re in some of the lowest tax brackets in history.
\\ "Healthcare is the number one cause of bankruptcy."
And finally, fifth, we need to have a plan in place when we die or an estate plan. This fleshes out what you want to happen to your money, your resources, home, real estate and business when you pass on. If you don’t have a plan for that, it could be a financial disaster for those you leave behind. I call wills and trusts “I love you” documents because that’s what they are.
You may say “Okay, how do I accomplish all of that?” It’s a three step process for us. It begins with us visiting with you, learning your goals, dreams, values, and objectives. We come together as a team and surround your statements, budget and other key elements that are important and prepare a financial independence review that tests to see if your finances are ready.
From there, we can launch into comprehensive planning to address the needs we uncovered during that time, critical needs that make sure you and your family enjoy financial independence.
You may be asking “aren’t there some strategies I can implement on my own?” Of course!
First, if you have a plan in place and want to avoid market downturns, you do need to work with an advisor who can help place you in protected strategies.
Believe it or not, it is possible to have safety and growth on the same dollar at the same time, but most advisors won’t share that with you.
Second, you need risk management strategies. This involves more sophisticated and difficult techniques that professionals use in institutional type portfolios like foundations, endowments, religious, and other nonprofit organizations or big corporations.
At Lord and Richards, we pool our resources with others to get access to things that typically would have minimum investment requirements far beyond the reach of the average person.
We can bring those down to reality so we’re able to use and understand them. They're tools that allow us to hedge against risk. It’s an absolute joy when we take a client like you through that process and see the client's face brightens at the end as they realize the goals, dreams, and values they’ve shared will actually happen.