Gaining Control of Your Financial Picture When Markets Are In Crisis

03.16.2020 - Bryan Kirk, Director of Estate and Financial Planning and Trust Counsel

Amid market turmoil, it is crucial to understand and stick with your long-term financial goals and investment plan. But that guidance may not be enough if, like many people, you’re not entirely certain about your financial goals and therefore may feel uncertain about your investment plan as well. 

The last several weeks have left many concerned about their cash-flows to avoid needing to sell while markets are down. Others may want to put cash to work when valuations appear depressed, but should make sure the risk of their investments aligns with the time horizon of when they may need to pull their money back out. 

We recommend four action items that can help to address such practical problems and set you up to weather the market turmoil today and make future decisions as financial conditions stabilize. 

  1. Understand and Provide for Your Cash Flow Needs

How much money do you need on a monthly or annual basis? If you don’t know, now’s a good time to figure it out. This can be as easy as looking at your checking or credit card statements.  If you have multiple accounts or credit cards, it may take a little more work. The goal isn’t to come up with a budget or itemize how you spend.  It’s simply a single number, preferably rounded up to be conservative. 

Once you have your spending number, the next question is: where will that money come from?  Do you easily cover it out of your regular salary? Are you reliant on bonuses or draws from your investments to fill the gaps? Are you retired and entirely reliant on your investments? If you are pulling from some trusts or accounts before others, are these calculated decisions and do you understand the reasons why? 

Answering these questions helps isolate risks to your cash flow that you may otherwise overlook. And, understanding which accounts you are tapping into for your spending needs provides the backbone for determining the appropriate long-term investment strategy for each.

  1. Stress-Test Your Short-Term Goals

Assuming you’ve separated your regular cash-flows from your savings and have them covered, the next set of needs you want to address are your short-term goals. These could include large purchases such as a home or home improvement. They may also could include funding business endeavors or illiquid investments, like commercial real estate or private equity. Or, they could include supporting family members such as funding a child or grandchild’s education or making gifts to charity.  

With your short-term goals, you should determine how flexible they are. There are commitments, and there are desires, and there are a variety items in between. There may not be an alternative to raising cash for a grandchild’s education that you’ve promised to cover, but a home remodel potentially could be scaled back or postponed.  

Practically, you’re often funding multiple goals at once with different levels of importance.  By prioritizing them, you can build in appropriate contingency plans and liquidity schedules for how funds will be available. 

  1. Prioritize Your Long-Term Goals

Same as short-term goals, long-term goals can also be prioritized. For many people, their long-term goals consist of ensuring they have funds to comfortably cover their expenses for the rest of their lives, then leaving as much as possible to their beneficiaries at their death.  But there’s dynamism, even within that simple goal-set.  

Some people prioritize their own living expenses over the amount that goes to their heirs. For the others, the exact opposite will be true. This can result in an ad hoc flipping back and forth of goals which can feel ungrounded and provoke anxiety in times of market uncertainty.  

But it is possible to strike a balance between competing goals and craft a long-term investment strategy that is designed to address multiple goals at once–as long as you’re clear on your priorities. You should always understand what your long-term goals are and how they relate to each other, even if the picture is and maybe always will be a little fuzzy.  At Fiduciary Trust, our long-term relationships with our clients enable us to partner with you in the goal discernment process and work to match your investment strategy with your evolving concerns, wherever they stand.  

  1.  Revisit Often to Keep Your Plans Fresh

We advise clients to review their cash-flows and short- and long-term goals on an annual basis. You also should review them whenever you’re feeling uneasy about your financial affairs, or upon significant events—whether these are personal in nature like marriage, divorce, inheritance or change in job, or outside of your control like the current events and market turmoil we’re all experiencing.  

While it can be  important to ground yourself in the facts of your situation, any review should always aim to be forward looking and ask the essential questions: Have your cash-flow needs changed? Have your goals changed? Have your priorities shifted, or do your goals and cash-flows relate in a new way? 

Asking these questions creates a process of rediscovery and helps ensure your financial plans remain fresh and tied to how you actually want to live.  

We Are Here to Help

Please contact your Fiduciary Trust relationship manager to have these conversations and address the concerns you may be having related to current market conditions.  Our professionals are skilled at helping our clients understand and develop the dynamic relationships that go into a successful financial future. 

This communication is intended solely to provide general information. The information and opinions stated may change without notice. The information and opinions do not represent a complete analysis of every material fact. Statements of fact have been obtained from sources deemed reliable, but no representation is made as to their completeness or accuracy. The opinions expressed are not intended as individual investment, tax or estate planning advice or as a recommendation of any particular security, strategy or investment product. Please consult your personal advisor to determine whether this information may be appropriate for you. This information is provided solely for insight into our general management philosophy and process. Historical performance does not guarantee future results and results may differ over future time periods.

IRS Circular 230 Notice: Pursuant to relevant U.S. Treasury regulations, we inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. You should seek advice based on your particular circumstances from your tax advisor.

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