Tag: Financial Plan

Three Things to Consider in a Bear Market

October 19, 2022
Economy, Investing, Investment Updates, Stock Market

I’d like to address the elephant in the room. This year has been incredibly volatile for the stock market, and we’ve experienced some steep declines. It can be frustrating, confusing, and even frightening. Currently, we are in a bear market. Perhaps you have heard the term before and understand the feeling associated with a bear market but aren’t exactly sure what it is (besides scary). A bear market is when a market experiences a prolonged drop in investment prices. This is typically referenced when a broad market index falls by 20% or more from its recent high. There is tremendous noise in the media. Many investors are anxiously looking at account balances more frequently, particularly after experiencing a long run for the bull market. Experiences with past down-market events may be triggering strong feelings of concern. One of my greatest strengths is being able to stay calm in difficult situations and it serves me well as an Advisor. To help you tackle a difficult situation head on in hopes of instilling some calm in the chaos, I’ll discuss three things to consider in a bear market

Communication with your Advisor is Critical

I love talking to my clients. They share their dreams and lives with me. They trust me enough to delegate a large amount of their financial life to me. It’s very difficult to do my job well without clear and consistent communication from clients. It’s also difficult to plan for clients without truly understanding how they feel about risk, how they view money and even some of the personal biases they may have in their approach due to previous experiences. Some of my clients have never worked with an Advisor before working with me while others have unfortunately had very negative experiences working with an Advisor which is why they sought a change. For some, I serve as a sounding board and for others I offer trusted advice and guidance. The one unofficial role I never knew I would take on is counselor.

We often think of money as transactional. Most of our money exchanges are even labeled as transactions. We use labels such as “good” and “bad” to describe debt, investments, and even Advisors. We spend a great deal of time thinking about what we want to do with our money as well as thinking about what our money is doing in the markets. We don’t often talk about how we feel about money or our life experiences with money. This is ironic as the field of Behavioral Finance is growing. Research consistently indicates that client behavior is also a key indicator of financial success. One of the leading organizations in the financial planning industry, FPA, recently announced a new partnership to offer its members a Psychology of Financial Planning Specialist program. Covered in the program are topics such as Behavior Finance for Financial Planners, Counseling in Financial Planning Practice, and Implementing Financial Psychology into Practice. The industry has recognized what we as individuals may not be able to see right in front of us – dealing with money comes with a lot of emotion. It’s time we start talking about it.

While I believe communication is always important, communicating with your Advisor during a bear market about how you are feeling is crucial. A client recently shared that this was the first time they have ever felt uneasy. We had a long conversation about why they felt uneasy. We had reviewed the financial plan and were well in the confidence zone. There was plenty of cash to fund their needs for an extended period. We began to peel back the layers and have the hard conversations around emotions. Throughout the conversation I learned that when I said “everything is fine” the client perceived that as being dismissive. While that was never my intent, their honesty and vulnerability allowed me to clear the air and lean into even deeper conversation. I decided to ask the client a very tough question – are you uneasy because you have lost trust in me? Thankfully, they had not. After a while, they shared that they felt uneasy because it was the first time that they were experiencing a bear market while in retirement. It was scary to see the losses while on a fixed income. The client’s vulnerability in sharing those feelings took courage. We walked back through their financial plan, discussed “what ifs” and discussed how we might address them in the future. We didn’t abandon the plan and we didn’t make any sudden investment changes that were out of scope of the plan.

During this bear market, if you find yourself dealing with emotions that are new or ones you haven’t experienced in a while about your money, please tell your CapSouth Advisor. We truly care about you and we are here to listen. It is our responsibility to coach and guide you through the emotions so that we can limit behavioral influences. There is an adage that says, “the only people that get hurt on a roller coaster are the ones who jump off”. Advisors often use this to explain how behavioral changes impact money such as selling when the market is declining. We understand the emotions and we will spend the time needed to address concerns. Let us serve as the safety bar to keep you locked into the seat while we ride this roller coaster together.

Your Financial Plan Has a Long-Term Outlook

One of the things I love most about CapSouth is our dedication to Financial Planning. For most of my life, I only thought of a Financial Advisor as someone who manages money. My experience with them had been limited to those that work in the Broker world as an investment manager. Unfortunately, our industry has limited regulation on how the title Financial Advisor is used. I have had many new clients come to CapSouth with the same limited viewpoint. When I explain that we view investment management as a commodity and that our real value comes in planning, it can be a true mindset shift. Perhaps you had a similar experience when starting to work with us. We ask a lot of questions! We ask for a lot of information. For those that are just starting to work with us, it can be overwhelming although we do our best to make the onboarding process enjoyable. With all the information provided we then craft a financial plan and begin working with you to implement it. We review the financial plan every year in meetings and are consistently adjusting it because life happens. We start to focus more on the Confidence Score to answer the question “am I going to be, okay?”

Like the Wizard of Oz, I’m going to give you a peek behind the Advisor curtain. The Confidence Score is generated through a process called Monte Carlo simulation. So, what is it and why does it matter? Surprisingly, it’s not unique to the financial industry. It’s also used in physics and engineering. In our financial plans, we don’t have the certainty of knowing what the future holds. That includes knowing what the average rate of return will be for your plan. Therefore, the Monte Carlo simulation runs 1,000 trials of your plan using 1,000 different return possibilities to calculate the probability your plan will be successful. While you may not have considered worst case scenarios or bad returns, your financial plan already has.

When we dig into these simulations and look at the 1,000 Trials detail, we can get an even better understanding of the numbers. We can see year data in 5 year increments (Year 5, Year 10, etc.). We can also see End of Plan Dollars and The Year Your Money Goes to $0. These time frames are charted out by Trial Percentile. They include 1%, 25%, 50%, 75% and 99%. My personal plan has a Confidence Score at 88% (at time of writing this). When I look at these trials, I can see that in the very best scenario my plan would end with more money than my husband and I would know what to do with and would need a fantastic estate plan. I can also see that in the very worst scenario, we would run out of money in the year 2049. Does that scare me? Not at all. The reason? It’s an extremely unlikely scenario just like the one that looks amazing. The most realistic scenario is somewhere in between, and it’s why my Confidence Score is reassuring. (Friendly reminder here: This is not like school where the highest score is the best score. If my score is in the blue zone, it is considered an overfunded plan, and I need to ensure my estate plan is in order because I will likely be leaving money to heirs).

We don’t often get into these types of details in meetings because it can be data overload. The key takeaway right now during a bear market is that your financial plan is not surprised by a down market with negative returns. Neither is your Advisor. We take a long-range approach and understand that markets go down just like they go up. Historical charts show that the markets have always recovered. While history is not a predictor of the future, it does give us data to consider. While it can be difficult to zoom out when emotions are high it is important to remember the decisions made together with your Advisor when times were not as tumultuous.

It’s Not All Doom and Gloom

When we set the fear and frustration of a bear market aside for a moment, we can turn our focus to the bright spots in this market. No, I’m not talking about a “sweet deal” a friend is telling you about or even buying treasuries at 4%. I’m talking about the planning opportunities that present themselves during a bear market.

If you are still working or have cash on the sidelines, it’s an excellent opportunity to dollar-cost average new money into the market. If you are participating in a company retirement plan, it’s likely that you are already using this approach. Each time you contribute to your 401(k) you are investing new money. This may be weekly, bi-weekly, or twice a month depending on how your payroll is processed. It’s a great buying opportunity. I like to say we’re buying on sale and it’s an opportunity we haven’t had in a long time due to high market prices. We may only know that the bottom of the market has occurred when we are able to look back, so trying to time cash into the market isn’t a great approach. By leveraging dollar-cost averaging, you smooth out your investment purchases and remove market timing.

Now is also a great time to consider a Roth IRA conversion. Roth conversions are a part of our normal consideration process for clients with IRAs, but they are particularly appealing when markets are in decline and your portfolio value may be lower. Conversions now may increase the likelihood of tax free growth as the market recovers. You may even be able to save on the tax bill you are paying now for that conversion due to the lower portfolio value. Less taxes and increased potential of tax free growth? That sounds like a great opportunity to be considering in a bear market.

A bear market also presents you with the opportunity to revisit your market risk tolerance. Are you feeling different now than how you felt when you originally discussed your risk tolerance with your Advisor? Perhaps you overestimated how much risk you could tolerate and need to evaluate dialing back market risk long term. The opposite could also be true. You may have always feared the worst and now, faced with a bear market, you aren’t as bothered as you thought you would be. These are valuable, real-time insights that can help you and your Advisor plan for the long term.

Above all else, remember that you are not alone. You are a part of the CapSouth family, and we value our long-term relationships with clients. We are here in the good times and in the bad. Do not hesitate to reach out to your Advisor at any time.

To discuss this article further or to learn more about CapSouth Wealth Management, visit our website at www.capsouthwm.com or call 800.929.1001 to schedule an appointment to speak with an advisor.

by: Jennifer Fensley, CFP®️,CRPS®️

Investment advisory services are offered through CapSouth Partners, Inc, dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable. CapSouth does not guarantee the accuracy or completeness of the information. CapSouth does not offer tax, accounting, or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences. This information has been prepared solely for informational purposes, is general in nature and is not intended as specific advice.

Financial Lessons from the Boys of Summer

December 2, 2021
Uncategorized

At the time this article was written, the Atlanta Braves and its fans were still celebrating their second World Series championship since moving to Atlanta in 1966. A little history for you, the Braves have actually won four Major League Baseball titles – the first in Boston in 1914, and the second in Milwaukee in 1955. And if you’ve followed the Bravos for any length of time, this championship is especially sweet considering the path they took to get there. More on that later. If the phrase, “it’s a marathon, not a sprint” applied to a sport other than its namesake, it’s baseball. Most teams will start around Valentine’s Day and two will finish just before the Peanut Festival begins. There are 162 games in the regular season – 150 or so receiving much less attention than those played in October. But if you’ve ever been part of a championship team of any sport or of any sort, you know that it was the preparation of February that led to the champaign in November. It wasn’t serendipity, far from it. I’m sure there was a good break or a bad call along the way adding to the story. But long before the first glove was restrung, or the first line- up card scribbled out, there was a plan.

Such is baseball.

Similar success stories can be found from planning within the personal finance game. And unless there’s a silver spoon in the way, you can clearly see the correlation. For most, living your one best financial life doesn’t happen by chance. It’s the result of implementing and monitoring a financial plan with adjustments being made along the way. It’s intentional. And it starts with understanding how you make financial decisions and the biases at play within us all. Do you ever avoid having financial discussions with those you care about most? Are there certain behaviors detrimental to your financial wellbeing that you seem to repeat again and again? Odds are, you have a history with one of these questions. Maybe even both. Take heart, you’re not alone. One study from a financial research firm found that people are “more comfortable” talking about race, sex, politics, mental health and marital discord than they are talking about money. Money can be hard to discuss for a variety of reasons, right? Maybe you were brought up in a home in which avoiding the “money talk” was modeled to you. Your parents never discussed it at the dinner table, so now you don’t. So why is that? It’s not like we want our children to learn financial stewardship through culture. The same culture that gives us the Real Housewives of (insert city here) or Pretty Little Liars. Maybe we avoid discussing money for fear of being compared to others, or maybe we just don’t know how to talk about money? Could it be that we hesitate to talk about money because how we spend it shines a light on what we value? I’ll pause here and let you reflect on that a moment.

When we realize why we make the decisions we make, and how those decisions reflect what we value, we’re gaining the understanding needed to create a personal financial plan.

Baseball has changed over the years. When I was a kid, they played “small-ball baseball” where teams emphasize getting runners on base and methodically moving them into scoring position and then advancing them across the plate. They do this through bunting, stealing bases, and just putting the ball in play. Defensively, this style calls for your pitcher to throw 80 to 90 pitches per outing. That’s old school, fundamental baseball. These days, however, teams (see: their owners) have moved toward the “knock out punch” style of baseball where hitters are swinging for the fences – or for the knock out – from one swing of the bat. Great for ratings, advertisers, owners, and those who’ve found baseball – boring. The Braves? Not so much. They won the old-fashioned way. For example, Braves players, Freddie Freeman and Austin Riley, as one writer offered, “drew walks like flies”.

(A “walk” is when a player opts not to swing for the fence and chooses to wait for the pitcher to throw strikes. And when the pitcher doesn’t (or can’t), he ends up “walking” the batter (on four bad pitches), thereby earning the batter a trip to first base – the first step toward home plate and another run.)

Once on base, they would “steal” the next base. And once in scoring position, (on second or third base), they would advance on the next hit, and add to the run total. Then, with pitchers able to consistently pitch into the 6^th and 7^th innings, you’re able to throw in a middle reliever for an inning or two to hold the lead and then turn it over to your closer. That’s the baseball that many of us grew up on. And there’s a reason for that – it’s methodical, it’s proven, it’s fundamental, and it requires a strategy.

And it’s all part of a plan.

As an advisory business, CapSouth focuses on the long-term goals of our clients while guiding them toward the financial life they’ve always wanted. It starts with an honest conversation that can fundamentally change the way you see your finances. Our discussions, as you may know, are not so much focused on amounts, as they are on values, goals, and behaviors. Our process puts the personal back in personal finance. Your life is not about numbers, amounts, percentages, and totals (as baseball may be.) Your life is the sum of your values, the priorities you establish and the decisions you make along the way. We’re not here to help you hit the long ball, we’re here to help you pursue your goals through one wise financial decision after the other. Understanding, of course, there may be bumps along the way.

Detours and forks in the road are not uncommon, and your financial plan should account for them.

In the middle of the summer, when our nation celebrates its independence, we also celebrate the Major League Baseball All-Star game. Both the American and National Leagues bring their best teams together for one game – for bragging rights, I guess. In old-school baseball (prior to 2017), the winner would have home field advantage in the World Series. That’s not the case any longer. Now they play for a pool of money. Surprise. But I digress. In 2021, your Atlanta Braves entered the all-star break with a record of 44-45 and had just lost its best player Ronald Acuna, Jr. to a torn ACL. Perhaps this is the equivalent to a significant market correction, or let’s call it a market slump in keeping with the metaphor. So what did the Braves do?

They relied on their plan.

They made adjustments, sure, traded some assets for others, but didn’t panic in the face of adversity. Their advisor, Coach Brian Snitker, having years of experience behind him with his team of coaches, led the way, making wise decisions with the resources they had in hopes of living their one best season. And boy did they.

As the Braves have shown, numbers, percentages and values may change throughout the course of a season – as is true in a financial season – but more important than continued, uninterrupted success throughout, is success when the season ends. The Braves finished well. How about you? How are you going to celebrate the end of your season? On the field hoisting a trophy? Or in the dugout watching someone else do it.

Finish well, won’t you?

And from all of us a CapSouth, may you and your family enjoy this season and many more!

To learn more about CapSouth Wealth Management visit our website at www.CapSouthWM.com

If you would like to further discuss CapSouth’s financial planning services, request an appointment at www.CapSouthWM.com/contact or contact our office at 800.929.1001.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent registered Investment Advisory firm. This material has been prepared for planning purposes only and is not intended as specific advice. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

The “If/Thens” of Financial Stewardship

June 9, 2021
Budgeting, Financial Planning, Life, Wisdom

Financial Stewardship is often described with words such as planning, management, attention and care. All good words. All right on point. The key, though, is how do you make it a topic worth spending your time on? Well, it’s all in how you package it. For example, I’ve really come to enjoy if/then statements. The perfect combination of hypothesis and conclusion. My family uses them on me all the time:

Son # 1: “If I get a full scholarship, then you have to buy me a new car.”

Son # 2: “If I make this shot, then I get to stay up later.”

Son # 3: “If you can’t guess what number I’m thinking of, then I get to keep your guitar.”

Son # 4: “If I eat twenty goldfish at one time, then you have to play basketball with me.”

Wife #1: “If you don’t put up these clothes, then I’m going to…” (You get the point.)

As you can see, conditional statements can cover a wide variety of subjects. That said, most of the above center around time and money – two things folks seem to always want more of. And while I can’t provide you with more time, I can offer a few suggestions on the financial side. (See what I did there? Now you’re interested in financial stewardship.) So, here’s a quick list of financial if/then statements you may find valuable:

If you don’t contribute to your 401K, then you might be missing out on the employer match.

Some employers will put a matching contribution into your 401(k) if you’ll just – contribute. That’s called free money, by the way. Technically, it’s called an employer match, and if you want as much of that free money as your employer is willing to give, then max the match. For example, if they match 50% of your contribution up to 6%, then consider putting in 6%. Disclaimer: Don’t stop paying your bills or putting food on the table in order to put money in your 401(k), but do consider taking advantage of this employee benefit if offered. The employer match is often a discretionary match, meaning, it’s up to the employer’s discretion to offer it or not. So, if you’re eligible for an employer match, look into it. You’ve heard the expression, “There’s no such thing as a free lunch?” Well, this is pretty close.

2. If you want to know where your heart is, then check your credit card or bank statements.

Warning: If you look, then you will surely find. Every dollar you make is going somewhere, right? Take ownership of that. You have the authority, if not the responsibility, to account for every dollar that comes in. Let’s be honest, not every purchase is accounted for or was part of your financial plan, now is it? It’s likely, as you have at least a passing interest in financial stewardship, that you have a good accounting of where your money is going. But life happens, and thanks to the marvel of auto-pay for example, you may have unwittingly fallen victim to subscriptions to music and video services, magazines, jelly of the month clubs, etc., that you weren’t even aware of…but that your kids were. (This may or may not have happened to me.) And each and every month, they’re helping themselves to your dollars (the auto-pay…and your kids, too, possibly). And be aware, fraud is a big business. As in billions with a “b” in 2020. One report suggests that over $117M of that originated from social media scams alone. There are different rules with debit and credit cards as to how much of a fraudulent charge you may be responsible for, so check those statements for charges that may not be yours. Time is important here. Review often and report right away.

3. If you don’t model financial stewardship for your kids, then who will?

Please discuss financial stewardship with your kids. If you don’t model it for them, then culture will. The same culture that brings us such family friendly hits as Miley Cyrus, Howard Stern and The Bachelor. As part of our client experience, we engage in an Honest Conversations® exercise that highlights what clients value most out of life and serves as the foundation for their financial plan. More often than not, how financial stewardship was modeled for them when they were young is the impetus for how they model financial stewardship for their kids. It was either discussed as a family concern, or it was never discussed and deemed none of the kids’ business. I would encourage you to model financial stewardship for those you have influence with and bring them into the conversation (as age appropriate) thereby establishing a healthy appreciation for money and a head start on financial stewardship.

4. If you’re working and NOT saving for retirement, then what’s wrong with you?

I’ll spare you the grim statistics on the percentage of Americans who are nearing retirement and aren’t prepared for it. On second thought, let’s talk about it. In a 2019 GOBankingRates survey¹of 2000 respondents, 64% reported they will likely retire – broke. Here’s an even harder to believe statistic, 48% didn’t care. What? Here’s the deal. Your retirement is not your government’s responsibility, nor is it your employer’s. It’s yours. So make a plan. Age is not an excuse, by the way. You’re never too young to be introduced to the value of planning and preparation. As a matter of fact, the younger the better! Insurance is typically less expensive, your investment time horizon is likely longer, and your margin for course correction is typically much greater. Seek wise counsel. If you were only able to remember a single thing written in this article, then remember those three words: Seek. Wise. Counsel.

5. If you think Social Security is going to take care of your living expenses during retirement, then you’re wrong.

Read most any recent article on Social Security and you’ll discover the uncomfortable truth. If changes aren’t on the horizon, then Social Security won’t be either. Reserves are projected to last until 2037, or so, unless significant changes are made. Still, Social Security is certainly worthy of your consideration, and we can assist with a strategy tailored to your plan. It’s a part of your retirement strategy, but it shouldn’t be your retirement strategy.

6. If you’re investing in the stock market and aren’t adhering to a financial plan, then you may be taking more (or less) risk than you need to.

We believe a well-designed financial plan is a vital component in reaching the financial goals you have for you and your family, and your investment strategy should support the goals within your plan. Your investment strategy is a tool – it’s not the plan itself. Once we determine how our clients want to live their one best financial life, we devise a plan, with a corresponding investment strategy to help them get there. And we prefer you not take any more risk than is necessary to accomplish your goals. So what happens if the amount of return that’s required to reach your goals is more than you’re comfortable with? That’s when priorities and tradeoffs are made. Rarely does financial stewardship or living one’s best financial life happen by accident. It requires action.

If you don’t know how much risk you should be taking to accomplish your goals and objectives, or maybe you’re not even sure where to start, then start with an Honest Conversation. We can have one.

7. And finally, if your son wants you to play basketball with him, then by all means – play.

They don’t stay 12 for very long, do they.

If you would like to learn more about CapSouth Wealth Management please visit our website at www.CapSouthWM.com if you would like to have a conversation to discuss this article further, I’d love to chat. 334.673.8600.

by: Billy McCarthy, Wealth Advisor

¹64% of Americans Aren’t Prepared For Retirement | GOBankingRates

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