SOUND VIEWS – Q1 2023 Back to Basics

They say timing is everything, and New Canaan Group brought me onboard in late 2021 to serve as our Director of Portfolio Strategy. While 2022 was certainly not an easy year, it provided many valuable lessons for investors, particularly those used to the environment after the financial crisis. Over the coming issues I hope for Sound Views to provide timely commentary on financial markets, but I thought it best to start with some sound guidance that any investor can follow. Below are my 4 “Back to Basics” recommendations for clients regardless of their wealth level.

  1. Keep an eye on your piggy bank – I recommend clients keep between 6-18 months of cash on hand at any time to meet emergencies or for worst case planning. Those just starting your careers with no mortgage may be fine with only 6 months of saving. If you’re nearing the end of your career and are focused on that final push to retirement, having a larger cushion helps protect you against potential job loss or a major home repair. This cash cushion can also cover your living expenses during down markets to avoid selling at the worst times.
  2. Map out your expenses – Plan ahead and set aside money to meet any large obligations. If you know you need to pay for a wedding or buy a new car in the next 2 years, set aside those funds in a bank account or low risk investments like CDs. This allows your long-term money to keep working for you while preserving cash to meet your needs.
  3. Rebalance your accounts – When financial markets move in a dramatic fashion portfolios drift away from their target exposures. As an example, if the stock market declines 20% and you are supposed to have a 50% allocation to equities, the account may have dropped to only 40% equity exposure, and if nothing is done this account will bounce back less then it should when the market recovers. I handle the rebalancing for our clients in our managed account programs, but it’s important to monitor all your accounts for drift away from their long-term objectives.
  4. When in doubt, stick to the plan – A solid financial plan can offer clarity in times of great uncertainty. Our planning process can help you evaluate your ability to meet your goals and should be revisited on a regular basis. Barring other changes in your situation, a drop in the markets shouldn’t be reason enough to change your investment allocation, but it can offer an opportunity to assess your goals and evaluate your progress. Over the years I’ve found clients can be surprised at how little the day-to-day movements in the markets impact their long-term outlook.

While I can’t make the market go up, trust me I’ve tried, I’ll always do my best to help you understand the important machinations behind its movements. We often strive to control things that are uncontrollable, and this is especially true with investments. In a historically bad year for financial markets, it’s helpful to focus on the why of money instead of the number itself. By keeping your long-term goals front of mind you’ll find yourself on a path to success regardless of what the S&P does.

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