Three Points Financial - Serving Clients from Colorado Springs to Denver - Fee-Only Financial Planner

Fee-only financial planner serving Clients from Colorado Springs to Denver, CO

Temporary Reality – Mary R Alpers

By

It’s a challenge adjusting to this temporary reality. Most are heeding instructions to slow the spread of the CoVID-19 virus: social distancing for two weeks, now for another month, and possibly longer. We encourage parents, relatives, friends, children, and co-workers to take precautions. Precious lives have been lost, the broad economy and personal jobs are affected and at this point most of us know someone or know someone who knows someone affected by the CoVID-19 virus. Our emotional health is strained. Thank goodness for facetime, zoom and other apps that bring loved ones nearer.

Although Alpers Financial Planning is deemed “essential” our office is practicing social distancing. One employee is in the office at a time and the others work from home. We have offered virtual meetings for years and can remote in to continue to serve clients.

Medical professionals are “all hands-on deck.” My niece was pulled from her regular nursing position to the front lines. Nursing students were assigned early to medical facilities. Some residents are sewing masks. Entertainment shows featuring MDs and Nurses donated masks and gowns from costume departments. Many churches accept food and cash donations for those in need. Counselors are available to listen, pray and comfort. Some homeowner associations including my own have opportunities for neighbors to help and seek help, or just to communicate, creating avenues of virtual contact. My sister in law is teaching her kindergarten class online. My daughter became an overnight homeschooler. Our financial planning support organization (ACP) offers a daily virtual meeting to share anything on our hearts as we serve our clients and work through tax season.

Comparing to another historic time when our country banded together: During World War II civilians collected rubber (tires) for the military. Women’s fashion statement included nylons, and they went without for needed parachute material. Diets were restricted for military rations. Civilians sewed uniforms, packed rations and cared for children and their home. They took jobs in factories replacing men. My maternal grandmother became a Red Cross nurse. My paternal grandmother worked in Iceland as a riveter.

Both then and now people wonder(ed) how long this would last and how soon will/would we recover. Constant media coverage heightens emotions and can move us to make emotionally weighted financial decisions. That is where we come in. We are here to discuss any concerns about your financial situation. Fortunately, our clients understand why and how they are invested. For retired or nearly retired clients US Treasury Bonds, Cd’s and highly rated bond funds are comforting, and you understand that the stock portion of your portfolio is for long term growth. Equities (stocks) protect against inflation and create long term wealth. Younger clients have time for recovery while continuing to add to savings. Investors have opportunities for wisely managed growth. We recommend maintaining a comfortable level of cash to offset sudden unemployment or unexpected expenses and avoiding credit card and any other unnecessary debt. This is financial wisdom.

Wise tax planning protects net worth. Clients who attended our appreciation dinner last fall heard more about the value of time, savings, wise investment allocations, and that tax planning enhances overall life planning for each individual or couple.

But it’s been difficult to watch the market’s wild ride. So if you (as our client) were to ask me if you should sell everything now, I would recommend “no” at this time, because we set your target allocation and would instead recommend focusing on tactics such as strategic rebalancing, tax loss harvesting, strategies for IRAs, ROTH conversions, and maintaining a healthy cash balance.

From the March 27, 2020 Cares Act: The tax filing season has been extended to July 15th, delaying taxes owed and the first quarter 2020 estimated payments. July 15th is also the deadline for IRA and ROTH contributions for tax year 2019. Ironically,  the second quarter estimates are still due June 15th. This will likely change, so stay tuned.

IRA and Beneficiary IRA Required Minimum Distributions (RMDs) normally taken in 2020 are now suspended. If you took the distribution within the past 60 days, you could deposit the funds back into your IRA provided there were no other indirect rollovers in the past 12 months. If you take your distribution in monthly withdrawals, you can stop those for the balance of the year plus a 60-day lookback. Beneficiary IRA Minimum Required Distributions are also suspended if not already taken for 2020. The last time any Required Distributions were suspended was in 2009 after the 2008 financial crisis.

Suspending these taxable withdrawals and using after tax assets for cash flow allows RMDs calculated based on a higher 12/31/19 balance to remain in the account another year, and this results in less taxable income in 2020. We are discussing this with clients. (UPDATE as of 4/3: The IRS is being pressured to reconsider the 60 days limit and allow any Required Distributions taken in 2020 to be returned to the accounts. So… again stay tuned.

If you are concerned about your cash level or equity balance, please call us to discuss. This is particularly important if you have an unanticipated a life change or are concerned about job security or your health. I don’t have answers as to how long this will last or how quickly the market will recover but I can provide the historical chart below. For the 26 market corrections since World War II it shows the overall average market decline was 13.7% (the max being over 20%). We have topped 23% so far. The average recovery cycle was 4 months down then 4 months up.

For small businesses: As of 4/3 the IRS is on its 4th draft of the PPP (Paycheck Protection Program) application that allows small businesses a 100% forgivable loan up to $10,000 to cover payroll costs to avoid laying employees off. If you apply for this, read the fine print carefully. There are 3 other types of loans for small businesses to sustain them through this period.

https://www.sba.gov/funding-programs/loans/coronavirus-relief-options

Above all, stay healthy, rested, hydrated and while practicing social distancing, communicate with those in your life. Find someone to talk with when this temporary reality starts wearing on you. Last week I called a friend because on a personal note, my father was at “end of life” in a local nursing home and I was allowed in to say “goodbyes.” We’ve been unable to see him for weeks for the residents’ and staff protection. It was surreal to have my temperature taken, complete a health form, don a mask and receive orders of where I could go. I left I worried I might not be allowed back in, and he would pass away without family near him. My father peacefully passed away two days later, and they allowed me to be by his side. They were sensitive and gracious and it meant a lot.

While this is our temporary reality, it affects real life in ways we might not imagine. I’m optimistic things will get better and I’m grateful for the kindness I see in others. 

Alpers Financial Planning is available to discuss your concerns because you chose to work with a firm that is interested in more about you than the singular topic of investment rate of return. We are interested in helping you live life to your fullest with solid financial guidance, comprehensive advice and a long-term outlook. Stay Safe.

 

LABOR DAY THOUGHTS…

By Leave a Comment

Politicians have now made “the economy” their main talking point.  But I don’t think they yet realize that throwing future tax dollars towards a “stimulus” without disciplined Federal spending cuts is like a shark feeding on its own blood.  And why not wait until the last minute?  The November elections are still 60 or so days away…even though most Americans have had a heightened concern about the economy since around 2008.

I’m really not gloom and doom as some because I have faith in the resilience of American workers and entrepreneurs and I sense that the upcoming voters will vote more based on their economic comfort than by pure political party.  There are glimmers of stabilization in spite of, in my opinion, an ineffective economic team that insists on bigger government as the answer rather than pro business, private enterprise, and a light handed touch by a now massive federal government.  I wonder how quickly our economy might have recovered had they been more hands off.  Economists will need to sift through what is spun for the sake of politics versus true statistics.  History supports smaller government and lower taxes as foundations for sustained economic growth in a free-market society.

Now come several tests:  Will the midterm elections make a strong enough statement to BOTH parties that fiscal spending must decrease and private job sectors be treated with due respect?  Will we be given a clearer picture of future fiscal policy so private businesses (meaning non-government) can plan for the long term?  In other words, whatever the outcome in November, will there be an articulate and intelligent launching pad?

Imagine you were trying to lay out a financial plan for your family and your life.  You’d like to set goals and define variables.  You might use years to retirement as a goal, or the cost of future college, or the cost to take time off to further education or change careers, or how much to save to cover time doing philanthropic work, or saving for a special trip, or developing a hobby, or starting a business.  I have worked with clients to project the approximate costs, savings and time required for all of these goals.

Now, imagine a Company is projecting future goals that include hiring new people, training employees, investing in capital to expand, developing new marketing territories, etc.  As much as our politicians would like to think the private business world functions similar to the government, it doesn’t.  Without some parameters and level of fiscal certainty, it is difficult to commit to long term expenses.  This is because the private world needs to maintain balance and profits to succeed.

Let’s assume that both you and the Company above have defined costs, realistic investment returns or projected growth and plan to make steady, healthy financial decisions.  And then…..all momentum ceases.  Suddenly you and the Company are left hanging, dangling over the precipice of swirling rumors, speculation and fears of the vast unknown of TAXES.  Yes, because our politicians were busy on other issues these past few years (spending future tax dollars) they apparently didn’t pay attention to their calendars or “forgot” that 2011 is nearing.  And on January 1, 2011, unless something happens, a plethora of tax changes will occur.  Those most affected will be individuals working for companies and individuals running businesses.

To be blunt, the fact that our government (both parties) allowed this to happen is the most irresponsible and narcissistic lapse of consciousness I’ve seen in politics in a long time.  It’s as if they can’t walk and chew gum at the same time.  It’s as if they just turned up their hearing aids and heard, “It’s the economy, stupid.” It’s as if they haven’t yet realized that a healthy economy is directly tied to deficits – you cannot separate the two.  They now see how quickly the November elections are coming and that January 1, 2011 is around the corner.  And they’ve looked at our nation’s balance sheets and realized they’ve already spent SO much money trying “fixes” (through expansion of themselves rather than fixing their own mistakes such as Fannie Mae and Freddie Mac), that it will be very hard to throw more money at the economy and collect more from those doggedly hard working Americans.  Americans need to work, and the businesses they work for really need clarity regarding their future outlay to this massive government deficit.

It’s like they (both parties) spent the past few years wearing those blinders that let a horse see only straight ahead.  They’ve conducted themselves like kids with their first credit card – only theirs has no limit, and they have operated with an attitude of astonishing short sightedness.  I almost feel like they are “learning” rules of basic economics 101 on our time and at our expense.  Of course we know that agendas play an enormous role in government spending.  But someone has to pay for those agendas, eventually.

The truth is if any of us ran our households like this, or any business owner ran his/her company like this, our country wouldn’t survive as we know it.  We voted for people (in both parties) who have yet to clarify the two most important “unknowns” for smart personal and business planning.  One: Future Individual and Business Income Tax changes after the expiration of the 2003 Tax Cuts, and Two: the looming, gargantuan Healthcare Laws that they were convinced America needed – so much so that they spent a year working to pass it.

They owe clarity to Americans who keep our economy healthy.  On this Labor Day, my prayer is that these politicians are thinking hard about how to prevent us from laboring in vain.  I define laboring in vain as when more of my earnings go to a government that spends them in ways that magnify the size of government and minimize a private citizens’ independence, liberty, and ability to freely give and invest into their own lives and families.  My prayer is that those in office have some conviction about how they view individuals who keep our country humming: the American majority who care about working and conducting their lives with purpose and clear focus.  The vast majority of us want no entitlements, just a level of certainty that will allow us to take wise steps.  I heard someone on the radio say that when politicians talk about taxes, if they use the word “target” or “targeting” preceding the word “taxes”, it won’t likely benefit the vast majority of those who actually pay taxes.  Good point.

Asking Americans to work and conduct businesses without defining necessary variables (Tax law changes and looming Healthcare mandated costs to name a few) is like blindfolding a baseball pitcher and expecting him to throw a strike and not hit the batter.

Meanwhile, as politicians reposition themselves prior to the November election, I would like to honor all hardworking Americans, whether currently working (in and out of the home), looking for work, or retired from working.  You and our exceptional military service men and women are the backbone of our nation.  You are the generous ones – giving sacrificially of time and service and charitably to those less fortunate and in need.  Without your ability to walk and chew gum at the same time our nation would not be the exceptional nation that is still quietly functioning and overcoming in the background, in spite of the loud and confusing “talk” by our elected officials in the foreground.  You are the “Doers.”

Thank you.

RISK: THE GOOD, THE BAD, AND THE FOOLISH

By Leave a Comment

Lately I’ve been thinking about risk in areas other than investing. Last week while visiting Yellowstone for the first time, I found myself calculating: “How close should I get to that wild buffalo I’m trying to photograph?” and “What are the odds that the geyser we are approaching might go off? (It did, and we were DRENCHED), and “Why are those families allowing their toddlers so close to the wild elk standing in the river?” and “Should that woman really be out of her car video recording a herd of buffalo crossing the road right in front of my car?”

Later, I had an interesting conversation with a saleswoman in Jackson Hole about the folly we observed.  She called it “the Disneyland Syndrome” meaning some tourists are just certain there is a ride operator nearby who can punch a button to stop impending doom. (Maybe our culture is so used to being rescued on so many fronts that this is more common than in the past….I’ll save that for another day.)

In a typical lifetime career, most people take on various levels of risk.  They apply for jobs, learn new skills, make career changes, continue education, start businesses, and hire employees.  These risks are part of doing business and successful individuals and businesses are rewarded for risks taken.  Of course, there is a chance of failure in some or all of the above.  But there is little reward without taking some risk.

In sports or outdoor activities such as skiing, risk necessary for success and the “rush” some are seeking.  Those who challenge themselves usually excel more than those on the sidelines playing it safe.   Those who take on too much risk suffer injuries or worse.

There are risks in every relationship, but most people are more than willing for the expected rewards of loving, close relationships and friendships.   Risk is a part of life – the degree varies by both what we can control (endogenous risk factors) and what we cannot (exogenous risk factors).

When it comes to investments, people tend to evaluate risk differently.  For one thing, if you ask someone how much investment risk they are willing to take when the market and economy happens to be thriving, most will say they are quite willing to take on risk for the reward of a higher return.  When the market is volatile or on a downward spiral, very likely that same person will change their view and become less willing to accept risk.

Investors who understand that adequate and appropriate investment risk should not be emotionally based, but rather methodical and strategic, are able to view risk with both short and long-term mindsets. Good financial planners need to help a client approach risk differently than riding the investment rollercoaster extremes of greed vs. fear.  After years of seeing the upside of risk and then sudden downturns in the early 2000’s, many cannot stomach downturns because they took on inappropriate risks in the past.  Unfortunately many brokers are untrained in the world of risk and confuse risk with speculation, leaving out the factor of time, as if all of us would remain young with unlimited recovery time.

The lessons from the last decade have led some to read or re-read the 1830 “Prudent Man Rule,” which elegantly says “to observe how men of prudence, discretion and intelligence manage their own affairs, not in regard to speculation, but in regard to the permanent disposition of their funds, considering the probable income, as well as the probable safety of the capital to be invested.”  My belief is that combining ethical free market capitalism with the prudent rule mindset and understanding the purpose of investment risk, would allow most to experience less investment volatility and more to have confidence.  Our financial markets would require less costly, cumbersome government regulation.

Financial planners should spend time with clients clarifying the amount and type of risk needed to meet personal short and long-term goals. They should explain how it is possible to minimize or smooth out some risk over the long-term.  Clients should understand how investment risk is different from speculation or forecasting and particularly get rich quick methodologies  Comprehensive financial planners use many variables including: time, stage of life, immediate, near and future needs, proper asset allocation, planned increases in assets (savings), estimated decrease these assets (retirement draw downs), and of course a client’s change in lifestyle.  Some risks can be minimized, some can be avoided, and some risk is there for the purpose of long-term growth/reward.

It is important that my clients understand why we are recommending each investment.  This allows them to relax and not react daily to market movements.  When we review and rebalance, they know why.  We don’t jump in and out of investments because each is serving a purpose, and it has been proven time and again that this doesn’t benefit the net worth of a portfolio.  We carefully and methodically invest for their personal plan.  With investment risk properly defined and assets allocated accordingly, they should experience less volatility than most of their neighbors and friends, and understand each investment’s function within their portfolio.

Not only does this allow clients the sleep they need and the energy to focus on other matters in life, our planner/client relationship invites open communication because we are both have the same goals: THEIRS.

The Cart or the Horse?

By Leave a Comment

You’d have to be unplugged from all media sources to not hear debates on “…the economy…” by academically refined “experts” and screeching emotional hot heads.  Is it getting worse, is it beginning to recover, is it stagnate, are there are hopeful signs?

I’ve been wondering if changes to our economy precede or follow political beliefs – on both sides of the house.  Which is the cart and which is the horse?  What is reactionary and what is proactive and when should either tactic be used?  It’s been awhile since I’VE seen  strategic non-partisan proactive economic policies but maybe I missed a few along the way.  Where does the role of government begin and end during shifts in our economy?  What a lot to debate!

It is important to come to some sort of conclusion to the questions above to feel confident about the way our country is being led – either confident in the policies or confident that you want significant change at the next election season.

Our conclusions depend on how we define economic health. Regardless of differences in economic camps (there are big disparities), I personally do not know anyone who doesn’t include in their definition of a healthy economy: 1. low unemployment and 2. a healthy housing market.  Maybe I have purely capitalist friends – but no, I do have friends with far more big-government instincts who also want healthy job markets and a healthy housing market.  Really, what more affects us personally than our ability to earn a living, and where we sleep?  With the American tradition of home ownership and a God given desire to plant roots and secure our place in this world, to convince a majority of  Americans that this idea is outdated would be a very hard sell.

I liken it to Maslow’s Hierarchy of Needs: The philosopher determined that until basic needs are met (physiological and safety,) more ecclectic needs such as self esteem and self actualization (whatever that personally means) aren’t important.  It is odd in the world’s most advanced country to think of  Maslow’s heirarchy of needs in general terms.  Third World Countries come to mind when you think of food and shelter, although without a doubt this crisis also exists in America.  The point is – to be discussing this in American majority terms says something to me.  The phrase:  “It’s the Economy, Stupid” rings true.  Call me simple, but our government’s MAIN goals, actually pledged outloud are preventative:  Defend and Protect the Constitution of the United States of America.  This includes our economic strength.  When all is well on the fronts of security and  economy, THEN we can focus on other aspects of quality of life for us and the world in general.  Sounds simple, doesn’t it?  Of course we all know it is far from simple.

Terms are thrown around regarding our economy: inflation, deflation, stagnation, stagflation, depression, recession, debt vs. GDP growth.  Defining a few of these terms:

During the depression, something called DEFLATION occurred: too few dollars for too many goods, translated simply: no one could buy what was for sale. This occured partially because businesses had a hard time getting credit and could not expand and weather slow downs, and because our economy was out of balance: not enough solid businesses to employ enough people.   The result was a drastic slowing of the economy: prices dropped and production slowed – causing high unemployment.  The government stepped in and created programs to stimulate the economy.  The hope was to get people back to work.  Many did go back to work, but most jobs created were for the government. Since the government has to make payroll for government jobs and they get their funds by taxing citizens or increasing US debt, it is seriously debatable that their actions really grew the economy in the LONG run.  They did in the short run, with permanent government expansion being a consequence.  Many respected economists argue that necessary production for World War II actually brought our nation out of deflation and the depression.  So if we want to avoid a deflationary pattern, what long term policies will actually impact our nation’s economic growth?  This is the million dollar question.  Economists seem to know less about the causes and fixes of deflation than they do inflation.   If we are headed towards deflation, then this is the CART that must be directed.  It is usually harder for a society to recover from severe deflation than inflation – there are less variables to “tweak.”   Interest rates are already very low, which is a typical way the Federal Reserve Board “tweaks” the economy.  What is needed are JOBS and demand for supplies.

On the flip side, INFLATION can occur when prices rise quickly(due to rapid growth) and and it takes more dollars to buy necessary things.  Raw materials begin to cost too much for businesses to expand.  Some level of inflation means the economy is growing.  There is a precarious balance to keeping inflation in check that is largely controlled by interest rates.  When inflation surpasses the health zone, unemployment increases, just as with deflation, and the vicious cycle of high unemployment and high cost of living seriously affects quality of life.  The Federal Reserve Board’s ultimate responsibility is to regulate the supply of money in accordance with the needs of the economy as a whole.   They do this through interest rates and money supply.  The US Treasury is in charge of money policies, tax policies (the IRS) and is an arm of the administration. Easing up money allows businesses to expand, but the money supply can’t be too loose or money loses intrinsic value as inflation creeps in.  Just as in our personal finances, BALANCE is key.  Overcorrection can bounce the economy from one extreme to another.  There are actually 3 types of inflation that yield similar results but are based on different realities of our economy and corrective actions depend on understanding inflationary issues.

So where are we today?  Low interest rates, high unemployment, increasing US Debt, increased government spending and regulations.  Add to this mix that we are part of a global society – with economic stability of other countries affecting our economy and vice versa.  In the near term, if our policies do not focus on JOBS, meaning business friendly activity, we could shift to deflationary times.  Inflation could also occur with increased government spending and loose money policies that diminish purchasing power of goods.   Much of this depends on how well our leaders balance our economy and put this balance ahead of political ideals.

Think about what matters most to Americans and what you think of our economy.  Do you see glimpses of recovery? Further challenges? Personally, I see hope based on more than financial decisions.  I think our economy is a filter to view our nation’s heart and what we stand for.  Economic policies are a reflection of the values of those making them.  That is what makes economics interesting.  My hope is that as good economic decisions align with most American’s hearts and values, our economy will improve.  Uncertainty is a stumbling block to a healthy economy.  Taken to a personal level: how we handle our finances often reveals our hearts and values.  Amidst Maslow’s hierarchy of needs in this economy, we as individuals can make a big difference in other’s lives.  It has been demonstrated time and again that individuals and private citizens make the most significant and cost effective changes in other’s lives.  How many dollars does it take for the government to feed the hungry vs. how many dollars does it take for individuals or private charitable organizations to help those less fortunate in their community and elsewhere?

The saying goes: there is an economist within each of us, whether we know it or not.  Because in the end, we all have to deal with money in one form or another.  That is why we, as individuals, should buffer both extremes of inflation and deflation when managing our personal finances.  As a comprehensive financial planner using functional asset allocation, we help clients lay out individual life plans.  We consider future streams of income, investments poised for growth, and identifiable standards of living that bring peace of mind to our clients.  I’ve not yet seen a more complete and cost effective way to approach an individual, couple, or family with financial recommendations.

What is happening out there and how does this affect personal financial health?

By Leave a Comment

I’m beginning a series (I started to write “short blog posts” but realized that “short” is somewhat relative) to review financial and economic topics and highlight choices and possible action plans.  Admittedly, it is disturbing to see some changes and decisions that have occured within our US and global markets and current US economic philosophies and strategies.  But as a Comprehensive Fee-Only Financial Planner and student of economics, I  tenaciously look for silver linings (vs. hype).

To maintain CFP®, Enrolled Agent and NAPFA requirements, there are significant continuing education requirements.  I recently completed 3 days of education focusing on personal finances and taxes.  One thing is clear: our world is changing, and tax and financial changes are part of the fallout.  I’ll be attending a conference this fall that includes top economic and financial planning commentators/practitioners.  But I don’t have to wait for that: facts are surfacing that allow for planning strategies.  I’ll take requests  – meaning if you would like a topic covered, ask me.  I’ll touch on Economic Theories and how to identify what is being applied with certain government proposals.  More importantly what does this means for families and individuals? I will aim towards the practical steps and decisions after understanding the larger picture.

I begin with this truth, which should not be glossed over:  Most wise financial decisions are static regardless of our world changes.  As the founder of the Alliance of Cambridge Advisors, Bert Whitehead says, know the difference between “endogenous” versus “exogenous” factors.  This means: what can you most control about your personal finances (endogenous) versus what may be happening out there that alarms you but that really you cannot do much to control or change, financially speaking (exogenous).

Knowing the difference helps clear the clutter from our minds – as I don’t know about you, but sometimes the amount of information coming in via media and internet,  is overwhelming.  Some information is relevant to individuals, and some is not.  And of course, since media often speaks with “biased tongue”, we also need to decipher truth from persuasion and agendas.  So it is good to put into practice the ability to segregate out the Endogenous factors – those that we can control either immediately or in the future from those that may alarm us, but leave us dumfounded as to what actions to take.  The endogenous issues are things I would put on the “A” list.  They most affect how to improve our financial health.

Exogenous issues (issues outside of our personal control) may or may not provide opportunities or defensive action.  If you are financially prepared and ready become the operative words.  It’s interesting that most “get rich quick” methodologies are rooted in exogenous factors, meaning since such and such is going to happen, we need to do this – in a hurry.  I encourage clients and when speaking or teaching to first understand the root of an idea or prospect and whether it is feasible, ethical, practical, and personally applicable before jumping into any new venture.  Included in the analysis of exogenous “opportunities” are:  What are my PERSONAL risks?  What do I stand to lose either in money, time (which has a monetary value), other opportunities, friendships, reputation, momentum, ethical lifestyle and peace of mind?  Is this something that fits you and your family?

Stay tuned.  I’ll email and post update information on twitter and facebook.  I look forward to your input as well.

How should I manuveur through this economic time?

By Leave a Comment

Each day and each minute brings us new information via our 24/7 media. If we were living in the days of limited radio/TV newscasts and a daily physical newspaper to alert us to what happened yesterday in our nation and world, would we be more or less concerned? On the one hand, I appreciate timely information. On the other, information overload can cause undue alarm and overall numbness or confusion as to what really matters: socially, economically, globally, nationally, personally. In the investment world, the markets react strongly to information made known within seconds. Quickly after, the public follows. So what does a rational investor do during these times? Since the market is up one day 100 points, then down the next 200 points, then up the next 300 points, when do we “get in” and “get out?”

It has been determined that market timing does not benefit individual investors in the long term, especially taking into account trade and commission costs. If you want to read more on this, I recommend a book entitled: A Random Walk Down Wall Street by Burton G. Malkiel (publisher: W.W. Norton & Company.) In it, the author skillfully displays evidence that timing the market is not a productive way to build wealth.

Just as three rules of real estate are: “location, location, location,” I adhere to a great rule of wise investing: functional asset allocation with passively structured investments, meaning depending upon each individual’s situation there is an optimum allocation of one’s financial assets that should not be changing daily. Since jumping in and out of the market messes up a long term allocation, these two methods don’t mesh.

In volatile times as in calmer times, sticking to a short and long term plan that you understand and brings some peace of mind is a good way to approach your investments. Since we don’t know if the market will shoot up drastically, or plunge lower, we really can only adjust a plan from what we surmise in the economic realities of our times. If and how much we should adjust our short and long term plan depends upon our stage in life. Some inevitable conclusions I anticipate: higher income and other taxes within earning parameters, gradually increasing inflation, possible disincentive of investors if free market capitalism is severely hindered, and potentially uncharted territories for medically related investments, insurance, and professions.

So, as I work with clients, we discuss the knowns, unknowns and if and how they may affect each client’s long and short term plan. Most often, we stick to the plan. Because the plan has more solidity to it than any other. The plan needs to be posed for inevitable inflation, protected with adequate liquidity and positioned for growth and eventual income stream. Functional Asset Allocation has always allowed for these recommendations.

I recommend building a healthy cash reserve for all investors – a minimum of 6 months living expenses, preferably longer. This may take awhile to save, but it is important. I also recommend drastic steps to eliminate consumer debt and avoid it. Thirdly, I recommend faithful contribution to retirement accounts. These require discipline and sometimes living below your means. Finally, I recommend cultivating a grateful and generous heart to help put everything into perspective.

Alliance of Comprehensive Planners

National Association of Professional Advisors

National Association of Tax Professionals