Bruce Helmer and Peg Webb
We recently rounded up seven of the Wealth Enhancement Group’s most experienced and knowledgeable financial advisors and asked them to share their #1 most important financial advice for 2023 and beyond. We’ve selected three of those financial actions you can take in 2023 to better manage risk in your portfolio — and capitalize on opportunities that exist in every market.
1. Don’t follow media opinion on volatility
The media reports of market volatility lead you to believe that this is something to worry about. This is not always the case – sometimes the exact opposite is the case. Remember, fear keeps people glued to their screens, and those eyeballs sell ads. You need to turn that noise off and focus on your long-term goals, financial or otherwise.
How do we define volatility? It’s about how quickly and unpredictably the stock or bond market rises or falls. If you have long-term investment goals and a sensible financial plan, you should be able to tolerate — even accept — periods of market volatility. But do you have to be afraid of it? Markets go up and down every day, sometimes a little, sometimes a lot.
It is understandable to react negatively to falling markets. Investors crave predictability. And think about it: stocks are either “overbought” (ie, expensive); “cheap” or “oversold” (or cheap). If this were not the case, stock prices would just go up and up and there would be no risk.
Volatility can be a powerful indicator that stocks are oversold — or trading below their intrinsic or fair market value. You can look at volatility as one of many indicators that it’s time to rebalance your portfolio and increase exposure. Of course, you have to have a long enough time horizon to weather the occasional storm. If you’re not sleeping well because of your feelings about volatility, it could be a strong indication that you’re taking too much risk with your portfolio, and it might be time to back some of it.
2. Work with an advisor to help you navigate changing markets
When we ask people why they don’t hire a financial advisor, they typically answer in one of four ways: they think they can do it themselves; they don’t want to pay for advice; they don’t know who to trust; they are embarrassed about their situation or the bad decisions they made.
Finance firm Schwab surveyed a group of investors in 2021 and found something interesting: People who worked with a financial planner were less likely to have credit card balances or debt, were more likely to have an emergency fund, and were also more likely to regularly rebalance their portfolios than those who did have not worked with a consultant. How would you value this comparison over a lifetime when investing?
However, if you are interested in the financial markets and enjoy spending time managing your affairs, by all means do so. But if you’d rather take time out to focus on other areas of your life, hiring a financial advisor in 2023 could be a good move. It’s no big secret to choose one. Ask friends and family for recommendations. If you have two or three candidates, interview them to assess their qualifications and experience. Measuring your well-being and personal chemistry is just as important. Does one advisor seem to care more about you than the others?
Also pay attention to how the consultant or planner is paid. Do they charge a flat fee for planning services or do they charge an annual percentage based on the assets you manage? Or do they sell products on a commission basis or through a hybrid fee and commission structure? Knowing how the consultant is compensated will indicate if they are working in your best interests or if there might be potential conflicts of interest in selling you certain high-priced products that are more lucrative for them.
3. Visualize your future financial success with your money matrix
Your Money Matrix is a proprietary tool that Wealth Enhancement Group created decades ago to help clients envision how they can sustain their income throughout their lives. You can just set it up on a piece of paper. To create your money matrix, draw three lines with the time periods when you need money:
• The short-term: That’s money you’ll need over the next five years. They should be low-risk investments.
• Medium term: That’s the money you’ll need in six to ten years. You can afford to take a little more risk with that money as you have more time to recover from the inevitable ups and downs of the market.
• The long-term: This is money you may need more than 10 years in the future. Since you won’t need this money for at least 10 years, these investments should be geared towards growth.
Tax planning across these horizons gives you the confidence to provide for yourself and your family no matter where taxes take you in the future. Map your three main investment account options described above into three additional tax brackets:
• Taxable Accounts: These are typically brokerage accounts, bank savings accounts, and other liquid accounts where profits and interest income are taxed at year-end.
• Tax-deductible investment accounts: With a traditional IRA, 401(k), or 403(b) plan, you get an immediate tax deduction and tax-deferred growth. However, distributions are taxed as ordinary income (and withdrawals made before age 59 typically trigger a 10% IRS penalty).
• Tax-deductible investment accounts: With these accounts, like a Roth IRA, you don’t get a tax deduction on contributions, but withdrawals can be tax-free.
With a well-constructed financial plan that can withstand market volatility, and by working with an experienced and knowledgeable advisor who can help you create a tax diversification strategy using the Your Money Matrix, you can plan with greater confidence for 2023. Turn around You can always contact a Wealth Enhancement Group advisor to get started.
The opinions expressed in this material are for general information only and are not intended to provide specific advice or recommendations to any individual. All investments involve risk, including loss of capital. No strategy ensures success or protects against loss.
Bruce Helmer and Peg Webb are financial advisors to the Wealth Enhancement Group and co-hosts “Your Money” on KLKS 100.1 FM on Sunday mornings. Email Bruce and Peg at [email protected] Securities offered by LPL Financial, member FINRA/SIPC. Advisory services provided by Wealth Enhancement Advisory Services, LLC, a registered investment adviser. Wealth Enhancement Group and Wealth Enhancement Advisory Services are separate entities of LPL Financial.
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