Our Comprehensive Approach to Financial Planning in a Volatile Market

In today’s complex economy, it’s easy to understand how one might react emotionally to stock market news which could lead to making rash decisions concerning your investment portfolio out of fear. Financial reactivity, rather than proactivity, can lead to drastic changes that have the potential to negatively affect outcomes regarding your retirement funds, investments, tax projections, and more. It is important, however, that those who wish to attain and maintain financial success and freedom do so by staying grounded – and even more vital that you have a partner in this complex process who is looking out for your financial wellbeing. 

As a holistic wealth manager, our goal at Chatterton and Associates is to provide comprehensive financial planning in a volatile market by incorporating these five key aspects into the overall picture of your financial health:

• Retirement
• Preservation
• Investment
• Tax Planning
• Estate Planning

As conversations revolve around a looming recession and what that might mean for your financial future, it’s a good time to revisit the basics of what sorts of investments one might have, and how you can use them to your advantage in fluctuating financial periods.

What type of investments are in your portfolio?

Stocks

Owning stock in one or more companies is a good way to build financial wealth, but it is not a guarantee. Stocks may appreciate or depreciate depending on which way the market is going. In buying stock, an investor will do so in the hopes that the price will appreciate, or go up. A company can also choose to issue dividends to their shareholders, which can either be paid out in cash or additional shares to reinvest. 

Bonds

Bonds represent a type of fixed income and are essentially a loan. There are different types with varying risk, but generally, income is achieved through interest payments for the life of the bond. When a bond matures, investors typically recoup the initial principal however some bonds may be at risk of default. The credit profile is dependent on the health of the issuer. Generally, government bonds issued by developed countries such as the United States would be considered high credit quality while companies with sub-par balance sheets may be viewed as low credit quality.   

An investor can have stocks and bonds included in their mutual funds.

Mutual Funds

Mutual funds are pooled investments such as stocks, bonds, and other areas of the money market. This type of portfolio is structured and maintained to match the investment objectives stated in its prospectus. Mutual funds have risks and carry additional costs. There is some debate over whether actively managed (investments are screened by professionals) or passively managed (those that follow an index like the S&P 500 ) mutual funds are better, but it again depends on the investor’s preferences. It is important to know that index mutual funds typically carry lower costs than actively managed mutual funds since they do not buy/sell securities as frequently.

How do you choose allocation for your portfolio?

Portfolios are generally made up of some combination of stocks, bonds, and cash. In terms of income, bonds yield less in interest (and therefore income), but can be seen as a more stable investment in a recession. The allocation of a portfolio is unique to each investor, depending on their interests and risk tolerance. While you should always discuss your personal investment options with your financial advisor, here are a few sample allocations:

• Conservative: 40% stock or less
• Moderate: 40% - 60% stocks
• Moderate/Aggressive: 60% - 80% stocks
• Aggressive: 80% - 90% stocks
• Very Aggressive: 80% - 100% stocks

How can market fears and complex financial issues affect your portfolio?

Tariffs and geopolitics may create many short-to-intermediate-term disruptions to the market. Additionally, low-liquidity assets such as real estate may become harder to value and cannot always be liquidated when funds are required.

We expect interest rates to remain low, and that affects bonds. Since bonds are typically viewed as a more stable income source, they are often relied upon especially during times of recession. This will cause the price of the bond to rise, which means their yields will fall. Too much demand in the bond market can cause bond yields to hit rock bottom, leaving investors starved for yield. Because of this, investors may venture into higher risk or lower credit quality investments, which can lead to undesired financial outcomes.

What are a few portfolio options when considering volatile markets?

While nothing is absolute, there are a few ways to protect yourself against market volatility. Keeping a diverse portfolio, with a rotation of stock investments into quality versus growth would be advised. Your return on investment might be less, but it would provide more stability.

You can also look into more short-term assets, such as cash, as an asset class for liquidity and to lower your chances of experiencing a big loss. However, market-timing strategies are ill-advised.

Safe Haven assets may provide some degree of protection in volatile markets. While safe haven assets vary from one market to another, they are generally unaffected or negatively correlated with general stock market performance during such times - which means they have the potential to be higher in demand. Examples of safe haven assets include gold and other precious metals, t-bills, defensive stocks, or cash.

How Chatterton and Associates can help you in a volatile market

At Chatterton and Associates, we will work as fiduciaries, and we strive to always give you unbiased and objective advice. During our review, we will look at your overall financial plan holistically, including investment and tax advice, looking into tax projections and cash flow, your retirement needs, and your estate planning needs. 

Your future financial wellbeing, including retirement, doesn’t have a redo button. At our upcoming seminar Welcome to a New Decade: Planning for 2020 & Beyond, we invite you to consider the events and policy changes which may affect your retirement and other life changes. Please visit www.PYCTSeminars.com to register! 

Sincerely,

The Team at Chatterton & Associates

Although the information has been gathered from sources believed to be reliable, it cannot be guaranteed. Federal tax laws are complex and subject to change. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Royal Alliance Associates, Inc., nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.

Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance is no guarantee of future results. Please note that individual situations can vary.  Therefore, the information presented here should only be relied upon when coordinated with individual professional advice.