Well, 2020 certainly was a year none of us could have imagined. For many of us, the Covid-19 pandemic demolished many of our carefully laid-out goals and plans for the year. Our kitchens and bedrooms became offices and classrooms. There were visits to grandparents that never happened. Jobs situations changed, often for the worse. And for many, there was illness and even death.
And then, of course, there was the financial impact. The stock market crash of 2020 began on Monday, March 9, with history’s largest point plunge for the Dow Jones Industrial Average (DJIA) up to that date. It was followed by two more record-setting point drops on March 12 and March 16 and finally hitting bottom on March 23rd. If you had your retirement savings invested in the stock market, the crash lowered the value of your holdings. When something like this happens, people tend to panic and sell their stocks to avoid losing more because they do not have any downside risk mitigation built into their financial system. Because folks, the real question here is back in March, what if March 23rd was not the bottom, what if it kept falling? What if this can happen again and it does not recover quickly and more in line with 2008 when it took six to nine years to get back to even?
And while we may be excited for 2020 to end, it’s crucial to make definitive plans for a (hopefully) better 2021. Yes, 2020 brought many of us financial pain or change, and it is more important than ever to review your financial systems and see how your goals and priorities may have changed. So, this week let’s spend our time together and cover a few areas to focus on to kick our financial year off right.
For starters, you need to review whether you actually met your financial and retirement goals last year. Did the past year shift your priorities or create new ones? Are you better positioned for future market volatility or downturns? Do you have sufficient downside risk mitigation in your plans? Do you have the appropriate mix of assets, and more importantly do you have the right financial systems in place to reach your goals that seek growth but also manage your appropriate risk-budgets? Upon reflection, what happened in March, did you just “ride it out” or did you incorporate a downside risk mitigation system? If you have not built a sound financial system, what if 2021 was the year to build it?
Also, your budgets, both current and future may have changed. How did the year impact your spending, savings, and investing? In some cases, people actually spent less, forgoing vacations or buying a car, or eating lunch at home every day. Did 2020 significantly change your debt situation? Do the low current mortgage rates mean now might be a good time to refinance your home? All of these are sound financial questions.
For those folks approaching retirement, now is a good time to nail down a retirement budget and to review future spending projections. Also, consider if your projected retirement date still on target. Even those early in retirement need to look at budget projections and make possible adjustments to social security if they haven’t already started taking benefit payments. Make sure to check your investment strategy. Questions should be circling such as what is your strategy? Is it appropriate for your financial stage of life? What if you get caught with an accumulation strategy when you need a distribution strategy. Folks, you certainly don’t want to have a repeat of 2008 when it took the average accumulation plan 6-9 years to recover. What if, 2021 was the year to review our budgeting and to make sure our investment strategy matches our financial stage of life.
While we strongly encourage managing downside risks in your investments, the same is true for health and home. Any good financial or retirement system accounts for managing costs associated with health risks and property risks. Do you have adequate health insurance, as well as property and casualty insurance? Have you accounted for those one-off big-ticket items like a new roof or sewer/septic system repairs? Long term care expenses also need to be accounted for, whether using insurance solutions or self-insuring with assets or some combination.
If any year has shown us that we need to have up-to-date estate plans it was 2020. Wills need to be updated if necessary. Make sure the beneficiary titling on all of your investment accounts is current and correct. Everyone should have a durable power of attorney and health care directive to ensure your wishes are met if you can’t carry them out yourself. What if, 2021 we took the time to review or implement our estate plan?
After how much the past year change things, it may seem futile at times to plan for the future. But despite the unknown future, planning is critical to your future success. What if . . . what if 2021 was the year to ensure that your retirement system is well-positioned, should market volatility and chaos continue to reign in 2021. You know, as I tell my girls, “what ifs” turn into achievements when we just take-action.
If you haven’t yet, what if 2021 was the year to be vigilant and to stay alert, because you do deserve more!
Have a great week.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at firstname.lastname@example.org.
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