“A man cannot be comfortable without his own approval.” ~ Mark Twain
Question: I’m reviewing my finances for 2020 and not sure what to focus on as we approach 2021. My tendency is to stick with what I know, which may not always be the best course of action.
Answer: Considering the pandemic and how the economy is expected to respond makes this an ideal time to evaluate the year thus far, and contemplate what 2021 may bring. In essence, you’ll perform an audit of 2020 and outline expectations and map potential adjustments for next year while keeping in mind the special circumstances of 2020. Depending on the path of the coronavirus and the vaccine, it may help to remain flexible and able to make adjustments whether health care conditions persist, worsen, or improve.
Now is a good time to review cash flow needs and sources of funds. That’s a nice way of saying… make a budget. There are sophisticated goal planning and monitoring software programs that allow us to run literally thousands of scenarios while stress testing them based on your input and our data. Often times, clients find peace of mind after going through this exercise. If there are improvements to be made, we suggest solutions and modifications to potentially increase the probabilities for success in achieving your goals. Life expectancy, economic projections, and inflation are entered and can easily be adjusted with your guidance.
After this year’s market run-up, the use of our planning software can help you examine current portfolio positioning to see if allocations and aspirations are in alignment. We’ll also suggest allotting funds for emergencies or opportunities. During the pandemic, some business owners tapped into emergency funds while others used cash reserves to fund new and innovative business opportunities, or to assist friends and family.
As humans, we tend to be creatures of habit. Sticking with what we know is called familiarity bias. Whether it’s ordering the same meal every time you visit your favorite restaurant or filling your grocery cart with the same items each week, it can be tricky to know if it’s out of habit, or if we’re truly making optimal choices. Brand loyalty can feel safe. The same behavior is found in the financial world with investment selection and planning techniques. If you’re familiar with one sector or industry, or a particular legacy planning approach, you’re likely to gravitate towards the tried and true.
It’s not surprising for doctors to be over-weighted in health care stocks, or to see retirees hold a large percentage of their portfolio in a company they’ve worked for in the past. Others may own disproportionate amounts in large, household known company names. If investors make choices based exclusively on familiarity biases, other characteristics might be overlooked when determining the best fit for a portfolio. Just as we should avoid overestimating what’s familiar, we shouldn’t necessarily underestimate familiarity either. Being mindful of where we allocate our consumer dollars can be a helpful tool in spotting trends and opportunities.
Gathering objective research and opinions from several resources may be helpful. Exploring strategies you’re not familiar with could be easier with the help of a Certified Financial Planner Professional. Our state-of-the-art financial planning software tool is one example of how we design and create custom plans to monitor your progress with the capability to make adjustments based on changes in your life or with world events.
Financial planning isn’t limited to investments and cash management; it also includes health care coverage assessment. If you’re enrolled in a Health Savings Account (HSA) as a part of an eligible high-deductible health plan, you may be able to invest contributions. This is also the time to evaluate current coverage, including that for prescription drugs. Go into the exercise knowing what you’d like from your coverage. The December 7, 2020, Medicare deadline has come and gone, but for those with other types of coverage, it’s suggested that policy evaluation be performed on a regular basis. Of course, there are always trade-offs between cost, coverage and flexibility.
Because we’re always faced with uncertainty, a year-end check-in is always valuable when focusing on how to efficiently preserve and grow your wealth. It’s not surprising to know that many people feel exhausted after this drawn-out year. You may have been affected by or have ongoing concerns regarding the coronavirus pandemic, and faced unstable financial situations. As we often tell our grandkids—self-worth and net-worth are two separate entities. Stay focused and plan accordingly.
The projections of other information generated by financial planning software regarding the likelihood of various investment outcomes is hypothetical, does not reflect actual investment results and does not guarantee future results. Results may vary with each use and over time. Raymond James does not provide tax or legal services. The opinions expressed are those of the writer as of December 2, 2020, but not necessarily those of Raymond James and Associates, and subject to change at any time. All information provided herein is for informational purposes only and is not intended to be, and should not be interpreted as, an offer, solicitation, or recommendation to buy or sell or otherwise invest in any of the securities/sectors/countries that may be mentioned. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. “Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, CFP® (with plaque design) and CFP® (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.” This article was provided by Darcie Guerin, CFP®, First Vice President, Investments & Branch Manager of Raymond James & Associates, Inc. Member New York Stock Exchange/SIPC 606 Bald Eagle Dr. Suite 401, Marco Island, FL 34145. She may be reached at 239–389-1041, email firstname.lastname@example.org. Website: www.raymondjames.com/Darcie.