You Always Have Financial Choices

you always have financial choices

Despite the recent market volatility and widespread uncertainty associated with the Coronavirus, remember that you always have financial choices.

Now, more than ever, I believe it’s important to focus on the choices you can control — not on the news and information which, in addition to appealing to our emotions, is beyond your control.

For instance, you can always control:

  • how much you save vs spend
  • how much investment risk you take
  • the timing, duration, and frequency of future goals
  • and more

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Episode Transcript:

Hey there and welcome to another episode of Women’s Retirement Radio. I’m your host, Russ Thornton. Today I want to talk about the importance of choices that are at your disposal as you deal with your financial plan, your investment portfolio, and frankly, your broader life. We’re all facing a lot of unique choices in our lives right now as we deal with COVID-19 and coronavirus and quarantine orders and instructions not to travel or conduct business unless it’s deemed essential. And so a lot of these decisions, these choices fall to you. What do you do? How do you act? What do you tell your kids? What example do you set for them? Clearly nobody wants to be inconvenienced or have their lives interrupted or put on hold, but that seems to be the reality that many of us are dealing with right now.

And so we’re facing some inconvenience and possibly some financial jeopardy for those that are being laid off or furloughed from work or aren’t in a position to work remotely. They might have their livelihoods, their careers jeopardized. So, what do you do? What are your choices? Do you just roll over and take it? Do you play the victim? Do you take life by the reins and go forward and figure things out? A lot of these questions are bigger than I can address in the context of an episode like this, but I do want to talk about some of the choices that you do have control over when it comes to your money, the markets, your financial plan.

To begin with, let’s talk a little bit about history. If you go back to the 1920s, stocks have fallen by 30% plus every seven years or so. Now, that doesn’t happen like clockwork, sometimes it’s fewer than seven years, sometimes it’s more. But every seven years or so, on average, going back now a hundred years, the market has fallen on the order of 30% or more. The market volatility, the downward pressure in stock prices that we’re experiencing now, they’re not unprecedented. We’ve experienced it before, not just once, not in an isolated event, we’ve actually experienced this time and time again over the last 100 years or so. In fact, if stocks have fallen 30% or more every seven years or so, we’ve actually seen stocks fall 40% or more every 15 years on average. They’ve actually been cut in half, so we’ve actually seen a 50% drop in stock prices on an average of every 18 years or so.

Now, that does not make today feel any better. That’s not to meant to ease your worries or make you any less concerned. I do want, however, for you to recognize that we’ve seen this type of market before. In fact, we’ve seen it many, many times before. And so just something to be aware of that while I’ve heard and read that many people are saying in this time it’s different, and maybe it is, I mean none of us know, least of all me. None of us know what’s going to happen tomorrow or next week or next month or beyond. But as far as the market and how the market’s reacting, we’ve been there and done that before, many times before.

A little bit more recent history, since 1980 there have been 20 corrections of 10% or more. Again, since 1980 last 40 years or so, we’ve seen 20 corrections of 10% or more. 20 corrections over 40 years, that means about once every couple of years we’re going to see a correction of 10% or more. Over that same period of time, that same 40 years since 1980, we’ve actually seen declines of 20% or more happen nine times. We’ve seen declines of 20% or more that last at least a couple of months. That’s happened nine times over those same 40 years. We’ve actually seen five recessions over those 40 years, since 1980. Just to clarify, a recession is defined as a decline in economic conditions for two or more successive quarters. I think it’s often hard to wrap our minds around what’s happened over the last 100 years, but more recent history tells us again, we’ve experienced volatility like this before. If we’ve been there before and we’ve lived through it, I’m not saying it wasn’t painful, I’m not saying it was easy, I’m not saying it wasn’t emotional, but if we’ve survived times like these before, economic times like these before and have gone on to make progress and see the market recover and go on to higher highs, I’m optimistic that we’ll see that happen again.

I don’t know when we’ll “be out of the woods” with current coronavirus issue that’s impacting markets and economies worldwide, but longterm I’m ever the optimist when it comes to the investment markets. Because historically they have been one of the greatest engines for wealth creation as well as wealth preservation that there is out there. But this again brings back the question of choices. How are you going to react? How are you going to respond to scary markets like we’re in right now? I wish I had the magic words that could put everyone’s minds at ease, but frankly, the best thing to do is to stick with your financial plan. If you don’t have a financial plan, I would encourage you to work on developing one, either on your own or with the help of a qualified and experienced financial professional. But develop a financial plan and your financial plan, if done correctly in my opinion, will take into account the fact that markets go up, markets go down, they can be volatile, they can be scary.

In fact, I’d like to mention that market volatility is… It’s a feature, not a bug. In other words, there’s actually a benefit to volatile markets. If markets weren’t volatile, if they just steadily clipped along and earned two or three or 5% a year, then you would get two or three or 5% a year. There would be no additional reward or premium, because you wouldn’t be taking any more risk than if you had your money in, let’s say, a bond or a fixed income instrument or even a CD. The fact that the stock market is volatile and the fact that it can feel like a roller coaster ride from time to time, is what gives the market the opportunity to provide you with above-average returns over time.

When I say above average, I mean above average as compared to leaving your money in a savings account at the bank or stuffing it under your mattress or putting it into a CD. Clearly those are options, but in an effort to keep up with inflation and cost of living and to support yourself for the next several decades, depending on your age, you need to think about how you can grow your money and diversify, but grow your money in a way to allow you to keep up with the cost of living and support your lifestyle, as well as the lifestyles of those that are important to you, and to give you the ability to achieve the things that are important to you as well in terms of financial goals and aspirations that you want to achieve.

And so this all comes back to choices. How am I going to act today? What choices and decisions am I going to make today? I could choose to seek more comfort and less certainty today by moving to cash or to CDs or moving out of the market. While that will certainly lower your anxiety today, you are potentially jeopardizing your longterm future because that money does not have the ability to stay ahead of inflation and the fact that things get more expensive over time. Using this average inflation, if you project for the next 20 years, it’s likely that the general cost of goods and services is going to roughly double. Put another way, if you need $50,000 per year today to support your lifestyle, 20 years from now is likely you’re going to need $100,000, twice that amount, to buy what $50,000 will buy today.

That is the erosive impact of inflation over time. And so by seeking short term comfort, by seeking to lower your anxiety and stress about the market short term, you need to consider the longterm ramifications of that decision. If you do decide to lower your risk or go to cash right now, when do you get back in? Well, people always say, “I’ll get back in when things get better or when things calm down.” Unfortunately, history has shown us that while the market can go down a lot in a hurry, it can also go up a lot in a hurry, and so you run the risk of potentially missing some or all of the recovery when that happens if you’re sitting on the sidelines in cash. And so you run a couple of risks, both longterm, not keeping up with inflation, but shorter term, maybe missing the opportunity to recoup some of the unrealized losses we’ve seen with some of this recent market volatility.

But choices extend well beyond your portfolio and it extends well beyond your investments. We also think about savings. You can save more today to have a more comfortable future. The other side of that coin is you could save less today and spend more today, but you could potentially be doing that at the cost of a less certain, less secure future. Now, that’s not to say that you should save every penny, nickel and dime that you can today so you can have a great future. Because you need to also consider how do you strike a healthy balance? You want to have a comfortable and a confident future, you want to be well prepared for an uncertain future, but you also want to enjoy your life and your financial resources today. You want to make sure you’re saving enough for the future but I also would caution you to make sure you’re not saving too much because you could be so well prepared for the future, in fact, you could be over prepared for the future at the cost of your lifestyle today. You could be saving more than you need to.

Other examples are, you could be taking more investment risks than you actually need to. You could be planning to work longer than you in fact need to, to support and fulfill your personal financial plan. And so this all comes back to choices. Another great word that I use a lot which are trade-offs, it’s what are you willing and able to do now so that you can be more comfortable in the future? What are you a willing and able to forego today so you can have more in the future? But as I said, you need to strike a balance. I’ve spoken to this and written about this before, so many people that I speak to have unconsciously signed up for what I call a deferred life plan. They are so focused on the future and they’ve told themselves that, “Man, when I retire I’m going to live it up. I’m going to be able to travel and do all the things that I’ve always wanted to do. I just need to work another two or three or five years. I’ll get across the retirement finish line and I’ll be able to really start living.”

I think that is shortsighted at best and dangerous at worst. Nobody knows how long we’re going to live. I’m sure you’ve heard or read or even know people that have been planning and planning for retirement and days, months, or even just a couple of years after they retire, they either maybe encounter a severe health issue that curtails their ability to travel and enjoy life and do the things they had planned on doing for decades. Some people have even passed away not long after they retire, and so all of that planning to live a great life in the future is for naught. I am a big believer, a big proponent of striking a balance, of living a great life today and each and every day along your life’s journey, while also being well prepared and being comfortable and confident in your future.

Now, clearly I don’t prescribe, nor would I recommend, set-it-and-forget-it planning. You can’t come up with a plan, put it in motion, and think that everything’s going to work out just like you hoped it would five, 10, 15 or 20 years from now. Planning requires ongoing reviews, monitoring, adjustments. You might need to tweak your plan from time to time, adjust for changes in the economy, the market, your personal life, your professional life, the needs of your family or your personal needs. Life is going to happen, life’s going to change along the way, and your financial planning needs to reflect that because it can become a moving target. Just because the plan that you create today is on the right track tomorrow, next week, next month, something could change and your plan needs to adjust to accommodate those changes and that new information.

Ultimately, it all boils down to choices and the things that you can do, the things that are within your control and direct influence. You can’t control the news. You can’t control the markets. You can’t control the price of oil or frankly you can cast a vote, but who gets elected president this November or what happens in the larger world around us, a lot of that’s out of our control. We might be able to exert some element of influence, but at the end of the day, I would argue that much of what passes as important in the media and the news is out of your control.

I would instead encourage you to focus on the choices that you have at your disposal, the things that are at your control at all times, the things that are important and that you arguably should focus on. Namely, are you taking too much risk or are you taking enough risks? Are you planning to retire too soon or are you perhaps planning to work longer than you in fact need to? Are you so focused on saving for the future that you’re either consciously or maybe unconsciously sacrificing your lifestyle today? Or, are you taking a, “I’ll deal with it tomorrow,” attitude and putting yours and your family’s financial future at risk because you don’t have a financial plan and you haven’t thought through some of the choices that you need to evaluate today so you can hopefully have more choices, more flexibility, and more freedom later in your life.

To me, that’s what wealth really is, it’s being able to do what you want, when you want, with the people that you want to do things with. It’s not about how much money you have in the bank or your portfolio, to me it’s about having flexibility and the ability to maintain choice. Anytime your choices are limited, your flexibility is compromised, I’ve yet to encounter anyone that relishes finding themselves in that scenario. So, think about the spectrum of choices that you have available to you today, the spectrum of that will be available and become available to you in the coming days, weeks, months, years, and decades of your future. Focus on the things that are within your control and and frankly the things that are important. So much that passes for news and information is just that, it’s news and information, but I would argue that it’s not really important.

You are the captain of your own ship, and even in times like today when there’s just so much going on around us with this global coronavirus pandemic, market volatility, uncertainty, people losing jobs, no clear end in sight, I would encourage you not to lose sight of the fact that there are always things within your control. You can control how you spend your money, how you save your money, how you spend your time, who you spend your time with. I think at the end of the day those are the things that are most important.

So with that, I am going to wrap up this episode of Women’s Retirement Radio. I’m your host, Russ Thornton. Thanks for joining me and stay tuned until our next episode. Hey, before you go some quick disclosure language, you should consult a financial advisor familiar with the specific circumstances of your unique financial situation before making any financial decisions. Nothing in this broadcast constitutes a solicitation for the sale or purchase of any securities. Any mentioned rates of return are historical or hypothetical in nature and are not a guarantee of future returns. I’m a financial advisor, a certified divorce financial analyst, and an investment advisor representative of Wealthcare Capital Management LLC, an SEC registered investment advisor based in Richmond, Virginia. The views discussed in this podcast are my own and may not be consistent with or represent those of Wealthcare Capital Management.

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Russ Thornton
Russ Thornton
Hi there! I'm Russ, and I help women in their 50s and 60s achieve and maintain their desired lifestyle leading up to and throughout their retirement years. Imagine being able to look forward to a comfortable and confident financial future...
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