Rebuild Your Financial Plan Post-Crisis with Diversification

Rebuild Your Financial Plan Post-Crisis with Diversification

The number one lesson we should all take after a long period of crisis is that anything can happen at any time. We can and should always be prepared for any scenario.

That is especially true in your personal financial plan, both in the immediate term and as you continue your long-range plans for retirement.

The end of a major crisis is a reminder to reassess your entire plan to make sure you are ready for any possible disruption—like a sudden loss of income or an unexpected major expense—now and in the future.

One of the oldest, most reliable financial strategies is also the best way to prepare for disruption: Diversification. No matter your age or income, it’s never been more important to have a diverse allocation of funds or access to capital for different needs while being strategic in your approach.  

Early Life Planning
The latest research shows that the younger you are, the lower your lifetime earnings and investment returns will be. Thanks to the disruption from a national crisis, job prospects are tougher, taxes will likely increase and the markets are becoming more volatile.

However, through financial planning, you have a lot of options for diversification that can help protect your assets and keep your financial security from being tied to any single market’s performance.

A wealth advisor can help. They can work with you at any level to develop a plan that includes options like 401(k), Roth IRAs, brokerage accounts, insurance, credit and more. They can help you be strategic with your savings now, take advantage of tax benefits and ensure you’re set up for multiple streams of income later in life to protect against a crisis.

One of the biggest disruptions one may face is a sudden loss of income, like so many have recently experienced. Your financial advisor can help you prepare for that eventuality by structuring some of your assets for easy access in an emergency. If you find yourself in tight financial times and unable to save much right now, they can help you plan a way out and back to a place where you can continue saving for retirement.

Before you meet with your advisor, you can get a good picture of where you stand by using online calculators on topics like savings, retirement planning, home equity and controlling your debt.

Take a look at Pinnacle’s personal financial calculators.

Late in Life Planning
As retirement nears, your allocation and risk tolerance will change. However, diversification will remain a constant to ensure your income needs are met throughout retirement, even if you face a significant disruption. Risk management is a necessary aspect of planning and is key to being prepared for sudden change. A defined approach using solutions that fit your needs can help extend and protect assets through coverage for long term care or create a nontaxable stream of income.

When discussing diversification, you want to make sure your assets are diverse in nature, but also among different types of accounts for tax advantageous purposes. Diversification through planning can help protect against risk for large expenses in retirement such as a healthcare incident or a disaster that hits your overall assets.  A wealth advisor can help allocate assets to hedge against this potential risk.

Access to capital is important throughout all stages of planning, but it often comes with tax implications from capital gains or the risk of a loss by liquidating assets during a market downturn. Using strategic credit can help limit both by allowing you to borrow at a time when rates make it a more favorable option. In addition, it can help take advantage of opportunities outside of the investment market.

Timing is also critical. The choice of which assets to use and when can make a significant impact on your net income. Your advisor can help you set a timetable for withdrawing from your assets so you have steady and reliable sources of income for as long as you need them.

In addition to thinking about your own needs, estate planning is a key area to address so you can leave a legacy to your family or a charity that you are passionate about.  This is an important step for your financial plan that takes planning to ensure a smooth transfer for wealth and assets.

 

Lance Collins is a financial advisor and area manager based in Pinnacle's office at 3980 Premier Drive in High Point, NC. He can be reached by phone at 336-881-3346 or by email at [email protected]


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