1. When you’re tackling a big goal
“For most people, retirement is the primary goal. But it’s certainly not the only one,” said Tony Giordano, a financial planner with Vanguard Personal Advisor Services®. “Buying a home, getting financially ready to support a family, and saving for college are other prominent goals.”
An advisor can help you decide on a comprehensive approach that improves your ability to reach your goal. That approach can include spending evaluations, savings targets, and investment strategy.
“An important part of the investment process is determining your asset allocation and your time horizon. Simply put, it’s the percentage mix of stocks and bonds that’s appropriate for the length of time you have until you need to use the money you’ve invested,” he said.
Making sure that portfolio suits your risk tolerance level is a key focus during its construction, Tony noted.
“We run a stress test for different market scenarios to see how you would fare if the market goes down, if inflation spikes, or if interest rates remain low for several years,” he said. “For example, if even the thought of a steep market decline makes you lose sleep at night or contemplate selling, then a more aggressive asset mix might not be right for you.”
The stress test is just one of the analysis tools used to determine your asset allocation. “We also run a sensitivity analysis to help ensure you’re able to meet your spending needs throughout your lifetime even if they exceed estimates. An unexpected illness could be a culprit here,” he said.
“We can also model a more conservative asset allocation to determine if taking less risk in the market allows you to achieve the return you need,” he said. “The analysis results help us, as advisors, ensure your financial plan is appropriate to meet your goals.”
Tony noted that the long-term plan an advisor builds with you includes the probability that there will be times when market volatility and even downturns are extreme.
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“If you’ve had an income boost, perhaps from a promotion, a business sale, or an inheritance, you may be able to accelerate progress on a goal,” he said. “And if you’ve lost a job or had a business setback, it may be necessary to slow down or even suspend your savings.”
2. When your financial circumstances have changed
An advisor is able to look at your complete financial picture with an impartial eye. “That distance allows me to suggest steps for you to consider that you may not have known were available—or that might even be uncomfortable in the short term—to work toward your long-term financial goal,” he said.
It’s one of the biggest steps you’ll take from a financial and lifestyle perspective. So working with an expert to ensure you’ve got a solid plan to carry you through after you achieve that goal is wise.
3. When you’re getting ready to retire
“People often work so hard to get to retirement that they find themselves overwhelmed once they’ve done it,” Tony said.
“Developing a big-picture view of your expected spending and how much income you need to sustain it over your lifetime is crucial,” he said. “Especially with life spans getting longer, you want to be confident that your expected returns can sustain your spending needs for as long as necessary.”
Advisors can help you get perspective and find that balance, and not just for your portfolio risk. They can also recommend ways to balance spending to maintain your lifestyle with how much income you have and its sources, such as investment income, Social Security benefits, savings, and perhaps even part-time or contract work.
Does your appetite for risk decrease dramatically when the financial markets do?
4. When markets turn downward
“It’s so common for clients to want to change their allocations when they see their account balances go down along with the market,” Tony said. “I always bring my clients back to their investing goals and their financial situations. Have their goals changed? Have their spending needs changed? If the answer is no, then it’s likely the answer to changing their asset allocation is no as well. It’s really about the return you need to meet your goals, not the return you want.”
“Markets are cyclical, in that what goes down goes up, although the long-term trend has been markets moving higher over time,” he said. “But they’re also unpredictable, which is why your investment time horizon is a key consideration, regardless of what’s happening in the economy or the global environment.”
Tony recalled a point Don Bennyhoff, a colleague in Vanguard Investment Strategy Group, often says: “‘The only headlines that matter are yours.’ Your headlines should always be what drive your investment strategy, not what’s at the top of your news feed,” he said.
All investing is subject to risk, including the possible loss of the money you invest.
Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.
There is no guarantee that any particular asset allocation or mix of funds will meet your investment objectives or provide you with a given level of income.
Advisory services are provided by Vanguard Advisers, Inc. (VAI), a registered investment advisor.