These articles were written for Arrivity’s monthly newsletter, The Road Ahead. These articles cover specific topics of concern during and after the Pandemic.

When World Events Rock the Stock Market

It’s a crazy world out there, and it all seems to be happening in real time. Four decades after CNN brought us 24-hour news, we now carry an endless supply of news and information in our pockets. We can see world events unfolding before our eyes, and watch moment-by-moment as they impact the economy and the stock market. Now ‘doomscrolling’ is part of our lexicon and it’s become harder and harder to look away from all that’s going on.

It’s perfectly rational to worry about your investment portfolio when there’s so much uncertainty. Events in the world can cause stocks to rise and fall, and the market can experience sudden dips, drops, or adjustments that result in concerning short-term losses in your investments. This can be gut-wrenching, and you may wonder if there’s anything you can or should be doing about it.

Hang on – we’ve been here before

Of course you always want your investments to be heading in a positive direction. But if you want the kind of growth that a portfolio of stocks can give you over the long run, that comes with a certain amount of ups and downs. Unfortunately, when some people see the stock market dropping over multiple consecutive days, they want to move their money to a ‘safer’ location until the market recovers. This is usually an unwise decision.

The problem is, nobody can really predict what the stock market is going to do in the short term. When fearful investors sell stocks as they’re going down, they usually have a hard time knowing when it’s best to buy back into the market. This can mean missing out on earnings while a portfolio is sitting on the sidelines. On top of that, liquidating a taxable portfolio can result in capital gains taxes – so it could cost you real money.

It’s human to want to take action when the world is rocked with unsettling news. When it comes to your investment portfolio, however, decades of evidence shows that steady discipline will provide the best results. If you’re investing for the long term, some basic rules apply: Build a diversified portfolio, stick with it, and rebalance as needed. 

It’s okay to feel what you’re feeling

One thing you might want to do when the stock market is experiencing volatility is to check in with your own feelings. If you feel like your portfolio is well structured and you have enough information to know what to expect, then you should probably hang in there and trust that you’re doing the right thing. On the other hand, if you’re losing sleep or feeling sick to your stomach, it may be time to talk to your financial advisor.

Now, it’s more than likely that your financial advisor will discourage you from making sudden changes to your portfolio, but they’ll want to make sure you’re well informed about what to expect. And if necessary, they can help you re-balance your portfolio to make sure it suits your current needs and risk tolerance. Keep in mind that your needs will change over time as your financial situation changes and as you get closer to retirement. Some investors interpret ‘hold steady’ as advice to do nothing. While it’s usually a bad idea to make sudden moves, that doesn’t mean completely ignoring your portfolio. Annual reviews of your financial plan will keep you on course.

Your Arrivity financial planner is your fiduciary partner, which means their job is to look out for your financial needs. If the news of the world is making you feel uncertain about your investments, it may be time to give them a call.

Just When You Thought it was Safe to Breathe: Inflation and Your Portfolio

Remember when the pandemic was going to disrupt life for a few months – okay, maybe a year – and then everything was going to get back to normal? Just when it looked like we had a handle on the virus, the global supply chain falls apart. Then came the crazy swings in the stock market. Now it’s inflation. Sure, wages have been going up for a lot of people, but by many metrics, inflation is wiping out those income gains. It’s enough to make a person want to stop looking at the news.

You’d have to be more than 40 years old to remember inflation like what we’re experiencing today. Breaking news alerts announce new record prices for a gallon of gas. Grocery store receipts contain eye-popping numbers. Everyone is ready to take a much-needed vacation, but it’s hard to relax when all you can think about is the cost of travel. With prices rising as fast as a Covid surge, it’s hard to know whether it’s time to make changes in your financial portfolio – or just hang in there and hope.

Just as no one could predict we’d start 2022 with war in Eastern Europe, there’s no way to accurately anticipate the trajectory of inflation numbers. But economists and market analysts spend their lives tracking trends, assessing underlying market conditions, and looking at comparable times in history. Here are some data points that help put today’s inflation in perspective:

  • The overall Consumer Price Index (CPI) is up 8% year-over-year. That’s the highest it’s been since the 1980s. A lot of the rise in prices is being driven by the cost of fuel and food. But there are still impacts related to supply and demand shocks, which will ease as knots in the supply chain get worked out.
  • The bond market expects inflation to increase a bit more before it goes down, but traders believe that the current trend is transitory, meaning they expect the curve to slow over the coming months.
  • The expectation is that long-term stock returns won’t be significantly impacted by inflation since companies tend to pass costs onto consumers over the long term. But if inflation persists, companies may end up having to take a hit to profits, which will tend to lower stock price.
  • It’s more difficult to say what the impact will be on short-term stocks. Some economists have been saying that higher inflation can actually be beneficial.
  • If the economy is heading into a recession, the Federal Reserve may respond by cutting interest rates. This usually increases bond prices and is also raising the interest rate on money market mutual funds.

How inflation impacts your financial planning

It’s time again to go back to the basics: A balanced portfolio and with a long-term planning horizon continues to be the best formula for growing money safely. What you do in response to inflation depends very much on where you are in your life. Strategies will be different for someone who is at or near retirement versus an early-career professional with many years of income ahead of them. A few things to take a close look at include:

  • Your household budget. When income doesn’t keep up with inflation, that results in lower purchasing power. In practical terms, it can mean that your exact same lifestyle could be cutting into savings or your ability to accumulate money for retirement. Consider whether you want to make some short-term adjustments to keep your budget in balance.
  • Re-balancing your portfolio. It’s not a good idea to park long-term investment dollars in low-interest savings accounts, because when inflation is higher than the yield on savings, you’re actually losing money. However, if you haven’t balanced your portfolio in a while, consider setting a meeting with your financial planner to look at your options.
  • Retirement timing: Your monthly social security will be higher each year put off receiving them. Payments are also automatically adjusted for inflation. This means waiting to collect social security could be beneficial, if it works in your overall financial plan. 

The economy runs in cycles, and market watchers have been anticipating a cooling off of the stock market for a while. But the past two years have seen so many unique events. It’s difficult to predict what the pandemic, supply chain disruption, war, food and energy shortages, and inflation will do to anyone’s portfolio. A balanced, long-term approach continues to be the best bet for weathering any storm.

If you’re feeling uncertain about whether your portfolio is structured to serve your needs today and in the future, contact your Arrivity financial planner so you can review your situation together.

Permission to keep caring about social security

When my 20-year-old daughter looked over the wage summary for her summer job, she zeroed in on the money that was taken out before the paycheck even hit her account. She grudgingly acknowledged the income taxes, hoping she may get some back as a refund. But social security? From the buzz she’s hearing among her generation, social security will be dried up long before they near retirement age. It seems unfair to have to pay for something they feel like they may never see. 

There’s certainly a lot for the younger generation to worry about as they look into the future. So how should they be thinking about social security? 

Let’s start with the obvious: Predicting the future is fraught. So while nobody can say exactly what’s going to happen 30, 40, and 50 years from now, there are people whose job it is to carefully track the longevity of the social security fund. In fact, the latest estimates by actuaries – the statisticians who crunch all the numbers around lifespan and economics – shows that social security will run out of funds in 2034. That’s not too far into the future at all. Even someone like myself, who is thinking about the when and how of retirement, could start feeling pretty anxious about this news.

Looming demise, or a high-pressure deadline?

It turns out that for financial professionals, politicians, and other social security watchers, there’s nothing at all surprising about the projection that the fund will run out of money in 2034. And this isn’t the first time social security had a looming crisis. It also happened in 1983. That was when the government enacted a set of changes that put it in the black. And that’s when they predicted it would be solvent until the year 2035. (New projections that take into account pandemic-related demographic and economic shocks have moved the date forward by a year). 

Sensible people may wonder why the government is waiting until the very brink to fix social security. One word: Politicians. The solutions aren’t complex: It’s a matter of finding an acceptable balance of cost-cutting and income generation measures. But the necessary actions are never popular with politicians since they mean a combination of increasing taxes and decreasing benefits.

Most experts predict, however, that the changes will get made – probably as the deadline becomes unavoidable. Social security is one of the most popular entitlement programs in the U.S., and senior citizens are active voters. Politicians have plenty of incentive to make sure social security sticks around. The changes, when they come, will probably mean that people who are still working will have to pay more into the fund. They may also have to wait longer to reach an age when they can take full retirement benefits. In addition, future benefits themselves may not cover as much in retirement expenses.

Social security and you

While it looks like social security will get a new lease on life in the next decade or so, the potential changes are a reminder to plan carefully for the financial resources that will fund your retirement. The truth is, even now social security payments only cover a fraction of retirement expenses for the average senior. My 86-year-old mom, for example, covers about 40% of her budget with social security, but her spending has been low, especially during the pandemic when she hasn’t been able to travel or eat out. Thankfully, my parents participated in employer pension plans and socked away money in IRAs, so she has enough to be comfortable.

I’ve already helped my daughter set up her first IRA, just as my dad did for me when I began earning real money. Maybe it’s good that my daughter assumes she can’t depend on social security. That way she’ll have incentive to start saving early and actively think about retirement even in her 20s and 30s. Money saved now has a longer time to accumulate, giving her more flexibility as she gets older.

If predicting the future feels daunting, your Arrivity financial planner can help. They’ll make a careful assessment of your current financials and factor in your plans for the future, including when you hope to retire. Then, they’ll design a roadmap that helps you get there.