A Vacation? A New Car? Does the Market Impact Your Lifestyle?
With the recent dips in the stock market, many people have questions about their investments and what they should do for the long term. Will Stone, a CERTIFIED FINANCIAL PLANNERTM professional at McMullin, Stone & Associates in Fayetteville, GA, recently sat down to answer some of the most pressing concerns he hears from clients. ?
What is benchmarking and how does that effect my portfolio?
William Stone: Investments are often compared to the S&P 500, which is an unmanaged index of the 500 largest publicly traded companies in the U.S. Investors see the headlines about the stock market and wonder about their portfolio. But in reality, how a person’s investment strategy compares to the S&P 500 is not a good measure of whether or not the portfolio is successful. Investment strategy should be based on what their own plans dictate. In a lot of cases, if people don’t need to take on unnecessary risks with their investments then they are typically better off not doing that. The planning process we go through with clients is designed to figure out what risks they can handle and also what investments they need. So the benchmark for them is really their own life and what they need to fund the life they want to have, not the S&P 500.
The stock market has been climbing rapidly lately and some say is in need of a correction. What can you tell me about that?
William Stone: According to Andrew Adams, Senior Research Associate at Raymond James, until late January of this year, the S&P 500 had not experienced as much as a 3 percent dip since November 2016, nearly 15 months ago. Normally, dating back to the 1930s, the market will experience a 5 percent pullback every seven months on average. Based on past history we were overdue for a correction, which means when one comes, it could be more severe. From January 26th, 2018 to February 8th the S&P declined just over 10%, which is typically the amount associated with a correction. So, in my view the market did in fact correct and we appear to still be working through that. When we talk to clients, we discuss their short-term needs and how much they’re going to need over the next 18-24 months. The reason we do that is prepare for times like these by setting aside money that’s not at risk, so we don’t have to alter their investment strategy or sell investments at a bad time to raise cash. The money is available for that trip they want to take or the new car they plan to purchase. That 1-2 year period is a good benchmark to use for determining the amount of money which should not be invested.
So my living expenses don’t need to be tied up in something that can drop in value?
William Stone: Exactly. In the big picture down the road, you’re going to need some long-term growth to keep up with inflation, taxes, and the rising cost of medical expenses. Those are all risks to your long-term retirement picture. If we make sure the shorter term is covered with money that’s not at risk, the longer term can be invested in vehicles designed to grow. And if we have sharp corrections or even a recession, typically we have time for those investments to recover before that money is actually needed.
What’s an example of a short-term expense that I may want to plan for?
William Stone: One that often comes up is a client planning a big vacation with their children and grandchildren in a year or two. We want to know about that as early as possible so we can start positioning money or have an understanding of where that money is going to come from. Perhaps it will mean putting that money into an investment vehicle designed to mature right when they need to pay for that trip, or we’re going to go ahead and move some money to cash beforehand if the market provides an opportunity to sell some investments that have done very well.
I’ve never met with a financial planner before. What do I need to know?
William Stone: Most people want to know if there’s a fee for the first meeting. There is not at our firm. My goal is to understand where clients are and to help them see a high-level picture of the path they are on. That may answer questions for the time being, however, if in that meeting we identify areas that need more review and conversation then we can discuss moving forward with a more formal engagement.
To find out more about long-term financial planning with Will Stone and the team at McMullin, Stone & Associates, call 770-471-6674 or email firstname.lastname@example.org.
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. McMullin, Stone & Associates is not a registered broker/dealer and is independent of Raymond James Financial Services. This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Any opinions are those of Will Stone and not necessarily those of Raymond James. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the forgoing material is accurate or complete. Keep in mind that individuals cannot invest directly in any index. Individual investor’s results may vary. Past performance does not guarantee future results.