Make a Plan
In life, there is always a lot that we don’t know. Although we all operate with more unknowns than knowns having a plan is always a good idea even though that plan may be executed in its fullness very rarely. This post covers the basics of putting a plan together and finishes with some thoughts on the Corona Virus and its potential impact on the economy and markets.
Just do it
Start with your mission and vision - where you want to go
This sounds simple enough, but these conversations can be stretching to have with your significant other if you have different perspectives on money or on how you want to spend your future. Having someone to act as a neutral party helps you both communicate clearly and define a common goal. If it is hard to talk about money, don’t put the conversations off. It’s a lot easier to change the direction of a ship that is building momentum towards something than to change direction of something that isn’t even in first gear.
Figure out where your at: Income/Expenses, Assets/Debt
Simple enough but it takes a bit of effort to get all the paperwork together. Different 401k’s from various jobs, insurance policies, social security statement, mortgage balance, house value, credit card debt etc.
What is often revealed during this exercise is the state of what I call your “emotional balance sheet.” Overtime the wins and losses that you have had can become baggage that you hold on to. The short sale of an underwater property after the great recession. Job loss that brought on credit card debt that’s still being paid off. Unfortunate circumstances with an expensive medical condition. It’s best to recognize that these are things that have happened that we have been holding on to. That acknowledgement in itself allows us to begin to think about the future without those former shadows.
Consider your worst case scenarios: Job loss, disability, death.
This one isn’t too much fun - it's kinda depressing. If you haven’t already - get a will or consider if it needs updating.
Work through the different scenarios and process the amount of coverage you think would be appropriate. Fee only advisors don’t sell insurance but we can recommend appropriate types of insurance and coverage. We can also direct you to reputable companies that provide competitive rates. For example Health IQ provides very competitive rates if you lead a healthy lifestyle.
Understand your risk aversion and length of time before you want to reach your goals.
Again talking it through with someone helps when you and your partner have different perspectives. Lower risk - weighted to more stable investments - typically bonds. Higher risk - more volatile, weighted to equities.
Build an investment strategy that minimizes both fees and taxes and maximizes return based on your agreed upon risk profile and time frame.
Write up the plan that takes all of the above points into account
Act on said plan - have someone hold you accountable!
Revisit annually and iterate as appropriate when life happens: Job changes, Market correction i.e. re-balancing, Insurance needs, Add College planning for kids.
Thoughts on the Corona Virus
First our thoughts, prayers and priorities go to those who have been affected by the Corona Virus and the healthcare workers working to contain it. Its helpful to point out that I am not an infectious disease expert but an investor and financial advisor providing insight into how this disease could affect the global economy.
Market corrections are often a buying opportunity when stocks are on sale and an opportunity to re-balance your portfolio.
However in this case I believe that CovID-19 poses a real risk to global growth.
Although often compared to SAR’s which is more deadly, CovID-19 is proving to be far more infectious.
Health officials have been unable to contain it spreading around the world - even in nations with advanced healthcare systems such as Japan and South Korea.
China (the workshop of the world) hasn't gone back to work since the Chinese New Year constraining supply of new products globally. (Apple and Microsoft have already issued earnings warnings and other companies continue to follow)
Tourism and Travel will be hit hard as countries battle to control its spread.
Flu season is typically Spring and Winter. Although it is possible that the numbers recede this summer, if it follows a similar pattern to the Spanish Flu of 1918 next fall will likely see another major outbreak.
A best case scenario is that the outbreak is contained. As noted above this does not appear achievable even for countries with advanced healthcare systems.
My current understanding of a worst case scenario in the US is that approx. 50% of the US population catches it in the next year and the death rate remains at 2.5% - that's not math that I want to do.
The extent to which the Corona virus impacts the global economy will become clearer over the coming months and quarters. It’s useful to remember that in both stable and volatile markets there is a lot we don’t know and all investors operate under more unknowns than knowns. This reality should embolden us as all market players must manage the same risk.
Action Item: Re-visit your Plan with your financial advisor: Assess your risk profile. Review your timeline to achieve our goals. Update your strategy as necessary.
If you’d like to call me feel free to give me a call at 651-785-5169 or email me at chris.saxton@aberdourinvestments.com