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3-2-1 Newsletter (4-23-2020) Thumbnail

3-2-1 Newsletter (4-23-2020)

5-Minute Read

This is a strange time. I'm trying to stay sane by creating new routines to remain physically and psychologically healthy. Wherever you are in the world, I hope you stay safe and healthy.

Let's take a break from the constant news cycle and spend a few minutes exploring three insights, two findings and one action...


I. Stay the course/Stick with the plan

At some point, all financial plans face challenges. None of us can predict the specific challenges we knew would appear at some point. But if the plan accounts for the most likely challenges (market volatility, loss of income, inflation, etc.), then the best action is to stay the course. To the extent you have a well-thought-out strategy, the best action is to stay the course, focus on the long term and stick to the plan. 

Does your financial plan account for these inevitable challenges? 

II. Too many questions, too few answers

We have too many questions, too few answers, and a dark closet full of unspoken fears about the future. If you’re approaching or in retirement, it wouldn’t be a stretch to think COVID-19 has left you with more questions than answers. While there is so much beyond our control at this point, this is a great opportunity to assess, reflect, and take necessary action to prepare for retirement later.

If you’re approaching retirement, do this...

  1. Choose a retirement income strategy that best meets the goals and risks that matter the most to you.

  2. Consider non-investment income strategies to fund retirement if market volatility is a concern. 

  3. Shift your mindset from building a nest egg to the best ways to use the nest egg. 

  4. Determine essential expenses and fund with non-investment assets. 

If you’re in retirement, do this...

  1. Review your retirement income plan to ensure it meets the four primary goals and addresses the three main risks faced in retirement.  

  2. Determine your Funded Ratio and whether it’s under, fully, or overfunded. 

  3. For an overfunded retirement, consider less risky sources of funding.

  4. For an underfunded retirement, consider all income sources and less traditional assets such as home equity, part-time work, and insurance as sources of funding.

III. Retirement is a marathon, not a sprint

Retirement for most will not be won or lost on a single event such as the COVID-19 pandemic. Those with investment-based retirements can take comfort in knowing long-term, not short-term, market performance matters most. Markets eventually turn around, and downturns are part of investing; they are why we can harvest the long-term returns that many of us are planning to use to meet our retirement goals. If the market didn't drop, then it wouldn't go up, or at least it wouldn't go up enough to be all that much use. It's certainly not easy, but the old cliche is true: it's not timing the market; it's time in the market. Your time in the market, not your efforts at timing the market will give you the greatest chance of winning the retirement marathon. 


I. Should you change your asset allocation during a market downturn?

It’s often said markets hate uncertainty. And there is a lot of uncertainty right now. It cannot be overemphasized that markets are inherently risky and volatile and that upturns and downturns should be expected and are not reasons to make changes to your investments, either at the asset allocation or individual stock level, to avoid or reap short-term losses or gains. This is because a well-thought-out investment strategy based on asset allocation best suited to achieve long-term investment success is superior to one that isn’t.  Most people don’t need to change their asset allocation during a bull or bear market unless there is a change in risk tolerance.  When market volatility becomes a distraction, and there’s the temptation to do something, this may suggest a review to change the asset allocation. 

Has your risk tolerance changed?

Source: Retirement Researcher - Should you change your asset allocation during a bear market

II. Should you try timing to avoid bad markets?

We all know we're supposed to stay disciplined and that time in the market beats timing the market. But it is hard to do this when the markets are all over the place. Now there’s a lot of appeal to getting out of the markets and avoiding these losses, but market timing is a risky game because you have to be right twice: once to decide when to get out and then again when to decide to get back in.  Get either of these decisions wrong, and you miss the gains and take the losses. Nobody can accurately and consistently know when the stock market will go up or down, so your best move is to make a broad sweep of the market your ally by shifting the focus to building a financial plan to help reach your financial goals. Then harvest the long-term returns that the market puts on offer. In other words, buy the market all the time and stay put!

Source: Should You Try Timing to Avoid Bad Markets?


 I. Covid-19 Pandemic: Smart Personal Finance Habit Of The Week

Incorporating smart financial habits is always beneficial, no matter what is happening in the world. Maintaining them will safeguard financial stability and help reach financial goals. 

We’ll look at one financial habit to safeguard financial stability, help achieve financial goals, and reveal a new one each week.

This week’s smart habit: Remaining objective and focused on your economy.

Why it’s important: As the COVID-19 pandemic sends financial markets into a freefall, remaining objective and focused on your economy has never been more important. Why should you do this? Markets go up and down, and it can feel tempting to make moves to “protect” your money by selling assets or switching to different investments. But it’s helpful to remember your investment strategy was set up to fulfill long-term goals, not short-term gains. And having an investment strategy can help you avoid succumbing to an emotionally driven investment decision that could cause long-term harm. So rather than overly focusing on the market at large—and on factors you cannot control—try shifting your mindset to your economy, which can include components of your financial life such as savings and spending levels, financial foundation, and retirement.


Have a Question? Want to chat about it?

Get In Touch

Until next week,

Mark Sharp, CFP® RICP® EA

Mark Sharp Retirement