At one of our recent Investment Committee meetings, we decided to go around the table and talk about headlines (either that have happened or could occur) that scare us. We felt the need to do this because sometimes things get too rosy and we need to be sure we are aware of possible threats.
Over the past 12-18 months, the theme has continually been that capex will spur our economic growth… this has yet to be seen—at least in my eyes. And this seems kind of scary.
In order for us to see growth in the economy, we are going to have to see companies investing in the future… making big purchases. As companies make these big purchases, we will see demand rise for new employees and this will ultimately lead to wage inflation. All of this is a recipe for nominal growth… which is what we need.
But what can we do if this doesn’t happen. Should we hinge everything on expectation? Probably not. We often get questions from concerned radio show listeners, fans on Facebook, and website visitors who ask us how to prepare for retirement, or simply what to do if they don’t have a plan at all.
There’s two main tips we can offer when volatility strikes. The first is to Create a Financial Plan and the second is to Execute that Plan to the Best of Your Ability. Let’s break this down a bit further.
Create a Financial Plan
It is imperative that you outline a financial plan and then execute that plan to the best of your ability.
At a minimum your plan should:
- Address your overall goals and objectives
- Establish an Emergency Fund (rule of thumb is 3 months of expenses for dual-income households or 6 months of expenses for single-income households)
- Establish Milestones for retirement savings (allocating and contributing to your 401k on an annual basis)
- Establish Milestones for debt payoff (pay off your debt in order of your highest interest rates)
Execute that Plan to the Best of Your Ability
Ensure that you have a strong plan in place to execute the important steps of the plan. If you already have an emergency fund in place then ensure you are hitting your milestones for debt payoff and savings as you approach retirement. If you’re further along, sit down with a financial advisor to assess the current status of your portfolio to ensure you have a diverse mx of investments. For example, but all of your eggs in one basket for stocks or mutual funds might not be the right move. Rather, ETFs and Bonds could be part of a mix that will help you sleep well at night.
What steps are you taking to prepare for market volatility? Share your thoughts with us below.