We headed into our first semi-annual client reviews of the year last week with a certain level of apprehension. A big drop in the market right out of the gate wore heavily on my mind. Are we headed into a bear market? Maybe. We’ve been through bear markets before, and our portfolios are built to withstand them. However; severe market downturns are not fun at all, no matter the preparation
Our bread and butter at Schulz Wealth is retirement planning. Over the years, through good markets and bad, we have developed a unique process for helping clients better understand how their investments complete their goals.
We continually run retirement planning scenarios in semi-annual meetings, making adjustments on the fly as circumstances and goals change. Once adjusted, we pull the planning numbers from our software and create an overlay graph. The graph contains boundary limits above and below the projected path of accumulation (or spend-down, if already retired), and bars for all actual historical end-of-quarter balances.
After a few years tracking, the graph tells a great story by combining the client’s projected outcome, tolerances, and past progress into a single visual aid.
When times are good, we cheerfully acknowledge the saving habits, investment performance, and planning that has helped us achieve, and maybe even exceed our expectations. However; I believe this type of planning is most important during the bad times. When our bars of quarterly asset values drift out of the lower tolerances, we must be willing to have a frank conversation.
The culprits in a failing plan are usually one or a combination of the following:
- Investment portfolio underperformance.
- Under saving.
- Critical event (such as disability, pension reduction, or loss of employment).
The possible solutions include:
- Change in investment strategy or allocation.
- Increase savings.
- Extend working years.
- Reduce projected retirement income.
As you can see, framing our investment decisions with sound planning data brings about a logical decision process.
Even with the right process, market downturns still are not fun. Fortunately, in our first two weeks of client meetings, we have not experienced an underperforming planning scenario. This is partly due to our carefully crafted portfolios, but mainly due to our clients steady contributions and reasonable spending as set in place by the planning.
Without our process, I believe many of our clients would be off track; or worse, not even have a track. Unfortunately, there are many frustrated investors out there who will make very poor decisions in the coming weeks if the markets continue to decline.
Investors will make poor decisions for one or a combination of the following reasons:
- They are in the wrong investment strategy or allocation for their situation or risk tolerance.
- There is no planning in place or process for goal achievement.
- They have not saved enough on a steady basis to support a viable retirement scenario, regardless of market return.