Your financial plan should drive investment decisions more than current market conditions.

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A number of clients have asked me what the current downturn in stock markets means for them. In most cases, the answer is nothing.

Before, I build a portfolio for a client, I do some level of financial planning. It’s essential to understand how their investments fit in to an overall picture. How old are they? When will they retire? Do they have a pension plan? How much income will they need. All of that factors into to how the money should be invested. It also takes into account that markets will go down. Notice I didn’t say “they could do down”. I said they “will go down”. The timing and catalyst for downturns are an unknown. I’m not suggesting for a moment that back in February I knew that this coronavirus would spread globally and have an impact on the global economy. But sooner or later, something, or a series of things occur that cause disruption in the economy and in stock values. It’s the reason we diversify.

So clients who are near retirement have a healthy portion of their portfolio outside of stock markets. Clients who are in retirement and rely on their investments for income have an amount set aside in cash. That was all part of the plan. We did that because we didn’t know what was ahead.
The same is true for clients I’m speaking to now with money to invest. They are looking at how values have fallen and are asking if this is a good time to buy. I’d rather we ask “is it a good time for THEM to buy?” And to arrive at an answer to that, we have to go through the same process as above. What’s the goal? Where does this money fit in to their financial picture? This will determine not only whether to buy now, but what to buy now and how to structure the overall portfolio. Good investing is preceded by good planning.

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