Today’s Smart Money Question:
There’s a conversation Matt has with clients all the time. It’s about market volatility. It’s one of the most important things to grasp and understand as you prepare for retirement. On this episode, Matt will recount one of those recent conversations with a couple that came into his office, some of the questions they asked and how ultimately they were able to achieve more comfort with their financial plan.
(Click the featured times below to jump forward in the episode)
Here Are Just A Handful Of Things You’ll Learn:
1:31 – Market Volatility Can Create Opportunities, But Also Emotional Complications.
- If you can understand that market volatility is going to happen, but position your money correctly, you can both seize the opportunities of a down market while staying emotionally stable during the upheaval.
2:42 – Diversify Into Different Buckets With Different Risk. Start On Low End.
- Some money needs to be fully liquid with the focus on easy accessibility and not on return. But the starting point for that bucket of money (like an emergency fund) is different for every person and couple.
3:50 – What To Do With The Rest Of The Money.
- Matt details what the decisions start to look like as you move away from your baseline safe bucket and into three other buckets, all defined by different levels of risk.
5:15 – Why The Buckets Help.
- By placing and categorizing your money into different buckets it ultimately helps you determine where are the best places from which to take your income. This is especially important during times of a down market.
6:35 – A Past Example.
- Taking a look at the end of 2016 you’ll see how the market was doing well. So you might take your income from higher risk buckets. But in a down market you would likely take income from your lower risk pots.
7:59 – Multiple Asset Classes.
- Matt gives you an idea of what diversification across multiple asset classes really looks like.
8:28 – Looking For Rebalancing Opportunities.
- An example of how he looks to rebalance when the market takes a turn.
10:05 – The Most Important Part Of The Conversation.
- Matt’s client was overwhelmed by the amount of information and negativity she was running into when the media started hyping market drops.
11:12 – The Dalbar Studies.
12:18 – You Have To Go Through The Bad Times To Experience The Good Times.
- Too many people invest out of fear and it leads to bad decisions in both good times and bad. If you can have a well-diversified portfolio, it’ll help you understand what’s happening during the down times and give you comfort in how your plan is crafted to withstand difficult time periods.
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