How To Make Money Last

By Shannon Rowan, Executive Vice President, Director of Wealth Services  

We’ve all experienced significant change as pandemic-influenced economics have become the new normal. While supply was constrained by global shutdowns, demand was stoked through massive government intervention, all of which was exacerbated by food and energy disruptions caused by the war in Ukraine. As a result, inflation has wreaked havoc on the price of nearly everything over the past year. A potential benefit is that opens in a new windowSocial Security beneficiaries will receive a cost of living increase of nearly 9% in 2023. Unfortunately, most of the changes have not been positive.

Equities are embroiled in a persistent bear market and performance in the bond markets this year is the worst in decades. Amid this broad market volatility, you should assess the consequences of these changes on your financial planning along with potential adjustments. Here are a few to consider:

Review your investment plan for alignment with your risk tolerance, time horizon and return expectations.

For example, many investors’ portfolios are over-weighted to formerly high-flying technology stocks. Market leadership has shifted and, in the current market, companies with financial characteristics like strong cash-flow and the ability to manage costs are generally performing better than fast growing capital-intensive companies.

Seek the appropriate balance between risk and return to achieve your goals.

For example, retirees need current portfolio stability along with the growth required to fulfill future obligations. With the shifting markets, risk is more difficult to evaluate and understanding how portfolio components correlate is more important than ever.

Consider using a laddering strategy.

After years of languishing near zero, yields on fixed income investments like bonds have surged in 2022. However, it’s difficult to know how much higher rates may go, which may create uncertainty about where to invest. With a laddering approach, you select investments that mature periodically over a specified time-frame. This helps to avoid having all of your invested funds tied up as rates change. For example, selecting bonds that mature over the next three to five years means that you’ll have a portion of your investment maturing each year. If rates increase, you’ll be able to reinvest at the higher rate with the bonds that have matured. If rates decline, you still have the higher rates from today secured for the portion of your overall investment that has not yet matured.

Dollar cost averaging helps smooth volatility when attempting to invest or distribute money.

Generally, you will contribute a set amount according to a predetermined schedule. The result is that your fixed amount buys fewer shares when prices are high and more shares when prices are low. Over time, your price to own the investment, known as cost basis, should be closer to the average over the investment period. 

Undoubtedly, inflation is the prevailing issue currently impacting the economy and financial markets. However, many factors including demographics, government policies and global trade influence the direction of both. The equity markets are considered a leading economic indicator and the relationship between short-term and opens in a new windowlong-term bond yields are seen as a barometer of economic health: both suggest recession is on the horizon, or perhaps is already here. The potential for another dramatic economic shift provides an opportunity to review and reassess short and long term investment and financial planning goals. There are a number of resources available to conduct these analyses. However, issues like managing retirement distributions can be daunting, and when combined with related considerations such as health care, taxes and social security, the process may be overwhelming.

And this is where a trusted financial planner can be of great benefit – they can help you assimilate your financial information and decision-making into an organized and thoughtful strategy and keep your plan on track with periodic reviews.

Community relationship bankers are adept at developing business for their banks. They have substantial local networks of business owners. They also have an interest in their business clients’ growth. As such, they are an excellent and willing source of referrals for their business clients. 

The writer is Director of Wealth Services and an Executive Vice President at Burke & Herbert Bank.