Control what you can control.  That’s a mantra that we’ve all been hearing throughout our lives.  This is even more true when times are challenging and stressful, like we have been experiencing this year.  Obviously, there are some things we can’t control.  But there are many that we can!  Our list highlights some actions to take, pitfalls to avoid, and strategies to consider that may benefit your long term goals, even with higher current inflation or lower asset prices on the public exchanges.

We can’t control what goes on other countries, or with international supply chains.  We can’t control what the Federal Reserve’s actions are going to be to try to intentionally slow demand, but do know their tools are not very precise.  We can’t control how the markets will react, either.  We can’t control housing prices, interest rates, or unemployment rates.  So, what can we control?

We can control where we focus our attention.  We can become more self-aware of our personal financial situations.  We can avoid making emotional decisions.  We can make sure our decisions continue to help us work to our long-term goals.  We can make ourselves more like conscientious bystanders than direct participants, where speculation is concerned.

Here are some ideas to keep in mind for practicing “Principles of Prudence,” and for taking advantage of a downturn in the markets:

Cash Flow

• On a real basis, evaluate how prices changes have affected your daily living expenses.
• Factor in how your income has changed, and see if it covers the change in expenses.
• See if it makes sense to put off a project or modify travel plans over the next few months.
• Put off bigger house projects or purchases, unless absolutely necessary.
• If 529 accounts are aggressively invested, don’t use 529 assets to pay for tuition in the early college years. Give the 529 accounts time to recover.
• If 529 Assets in sitting in cash or low-interest fixed income, do utilize those assets, as they are losing buying power against inflation while sitting there.
• Give yourself a little breathing room. Emergency Funds, in normal times, should have 6 months’ of assets available in liquid form.  During stress, that is even more important.
• But not too much breathing room. Make sure that anything in excess of 6 months’ expenses is at least generating some return for you.  At the very least, use bank CDs, short term treasuries, etc. on money you don’t want in the market.
• Variable Interest Rate Loans become less beneficial as leverage with rising rates. Look to retire what debt you can, or lock rates.  As rates come back down later, change them back to variable rates, as makes sense.

Assets

• For major purchases, avoid risky behaviors like waiving inspections or appraisals if you are home shopping.
• Make sure you keep enough liquidity in case of cost overruns or unexpected changes.
• Consider input costs if making your own investment decisions. Companies and industries that depend on a lot of debt for growth may suffer.  Similarly, businesses and industries where labor, building supplies and materials, or fuel make up a significant portion of the input costs will either have to raise prices to maintain their earnings.
• Market sentiment creates extra volatility in stressful times. Know why you own what you own.  More conservative or defensive allocations will hold up better than more speculative investments when uncertainty is running rampant.
• Consistent rebalancing and reallocation strategies may be creating some losses in your taxable accounts that you can take advantage of later as the market recovers when you want to offset gains in some positions.

Retirement Planning

• Retirement planning is about funding a long period of time. Keeping that time horizon in mind, be aware that trying to time the market may lock in losses now and miss out on any sharp recovery.  Maintain a consistent strategy matching your risk tolerance while using built in measures to generate returns, control risk, and manage volatility.
• Consider Roth Conversions when stock prices are at a discount. This will allow you to move the same amount of shares with a lower tax impact.  If it makes sense to do a Roth Conversion, it makes even more sense to do so when the markets are down.

Estate Planning

• Take advantage of lower valuations caused by rising interest rates or the market downturn to gift assets to Trusts. If you have not used up your lifetime gifting exclusion, this could allow you to move more assets out of your estate, while reducing future tax impact on your heirs as well.

This is by no means a comprehensive list, and it will not make the current inflation or market challenges go away.  However, even at times like these there are some actions we can take (or avoid) to position ourselves better, and move closer to achieving our goals in the long run.

If you would like to discuss any of these topics, please contact us to schedule an appointment or call our office (609) 799-5900.