Can you have financial success in a down market?  I believe so.  It’s easy to be pessimistic when markets are down, this can look smarter than being optimistic about future.  I’m a realist and believe ongoing planning and strategy makes optimism possible.  Here’s my rationale regardless of economic conditions.

Each investor should define what financial success means to them.  Is it based on income, stock grants, lifestyle, charitable giving, or time?  There are no correct answers here, it may be a combination of the above.  I don’t believe a financial planner’s responsibility is to define what financial success means to an investor.  Instead, a planner should ask questions and remain curious, aiding an investor in discovering their own definition.  Taking an educational approach in communicating what matters and doesn’t helps manage expectations.  This allows investors to adjust mid-year, or mid-life, and supports less regret and more happiness.  Account values shouldn’t define success.

Updating a financial plan helps quantify what enough means.  Without a plan, success maybe defined as more money/income/stuff.  This is short term focused and outcome driven, difficult in times like today.  Investors who look beyond current returns may focus on sustainability and inputs under their control.

Writing down and reviewing priorities periodically is a necessary input.  Wealth is important, but so is health, relationships, and family.  Each of these should be considered, beyond the portfolio.  Financial success tends to arrive along with other benefits over time.  This includes the ability to control your time and where you choose to be.

Cash flow is relevant regardless of what stage of life you are in.  Starting a family, sending kids to college, empty nesters continuing to work, and those retiring who have another three decades of living in front of them.  Controlling your cash flow is better than being controlled by it.

Investors may remove stress by automating more decisions.  Financial planning is supported by supplying each account with a purpose.  Cash flow may be directed to various accounts based on an investor’s priorities.  Having cash reserves set aside in advance allows for life to play out and for an investor to feel less reactive with their decisions.

Monitoring cash reserves before investing, and when invested is important.  Is cash keeping pace with current demands?  It’s ok if the answer is no, it provides an opportunity for an investor to make changes and progress towards what’s important.  Proper cash reserves in a down market allows one to stick with their plan.

We believe in continuing to buy companies regardless of emotions. This doesn’t seem natural as values sink, yet it’s where wealth is created overtime.  Purchasing companies at lower prices leaves more room for future growth in the years and decades to come.  It’s counter intuitive to believe wealth is created in markets like today, but it is.  Ongoing purchases into a portfolio of companies with depressed prices is the key to building wealth.  It’s not the next 500-point contraction that should be worrisome, it’s missing the next 1,000-point expansion by not reflecting on your plan and owning diverse companies.

All companies, regardless of sector, geography, or size, could be beneficial to investors.  Owning companies over longer periods of time may offer an investor the ability to increase their spending, contingent on the company increasing in value.  How?  Companies may increase both in value and by paying dividends.  Selling these companies when income is necessary allows spending to keep pace with rising costs.  Granted, now may not be an ideal time to sell for those who are retired and need income.  A financial plan allows retirees to have ample cash reserves set up well before they repurpose their time.  Cash reserves for near term spending allow companies to contract and expand to hedge long term costs.

If you are looking for a sounding board or second opinion on how to define financial success, reach out below and schedule an introductory chat.  If you’d like to read more on this topic, check out our previous posts below.

Chasing returns

Short term planning

Building (and sustaining) wealth

These are the opinions of Flowerstone Financial and not necessarily those of Cambridge Investment Research, are for informational purposes only,
and should not be construed or acted upon as individualized investment advice.

Diversification and asset allocation strategies do not assure profit or protect against loss.

Past performance is no guarantee of future results. Investing involves risk.
Depending on the types of investments, there may be varying degrees of risk.

Investors should be prepared to bear loss, including total loss of principal.

Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Flowerstone Financial are not affiliated.

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