When a financial crisis hits, the news coverage can be overwhelming causing you to fear for your future. Financial questions come to mind that if left unanswered can cause significant stress to your overall wellbeing. Common questions during a financial crisis include:
- Am I investing the right way?
- Should I cash everything out?
- What do I do if I am retired?
- Who can I trust to get help?
If you can’t answer these questions, it is likely that you will spend a considerable amount of time worrying and may even decide to not look at your investments at all. However, this is the worst thing you can do for your financial health. Instead of adding anxiety to your life, turn your panic into a plan by gaining knowledge. When you have knowledge, it will give you confidence to wisely deal with the challenges ahead, which will change your financial future. Here is how to build a solid financial foundation during a financial crisis:
1) Know Your Investment Strategy
The market is crashing, so what is the right move? You will hear plenty of advice to just hold on to your investments, but this is overly simplified and does not take into account your specific financial situation, age, or what investments you currently hold. Before you can even begin to decide what the right move is, you need to know your investment strategy. If you don’t know your strategy, then you don’t have one, and now is the time to put one in place. Otherwise, your emotions will take over and transport you to somewhere you don’t want to go. There are many different ways to invest, and some are certainly better than others. Investing well is not random or luck, and it isn’t easy to do. It is best to consult a fiduciary investment adviser to help you select the best investment strategy for your exact situation. That way, when the storms of life hit you will know what you are doing and why you are doing it, which will help you rest much easier.
2) Continue Contributing to Retirement Accounts
If you are still working, keep investing at least 10% of your gross income per year into an investment strategy within a retirement account. Investing is always a journey that involves taking some steps forward, and then taking some steps back. It is vital to keep investing into your strategy during down times, as this will allow for the quickest and best recovery for your portfolio.
3) Have a Spending Plan if Retired
The worst thing that can happen during retirement is a market crash, and based on life expectancy, you can expect to experience at least two of them during retirement. Many retirees get understandably nervous during a crisis and move all of their assets to cash or bonds and then leave them there for the rest of their lives. The odds of running out of money increase drastically when this kind of action is taken. Instead, you should couple your investment strategy with a spending plan. A good spending plan will factor in all your income sources, your health, life expectancy, and standard of living. It will tell you how much to spend per year and what to do if your assets drop. The plan will be built to last the duration of your lifetime, ensuring that you won’t run out of money.
4) Find a Fiduciary Financial Adviser with These Certifications
The word fiduciary originates from the Latin word, fidere, which literally means “to trust.” Fiduciaries must put their interests completely aside, doing what is best for you at all times. Fiduciaries tend to be the most educated practitioners in financial advising, as they must have the expertise to ensure that they can legally back up their advice to you. The reality is that less than 15% of financial advisers and advisory firms are fiduciaries, so selecting the right adviser isn’t simple. Do your research. Start by asking the financial adviser if he or she is a fiduciary all the time, in every circumstance for you. In general, financial advisers who work for a bank, broker-dealers like Merrill Lynch, or insurance companies, are never full-time fiduciaries. Firms that are fiduciaries will prominently display that fact on their websites and there won’t be any disclaimers. When selecting a financial adviser, there are three certifications that matter the most. For financial planners, ensure that they are a Certified Financial Planner, CFP®. When hiring an investment manager, be sure they have either the CFA® or CIMA® certification. Choosing the right adviser will make a significant difference in your net worth and peace of mind. You have to do your research. Too many people make the huge mistake of hiring a financial adviser simply from a friend or family recommendation.
These four steps are actions that you can take right now, which will help to give you a sense of calm while in the middle of a chaotic financial crisis. The most important thing to do is to take the first step, and then one step at a time after that; don’t wait. That way, when things turn around (and they will turn around) you will have already built a solid foundation for your future.