By Chris Palabe, CFS®, AIF®
Not knowing what’s around the corner can be unsettling—or even downright scary. Billionaire and founder of Patagonia, Yvon Chouinard, said, “Fear of the unknown is the greatest fear of all.” And things in our world right now are just about as unknown as it gets. Most of us dislike this level of uncertainty—but the market dislikes it even more.
Case in point: the Dow recently experienced 8 weeks of consecutive losses this year, and the S&P 500 tallied 7 weeks of losses. (1) As a result, many economic leaders are predicting a recession in the near future. (2) We can point our fingers at many factors as the cause of our recent nail-biting: rampant inflation, the Fed’s solution of increasing interest rates, and international unrest. The fact remains that we have no control over any of that.
We at Palabe Wealth want to help you take a deep breath and walk you through whatever our markets decide to do—good or bad. Here’s how we’re watching over your finances and taking proactive steps to help manage your wealth.
We don’t make investment decisions based on what everyone else is doing or what’s popular in the investment industry. Whenever we make planning decisions with you and offer investment recommendations, we do it with your goals at the forefront. When the markets get shaky, we go the extra step of reviewing your objectives to make sure you’re still on track and make educated decisions that are not based on panic or emotion.
This starts from the very beginning of our relationship with you. We use conservative return numbers when analyzing the potential outcomes of your plan because we know that corrections and bear markets will come again. We also use asset allocation “buckets” that divide your wealth into short, intermediate, and long-term strategies to help you make the most of a volatile market.
And in times like this, it’s even more important to have an emergency fund or a percentage of your portfolio that is either in cash or liquid enough if you need it for unexpected circumstances. While cash investments may not provide a lot of growth, having a cash contingency fund with at least three to six months’ worth of living expenses will protect you against having to sell investments at low values to free up cash.
We Know Your Risk Tolerance
Do you know that feeling in the pit of your stomach when you make a decision that was too risky for your comfort? Our goal is to help you avoid that feeling when it comes to your investments. Before investing any of your money, we determine your risk tolerance, the amount of risk that an investor is comfortable taking, or the degree of uncertainty that an investor can handle. Like most things in life, your risk tolerance may change with age, income, and financial goals. We don’t want you to lose sleep at night, so we review your risk tolerance and how much risk you can afford to take and adjust your investments over time.
We also watch over your money like a hawk, and when it’s time to get out of an investment because the risk is rising, we will contact you about adjusting your allocation.
Beyond Basic Diversification
We’ve all heard about the importance of diversification when it comes to maximizing our investments. But diversification should involve more than just maintaining a balance between stocks and bonds, especially when traditional investments are volatile.
There are many alternative investments, but some of the most common include real estate, private real estate investment trusts (REITs), and precious metals (either directly or as an underlying asset in an exchange-traded fund). In general, the point of an alternative investment is that it behaves differently than stocks and bonds, which adds value to your portfolio by acting as a diversifier. We can help you add alternative investments to your portfolio, spreading out your risk even further.
During bear markets, it’s important to remember that investors only realize losses when they sell, so it’s critical not to sell when the market is down. When you need to access your money is an important factor in avoiding those losses. For example, if you are a decade or more away from retirement, you can likely wait out a recession or correction and benefit from the recovery. If you need access to your funds in the next five years or are within your first five years of retirement (frequently known as the “fragile decade”), (3) a recession will make more of an impact on your money and your plans.
From a practical perspective, we make sure your portfolio’s allocation is set up with your time horizon in mind. If you need money in the short term, your portfolio will hold safe investments like cash or short-term bonds. Because retirement can last decades, you still want some of your money in investments that will produce long-term growth, but your portfolio will look very different from that of a 40-year-old in the peak of their working years.
We Are Your Emotional Support System
I’m sure you’ve heard the motivational slogan “Keep calm and carry on.” Well, when the markets are wreaking havoc on your finances, refraining from making emotional investment decisions is often easier said than done! A declining market is no fun for most investors and even seasoned pros are not immune to concern. The key is to maintain your investor discipline and remember that enduring periodic declines are the price we pay for potentially better investment returns over time.
It’s also important to keep in mind that bear markets have happened before—and they will happen again. As long as you’ve created a disciplined financial plan and have a trusted advisor monitoring your money, you’re doing your part to prepare. Do you have someone you can turn to when the market gets wild?
That’s where Palabe Wealth comes in. We’d love to support you as we work together to help build your finances for a strong future. Schedule a 15-minute introductory phone call or call us at 847-249-6600 to learn if we are the right fit for your financial goals.
Chris Palabe is the founder and CEO of Palabe Wealth, a financial services firm providing retirement plan strategies for businesses and individuals. For 25 years, Chris has been serving his clients with customized plans and a boutique approach. He started his firm because of his passion for making a difference in others’ lives and a genuine desire to build long-term relationships with his clients so they can seek to achieve their ideal retirement and manage risk. Chris is a Certified Fund Specialist® (CFS®) and Accredited Investment Fiduciary® (AIF®) professional and has a degree from Université Denis Diderot (Paris VII). When he’s not working, you can usually find him riding horses and competing in dressage at a national level. He also loves reading, watching movies, and eating out. To learn more about Chris, connect with him on LinkedIn.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.
This material was prepared for Palabe Wealth Inc.’s use.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.