Financial planning and portfolio management are building blocks to creating wealth. There is both an art and a science to it, which can make it an intimidating practice for anyone who isn’t well-versed in investing and planning. That’s why you shouldn’t go it alone. 

A financial planner can be an incredible asset to help you build a strong financial portfolio and thorough financial plan. Not only do they assess your situation, help you clarify your goals and create a plan to match you with the best investment options for your situation, but a financial professional can also help you navigate the complex markets so you can avoid common mistakes during times of volatility. On that note, here are 5 things to consider when markets are stressed.

1. Be Aware Of Your Behavioral Biases

Having worked with clients from all types of backgrounds and with a variety of portfolio sizes, a common theme I’ve come across with my clients is the propensity to have a short-term perspective when the markets are struggling. In the world of behavioral finance, the term “prospect theory” teaches us that investors feel more emotional about their losses than their gains. Biases like these can lead to pitfalls and emotional decisions that aren’t in the best interest of your portfolio. Paying close attention to our behavioral biases can help us when we are overthinking and prone to make mistakes.

2. Take A Long-Term View

Yes, what the markets are doing today matters, but it’s important to remember that your goals have different timelines, and you should invest accordingly. By keeping enough liquid funds, whether in cash alternatives or short-term fixed-income, to pay anywhere up to 3 years of expenses, you’re more apt to stay invested when things get tough. That way, your portfolio has time to recover so you can stay on track to reach your medium-term and long-term goals.

3. Consider Financial Planning

Investment management is important, but comprehensive financial planning can put everything in perspective and ensure your investments are aligned with your goals and values. Working with a financial planner to put your insurance, investments, banking, and estate needs in order can provide you with a road map to achieve your goals. With our clients, we use the Certified Financial Planner Board’s 7-step approach to Financial Planning as a framework to develop a financial plan that addresses their opportunities and challenges so they can experience confidence in their future.

4. Diversify Globally

It’s not enough to just diversify, you can also diversify globally. Many clients have a large allocation to certain countries, such as the U.S., and have what’s called a home country bias. They may also be overweight in certain sectors, such as technology. There are some amazing opportunities in select foreign markets and emerging markets for investors. However, remember to be selective when picking the appropriate countries and sectors to make sure your portfolio is balanced and in line with your objectives. 

5. Focus On Quality

If you are considering investing in individual companies, you want to focus on the quality of the company and how expensive the company is trading. What does the cash flow look like? How much debt is on the balance sheet? You also want to consider how much you are paying for the company’s earnings, which is called valuation. If you are investing in exchange-traded funds, which are a bundle of companies, you want to focus on the overall quality of the underlying companies.

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Where Do You Go From Here? 

Choosing the best investment strategy for you is no easy task and can be risky. Hiring a financial planner to offer advice and manage your portfolio can reduce those risks. 

Meet Louis

If you need financial planning, portfolio management, and/or private banking services, contact Louis Green to get started. 

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Material prepared herein has been created for informational purposes only and should not be considered investment advice or a recommendation.  Information was obtained from sources believed to be reliable but was not verified for accuracy.  It is important to note that federal tax laws under the Internal Revenue Code (IRC) of the United States are subject to change, therefore it is the responsibility of taxpayers to verify their taxation obligations.

Savvy Wealth Inc. is a technology company.  Savvy Advisors, Inc. is an SEC registered investment advisor. For purposes of this article, Savvy Wealth and Savvy Advisors together are referred to as “Savvy”.  All advisory services are offered through Savvy Advisors, while technology is offered through Savvy Wealth.  The views and opinions expressed herein are those of the speakers and authors and do not necessarily reflect the views or positions of Savvy Advisors.

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