1. Re-evaluate your portfolio holdings to be sure they are consistent with the following underlying principles of sound portfolio management:
2. Review and reassess your goals – Routines and habits are things we do every day without thinking. During this time of staying at home and social distancing, we have the opportunity to imagine life differently and think how our routines and habits have been serving us. If they have, reinstate them as soon as it is safe to do so. If not, take this opportunity to plan out what routines and habits will serve you better.
On our website, we have three tools to help you reimagine and reassess your goals. Download them, read the instructions and use these tools for yourself and to stimulate conversation with your family.
3. Review and reassess your risk tolerance – Your portfolio was built based on how you thought you would react when we experienced a sever market correction. Imagining and actually experiencing are two different things. Ask yourself if you are reacting as you imagined you would. If so, then your portfolio allocation is about right. If you are worrying much more than you thought you would, then you should adopt a more conservative allocation. On the other hand, if you are not worried at all and feeling very confident your portfolio will do well in the years ahead, then you should consider adopting a more aggressive allocation.
4. Review and reassess your need to draw funds from your portfolio – This is a good time to get a handle on your cash flow. Having a good idea where you are spending your money gives you the opportunity to project 6 to 12 months out and see what your needs will be. Then you can determine if you will need money from your investments.
If you need funds, sell just enough to meet your needs for the next 6 months. After three months, reassess. If you do have to raise cash, try to keep your portfolio in balance.
The Cares Act allows for some distributions from your IRA and/or 401K without penalty. This should be a last resort since you could do considerable damage to your long-term retirement plans to solve a short-term problem.
5. Review and assess the stability of other sources of income – Take a close look at all your sources of income and try to determine how reliable they will be if this crisis lasts for 1 month, 2 months, 3 months or longer. If you feel a significant source of income will go away, then take steps to build up a cash reserve and cut expenses.
Some mortgage lenders are offering an opportunity to defer your payments for 3 to 5 months. The CARES Act provides that lenders can’t charge you late fees and they must report your account as current to the credit bureaus . This may be a good way to cut expense but check with your lender before you take this option. You want to know if these missed payments will be added to the end of your loan or if your lender will expect some sort of balloon payment when the crisis ends.
6. Take advantage of tax-lost harvesting – This is a process of selling one asset at a loss and then buying another one. It allows you to claim the loss for tax purposes while still being invested in the market. You can get more details by reading my blog, “Coronavirus Tax Opportunity (4/3/2020)“.
Stay home, stay safe and use this time to set-up your personal finances for success when the crisis is over.
Thom Allison, CFP®
Allison Spielman Advisors