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Wealth Management in Uncertain Financial Times

July 20, 2020

There’s no doubt that we’re living in unusually volatile financial circumstances. As of June 2020, the COVID-19 pandemic has disrupted the global economy on a scale that few thought possible. Protests and civil unrest have swept major cities across the country and the globe. And to cap it off, a presidential election is fast approaching.

As a result, the financial markets have been wildly unpredictable in the last six months, and there’s every reason to believe that that unpredictability will continue for months into the future. If you’re the owner of a diversified portfolio in this economy, you’re probably worried about the state of your finances. Should you wait for the stock market to recover? Should you sell and convert your wealth to cash, which offers no returns but carries very little risk? It’s hard to decide, but we have some ideas.

Start With Your Motivations

First things first: what’s your main priority for your money? If you’re looking to save for retirement and that’s likely to be 30 years away, then the short-term value of your portfolio is less of a concern. If, on the other hand, you’re looking to buy or sell a business, retire soon, or pay for a student’s tuition in the fall, your strategy will change.

Next, think about how your assets can help you meet your goals. In some cases, you don’t need your portfolio to grow any more than it already has in the short term. If you know you’ll owe $40,000 in tuition in six months and you have $120,000 in a brokerage account, it might be worth selling stock now to ensure that you have the cash on hand when the time comes.

Embrace Online Banking

One of the biggest challenges of the particular crisis caused by the COVID-19 pandemic is the inability to meet people in person. That means no talking to your broker or banker in person, no meetings with your lawyer to set up trusts or wills, and in many cases, no in-person conversations with your family about your plans.

As a result, many people who previously preferred to do business the old-fashioned way are having to embrace a higher-tech form of wealth management. Luckily, there are more ways to do business online than ever before. Almost every bank has a website and a dedicated mobile app, and the same is true of brokers and other financial institutions (including First Western Trust Bank). Getting used to managing your money electronically will help you deal with crises in the future.

One major development in this field in recent years is electronic wills. The laws about electronic wills vary from state to state, but the ability to create, sign, and even execute a will online will doubtless become more common in the future.

Stay Disciplined With Your Investments

During any economic downturn, you should be looking for opportunities to invest. When the DJIA or S&P 500 take a turn for the worse, it’s a great time to take stock of your assets and see if you have cash to invest.

The other side of that coin is that volatile markets are just that — volatile. You might think you’ve hit the low point and invest large sums of money, only to find that the market drops another five percent the next day.

One popular solution is dollar-cost averaging. Rather than investing one large lump sum of $100,000, you’ll instead commit to invest $5,000 a week for the next 20 weeks. Of course, you’ll see worse returns than if you could magically predict the markets, but you’ll also smooth out the highs and lows for a more predictable investment.

Don’t Panic During a Downturn

In 1987, the DJIA dropped by 23 percent, but rebounded within two years. In 2008, it fell 18 percent and recovered in roughly three years. These economic downturns inevitably pass, and they leave behind them unwise investors who risk it all on an overreaction. During the current crisis, you’ll see people panic selling stocks in travel companies and buying every share of consumer goods they can get their hands on, but timing the day-to-day fluctuations of the market is almost never a winning strategy.

If you’re struggling with your financial planning during market uncertainty, talk to First Western Trust Bank. We pride ourselves on our unique, tailored approach to every individual customer. We’ll take a detailed look at your assets, liabilities, goals, and priorities to craft a financial plan that’s perfect for you.

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