With over 20 years in the investment industry, we have helped clients navigate through a number of economic and market cycles. Through the years, we have developed our own set of descriptive names that are used as an indication of where we are in the market cycle. These names are generally based on client emotions and range from “malaise” to “exuberance”.
As an advisor, understanding client emotions as it relates to the economy and financial markets is essential in helping clients. Because with each emotion there comes a series of possible actions that can lead to investment mistakes. By understanding these emotions, it is possible to help clients avoid making mistakes that can have a negative impact on achieving their financial goals.
Right now, we are in the phase that we sometimes refer to as “complacency.”
During the complacency phase clients tend to let their guard down. Most everything from a financial standpoint is on cruise control and needs very little attention or action. The complacency phase feels great!
Unfortunately, from our experience, the complacency phase can sometimes be the “gateway” that actually creates problems in the other, more stressful, phases.
So, what are some things you should be doing now, that can help you successfully navigate the more difficult and stressful market and economic cycle that will undoubtedly follow complacency? Here are a few suggestions:
Reassess your risk profile. Confirm that your portfolio is structured such that you can achieve your investment goals, while accepting the lowest amount of investment risk. If you are taking distributions from your portfolio, replenish the “on deck” cash.
Scrutinize your spending. Consider reducing discretionary expenses that have the tendency of detracting from your financial goals.
Increase your savings rate. With the stock market at an all-time high, you may believe that there is no need to increase your savings. In reality, with a stable economy, now is the time to increase your savings rate. Boost your 401k deferrals or accelerate your debt repayment—increase your contributions to working capital.
Rebalance your investment portfolio. As the equity markets have appreciated considerably over the last five years, there is a chance that your allocation to stocks is too high. It may be prudent to rebalance your portfolio back to your target allocation.
The bottom line is—do not become complacent when it comes to planning for your financial future. There are always actions that can be taken that will have a monumental impact towards the achievement of your long term financial goals.