By: Paul Morrone
Much like stocks, financial plans are always forward looking. Where we are today is just one of many data points that will make up a financial plan over its lifecycle and, like the historical returns of just about any stock index, some points are higher than others. For seasoned clients of our firm, the tariff tantrum of 2025 will one day be just another point on a graph over the life of our time working together. Many reading this are now accustomed to our messaging about keeping emotion out of the investing process and tuning out the noise of the mainstream media. For those who are newer to our firm, we understand that these few weeks are a rigorous test of the trust you’ve placed in us and the process you’ve subscribed to. In an effort to bring some clarity to what we work toward every day here, below are some thoughts for the many of you wondering ‘am I ok?’
Those with the most angst are likely those that are at or near retirement. We are aware that several of our clients have plans to retire, or recently have, which is an accomplishment to be celebrated, not lamented. These are decisions that have not been made in haste, and in many cases, we’ve spent years preparing for this moment. While many of our conversations may have been about ancillary topics (healthcare, budgeting, estate planning, etc.) or logistics (how do I access my money in retirement), you’ve undoubtedly seen various iterations of retirement projections, Monte Carlo scenarios (that circle that shows probability of plan success in our planning software) and draft budgets that we’ve torn apart in the conference room. These simulations are designed to account for these shock-type events that we know all investors are virtually guaranteed to experience multiple times each decade.
In preparation for what is arguably the biggest financial transition most will ever experience, we start preparation years in advance by coaching you to bolster cash reserves, pay down debt, maximize your savings and refine your budget. Doing so greatly increases your ability to stay discipled during times of turmoil and ensures that your balance sheet can sustain drawdowns so that you can maintain a comfortable lifestyle in the years that are to come. This is all part of the process that should not be underestimated.
For those that have been comfortably retired for some time now, you’ve likely seen or felt this before. Maybe it was the financial crisis, maybe it was COVID, or more recently the recession in 2022, but this is certainly not your first rodeo (maybe you’re having rodeo fatigue…). That’s not to say it feels good, but at the very least we hope that you have enough proof of concept to believe that you’ll be ok. While this time around you may be thinking “this time feels different,” I challenge that thought with the statement that every time feels different (at least this time we aren’t stuck inside wearing masks!).
Accumulators and opportunists, rejoice! Market downturns this swift and deep are few and far between. You may have heard us discuss strategies to take advantage of the reduced equity prices by putting idle cash to work, gifting, funding 529 plans or executing ROTH conversions. Those who have stable or growing incomes should continue their pursuit of dollar-cost-averaging into their long-term investment accounts and looking at the potential to accelerating savings if at all possible.
Speaking broadly, the biggest risk is borne by those who may be chronically under-saving and/or over-spending relative to their portfolio values, which I’d argue is the number one risk people face in depleting their assets prematurely. As I’ve said many times, no sound financial plan should be based upon the assumption of above-average long-term investment returns, a comment I’ll stand by in both good and bad markets. Positive returns may help to delay the inevitable, conversely, sustained negative returns may only accelerate a harsh reality few would like to face. Taking short-term corrective action is always helpful, however, the better solution is to craft a budget that is sustainable now and in the future.
At the end of the day, much of financial planning is about controlling what you can control and operating under a reasonable set of assumptions – admittedly not an easy thing to do when there are a myriad of external forces that are trying to steal your focus. We encourage all of you to remain committed to your goals and the strategies we have developed together. As markets continue to gyrate, capitulate, spin, tank or whatever adjective you’d like to use, it’s important to remember that sometimes the best action to take is none at all.
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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.