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How to Manage Your Money When the Tide is Out

September 12, 2022

Here we go again, another unprecedented time in our markets filled with uncertainty, lack of control, fear that our long-term savings will plunge and simply disappear into thin air…. WAIT, STOP, CUT - let’s back up a bit.

When I was young girl, traveling with my parents to a picturesque seaside town, I remember the beautiful colorful sailboats floating on the sparkling sun-drenched water, but then, over the next hour, the sailboats were on their sides, sunk in the mud and not able to move. But I also remember my father saying don’t worry — everything comes back into balance — when the tide comes back in, the sailboats will lift out of the mud…  

Just like the tides, if you think the markets will come back into balance, how might you manage your money?  Let’s take a look:

  1. Build an “all weather portfolio” that may help you sustain what we call “staying power” throughout the market cycles. Simply constructing your assets so that you have the ability to stay flexible, not having to sell anything you don’t want to, and thinking about how you can add value while the tide is out. If you are relying on your assets for income, have enough assets in cash or similar low volatility assets (we typically like 2-3 years of your income set aside) that can support your income during challenging times. This is crucial because if you are forced to sell when your assets are down, you will never get “out of the mud". Remember it is time, not timing, that will assist you in building an all-weather portfolio that can help you achieve your life goals.

 

  1. Review your cash flow needs and expenses. Consider holding off on large purchases if you think you will have to “drain” your cash reserves or sell something. Today, prices are high according to our current perception; as the economy continues to soften and inflation reduces the cost of goods, there may be a better time for purchasing discretionary items in the future.

 

  1. Consider keeping your eye out for buying opportunities. Remember the old rule “buy low, sell high?” If you look at the history of the market, the majority of the time the market is positive — that’s good news as the tide is on our side. It’s not very likely that you experience volatility levels that are down 20% or higher. When you experience this, it is not about waiting for the perfect time to buy, just that you do some buying over time. Those who buy when the market is down have the best results when the “tide” or the market comes back into balance again.

 

  1. Save tax dollars when the market is volatile — return is not just about how much your money grows, but also how much you can keep rather than give to Uncle Sam. One such technique is “tax loss harvesting”. If your portfolio has losses from its original purchase price or cost basis, you may consider selling these positions and realizing the loss. You may purchase another position (similar in goal), and in 31 days, you can buy back in to your original position. Normally, if you hold on to the loss until the position recouped you could not take advantage of the loss on your taxes (unrealized) vs. realized.  If you sell the position the loss is “swept” into a “tax bucket” for later use against future capital gains that may come from your portfolio, or any capital asset such as selling a piece of property. Read more about tax loss harvesting in our blog from July, Financial Planning in a Down Market.

 

  1. If you are worried that the stock market and economy will be “soft for a while” then it is important to select the right positions in your portfolio to support your goals. When the market is doing well it’s easy to be invested in the general market and do well, but when we have a challenging economy, you have to be more selective in what you are buying and holding and align it with your particular goals. If you are taking income, this may be a time to create a high dividend yielding portfolio of equities/bonds that can pay income out to you whether the market is up, down, or sideways.

 

  1. Be selective of what you put in your brain. Your brain is the most complicated and powerful technology system. Our thoughts create actions that directly affect our stress levels and our happiness. The more we worry about the future, holding tightly to what we are afraid to lose, we lose sight of the richness of our experiences happening in the present moment. Especially during these times, we need to lean into being selective of what we watch, read and speak. When times are challenging, train and exercise your brain daily to appreciate the richness you have in your life, and make an intention to spend more time doing the things that give you joy.

Be sure to get guidance from your financial advisor on how you may best prepare your finances during our current environment; you want to be sure you are taking the right steps not only to survive but thrive!