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Wealth & Well-Being

How to Approach Turbulent Economic Conditions

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Uncertainty. It’s a feeling we are all a little too familiar with right now. We are uncertain when it will be safe to leave our homes again, uncertain if our children will finish their school year online, and uncertain when the market and economy will recover from this recent blow. 

It’s times like these that it behooves us to simply stop, take a deep breath, and prevent our emotions from winning out over reason. Look beyond the market’s mayhem and focus on the elements of your life and your financial plan that you can control.

What You Can Do for Your Financial Well-Being: 

While this type of global pandemic may be new, market uncertainty and sharp declines are certainly not. Of course, nobody likes to see the value of their accounts go down. We advise that investors focus on those things that they can control and take advantage of the strategies they have under their control at this time. How you react to the current economic climate will dictate your trajectory for recovery and growth. You have the power to follow the actions that historically have resulted in success weathering market volatility. 

As always, our specific advice and actions will vary, depending on your needs, but options include:

Refinancing your Mortgage

Interest rates are currently at a multiple year low, which means that individuals with adjustable rate mortgages (ARMs) or high interest rate mortgages may benefit from exploring a refinance.

Roth Conversion

If your income is lower in 2020, consider converting all or part of your traditional IRA money to a Roth.   

Performing A Life Insurance Review

You may consider increasing your life insurance benefits in order to protect your family should something happen to you.

Applying for Social Security

Consider taking your social security benefits instead of drawing down from your portfolio, if eligible. 

Suspend 2020 RMDs

Per the recent CARES Act, Required Minimum Distributions are no longer required for 2020. If not needed for income, consider suspending until 2021.

Max Out Retirement Contributions

Because equity values are at decade-long lows, maximizing retirement plan contributions allows for the purchase of addition shares at this time.

Invest on the Sidelines

Consider investing cash on the sidelines using dollar cost averaging over several months or opportunistically on down days.

Reduce Retirement Plan Contributions

On the other hand, if cash flow is a problem or if you'd like to build up your emergency reserves, consider temporarily reducing your retirement plan contributions. Try and at least contribute up to the employer match. 

Portfolio Rebalance

As the market pushes equity prices around, it’s easy for your asset allocation to change. In order to hedge market risk, you’ll want to ensure your investment portfolio still matches your personal risk profile.

Tax Loss Harvesting

Convert this market downturn into tax savings by tax loss harvesting within taxable investment accounts. The losses generated can be used to lower your tax liability.

Apply for Federal and State Relief

Where eligible, take advantage of the many programs rolled out by the government to help families and businesses sustain through Covid-19

Remain Realistic

Please remember that all investments involve some risk. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account. 

Of course, your unique circumstances will influence your financial choices and decisions in the months ahead. But again, your most rational move is to stick with the robust long-term plan you’ve already got in place. Update it only when your life’s circumstances call for a change. 

What You Can do for Your Personal Well-Being:

Among the most important things you can currently do for your well-being is to look past the market and news of the day and focus instead on making the most of your life. Try to “set your egg timer to six months,” as this moving piece by Contrarian Edge’s Vitaliy Katsenelson suggests. Consider his advice (emphasis ours): 

“We have been given a very unique opportunity to divorce ourselves from material things and spend time with our family. To really spend time with them. We have been given the rare opportunity to prioritize what is most important to us without guilt. The material world is on pause, at least for a few weeks. Try to make the most of it while you can.”

Take this time to reconnect with your loved ones and let the market run its course. If, however, you have questions or concerns regarding your financial plan, risk tolerance, asset allocation, or just want to reconnect, the advisors at Northstar Financial Planning are always open for discussion. Please call us if we can help. 

 -There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.

Written by Julie Fortin in collaboration with Lexicon Content Development

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