Welcome to the 12th edition of the Tech Financial Planning (TFP) Newsletter.

Unsurprisingly, one of the top questions I’ve been asked this year is “should we make changes to the plan?”

With most investors getting hammered, people want to know what they should do.

In this newsletter, we will break down when you should make changes to your plan and when you shouldn't.

TL;DR

2022 has been a tough year for investors, and people are wondering if they need to make changes
Your goals determine your plan, and your plan determines your portfolio
If your goals haven’t changed, then neither should your plan

Setting the stage

Needless to say, it’s been a tough year.

Especially after one of the greatest bull runs in history.

Since the Great Recession, it’s been a pretty great time to invest.

Which makes this year especially tough.

And for many younger investors (who either either weren’t working yet or didn’t have any money), this is the first serious headwinds they’ve faced in their investing career.

No one likes seeing their account values go down.

The financial media is no help either, constantly putting out doom and gloom headlines.

So it’s no shock that people are unsettled.

People want to know

“Are we on the right path?”
“Do we need to make any changes?”
“Should we be doing anything different?”

Do you need to make changes?

It depends.

The two great words of financial planning.

But it does, and here’s why.

Goals, Plan, Portfolio

The great Nick Murray writes,

“The only intelligent progression in the creation of a lifetime investment program is: first goals, then a plan, and only then a portfolio. The objective of your portfolio, therefore, will simply be to execute the plan in the time allotted.

Put simply, your goals determine your plan, and your plan determines your portfolio.

If we accept this as true (I do), the logical question is then when do we make changes?

We only make changes to your portfolio if your plans change.

And we only make changes to your plan if your goals change

So I’ll ask: did your goals change?

If yes, then lets make changes to your plan and your portfolio.
If not, then we aren’t going to make changes, but let’s review your plan.

Most times, Stay the course

In times like these, it’s natural for people to question the investment portfolio and wonder if they should do something different.

If you should go to cash, or buy more blue chips, or more dividend payers, or xyz fund.

We aren’t governed by an economic or market outlook.

We don’t believe in timing the market.

We believe that you don’t want to react and make big changes just because of the current environment.

For example, if your strategy doesn’t call for bonds, this isn’t the time to try and “cut your losses and go into something safer.”

On the other hand, if your strategy does call for bonds, this isn’t the time to sell them and go all in on stocks.

There may be times to make small tweaks to the strategy (especially if you are a more active investor), but it shouldn’t be a full-fledged change.

Some examples of when you might make changes

If we revisit the Goals, Plan, Portfolio framework from above, it follows that if your Goals change, so should your Plan and your Portfolio.

So what does this look like?

Perhaps some examples could help.

You want to buy a house in the next year

A house was always a part of the plan, but the timeline got accelerated.

Perhaps you’re having a kid, you’re running out of space in your current spot, or you’re “ready.”

In this case, we want to take some risk off the table.

We want to make sure that we have a plan for the down payment and that money is safe.

So perhaps we sell some stock, even in a down market.

We move to cash because we have a known time frame.

Sure, we might miss if the stock market takes off, but let's not get cute.

We want the money available for when we need it.

You quit your job to start your own company

First off, congrats!

That’s really exciting.

Some changes are probably in order.

Normally while you are working, your plan calls to regularly save and invest part of your paycheck.

Think brokerage account, 401k, ESPP, etc.

And normally in a down market, we wouldn’t want to take the foot off the gas.

If anything, we want to stay steady or gun it.

But starting a new business brings it’s own level of risk, and usually you are taking a pay cut for the immediate future.

So it might make sense to pause any contributions, at least for the time being.

You’re ready to retire

Or at least take a good chunk of time off.

Perhaps your company IPO’d or got acquired.

Or you did an incredible job of saving and investing.

Either way, you’re transitioning from accumulation to distribution.

Put simply, you need to start living off the portfolio in some capacity.

In this case, you would definitely make some changes.

Some ideas:

3-5 years worth of portfolio income needed in fixed income
Cash set aside for any major purchases in the next 3 years
Get a home equity line of credit in case you need any additional liquidity

For most younger investors, bonds shouldn’t have much of a place in your portfolio.

But they start to enter the picture as you get closer to needing the money.

For someone about to retire or take a long sabbatical, we would want to see 3-5 years worth of income in bonds and preferred stock.

So if you need $50,000 from the portfolio each year, we would want to put $150,000-$250,000 in fixed income.

Putting it all together

2022 has been a wild year for investors, and we have no idea when it will turn.

Your guess is as good as mine.

The only thing we do know is that at some point, it will.

That can feel really uncertain and overwhelming, and that’s ok.

But we don’t want to make any big changes unless our goals have changed.

If you’re feeling overwhelmed, talk to someone.

If you don’t have someone, give me a call.

I’m glad to listen.

Money is hard, but we don’t want to make any decisions that could crush our long term finances.

Remember.

Goals, then plan, then portfolio.

WHENEVER YOU'RE READY, THERE ARE 3 WAYS I CAN HELP YOU:

1. Want one on one help? Schedule a 25 minute “Are We A Fit?” meeting

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