Earlier this month, I experienced a challenging outing on the Schuylkill River outside Philadelphia while rowing a single scull boat (pictured here). I encountered gusty winds, choppy water, and strong headwinds. These tough conditions required me to adjust my technique in order to keep the boat stable and keep rowing efficiently. The small adjustments of keeping my hands level throughout the stroke allowed me to minimize the rocking of the boat. After a short period of calm waters and better conditions, a power boat charged past leaving a violent wake in its path. Knowing that such wakes can cause a sculler to flip their boat; I played it safe. I slowed my row, periodically rested both blades on the water, and rode out the unstable conditions.
Just like rowing, when changing conditions may require adjustment, so too in life we may encounter circumstances that require us to adjust our financial plans.
Here are some potential headwinds that may affect YOUR life savings and retirement plans:
1. Inflation
While recent years have seen spikes in the price of certain goods and services-especially since COVID- inflation in the U.S. has ranged from 2-4% over the long-term. U.S. stocks have a better track record of outpacing inflation than bonds; but both are important when designing a diversified portfolio. As we create a financial plan for clients, inflation is a key consideration in determining an appropriate asset allocation.
2. Market Volatility
The past few years have been relatively calm for equity prices. However, we are likely to still encounter periods of higher market volatility perhaps even as much as early 2020 when COVID caused widespread market panic. Through strategic asset allocation, along with a diversified portfolio and ongoing financial planning, clients can “row” out these unsettling periods.
3. Black Swan Events
Black Swan Events- unexpected and low-probability occurrences- are a potential reality just like the power boat that shows up unexpectedly. Over my investing career, my teams and I have witnessed several events including the Russian debt crisis and LTCM collapse in the late 1990s, the dotcom crash along with the Enron and WorldCom bankruptcies in the early 2000s, 9/11, the Great Financial Crisis of 2007-2008, and COVID-19. By managing risks and understanding portfolio exposures, we were better prepared to navigate these turbulent times for our clients.
4. Increasing Taxes
There is no guarantee that tax rates will remain stable, and may even rise for many Americans. By working with a financial planner, an individual and family can be diversified in tax-efficient investments while also effectively managing retirement distributions along with the timing of Social Security benefits.
5. Sickness in the family
This is probably the most unsettling of all the events listed but an unfortunate reality of life. Having a will, designated beneficiaries, along with Medicare and long-term care planning can be helpful steps in managing this difficulty.
Like rowing, life will likely present unexpected challenges. Through financial planning and appropriate asset allocation, one can be in a better position to manage these headwinds and the rough wake that may occur.
