&l;p&g;There are two vastly different groups of people in the retirement world: those who have a thorough plan and those who do not. The first group of investors has a well-thought-out strategy defined in writing &a;mdash; a written financial plan. The second group of investors might think they have a strategy but ultimately don&a;rsquo;t, since they lack a written plan.
&l;img class=&q;size-full wp-image-152&q; src=&q;http://blogs-images.forbes.com/impactpartners/files/2018/02/GettyImages-902863748.jpg?width=960&q; alt=&q;&q; data-height=&q;452&q; data-width=&q;772&q;&g; The people who were making money in an up market without a written financial plan will likely be revealed during times of downturns in the stock market.
Legendary investor Warren Buffett once said about investing in a bull market, &a;ldquo;You only find out who is swimming naked when the tide goes out.&a;rdquo; He meant that many investors make money in a bull market when most stocks are increasing in value. During these times, everyone seems to have a hot stock tip. Even your brother-in-law appears to know what he&a;rsquo;s talking about. Some people seem to have short memories and have forgotten about the large losses that we saw from 2000-2002 and in 2008 in the stock market.
It can be quite different in a bear market. The people who were making money in an up market without a written financial plan will likely be revealed during downturns in the stock market. This is when your brother-in-law and the other so-called stock gurus go silent.
It&a;rsquo;s sometimes said that the markets take the stairs up and the elevator down. Years of stock market gains can be wiped out in a relatively short period of time, especially without the proper strategy and a written financial plan. Investors seem to be caught by surprise with sudden market drops, though we&a;rsquo;ve seen these drops throughout the history of the markets, dating all the way back to the 1920s.
Something relatively new is known as a &a;ldquo;flash crash,&a;rdquo; an extremely rapid drop in stock prices usually caused by automated trading. Many different stop-losses and sell orders from these computerized models can be triggered at the same time. Momentum can be a very nice thing in an up market but not so nice in a down market.
In today&a;rsquo;s economy, there are many different factors in play. New technologies and advancements on a weekly basis continually change things. Events from the other side of the globe, which in the past had little or no impact, now affect the markets. News events from anywhere in the world are broadcast almost immediately, which can cause a whipsaw effect on the stock market. There are times when the stock market is up by hundreds of points in the morning but closes down by hundreds of points in the afternoon. We have never seen such volatility in the history of the markets.
Nobody knows when the next major stock market decline will be. Based on history and recent events, it can come without notice and be very dramatic. News and the outlook can seem very positive, until it&a;rsquo;s not.
If you own a business and want to obtain a loan from a bank, you know that you need a written business plan for this process. What if you tried to apply for the loan without a specific written plan? Your business wouldn&a;rsquo;t even be considered, because the bankers know that your chance of success is greatly reduced without a defined plan. Think about if you boarded an airplane, but the flight crew didn&a;rsquo;t have a flight plan or final destination, or if you attempted to have a house built without a blueprint.
It is very much the same when it comes to your money and finances. Investors who have a clearly defined, written financial plan have a greater chance of long-term success compared to those who do not have one. Forget about those confusing 15- or 20-page plans that are rarely executed and often not worth the paper they are printed on. A simple plan that is executed is much better than a complex plan that you do not take action on.
Your monthly or quarterly brokerage account statement is not a financial plan. This is simply a list of your stock investments and how much they have changed in value since the last statement. Having a general idea in mind of your goals is also not a real financial plan.
Working with a financial advisor can help you develop a plan based on your life goals and the things that are important to you. Start with your vision of the future. What are some of the things you&a;rsquo;d like to accomplish? Where would you like to travel? Whom would you like to help? Start with the end in mind and work backward on how to accomplish these goals.
A financial advisor can also factor in important items that you might not otherwise think about, like future inflation, rising medical care prices, and potential long-term care costs. They can show you ways to add future income sources in addition to your Social Security or pension. Think about what it could mean to your retirement if you had one or two additional places that you could draw income from while still growing your investment portfolio.
Also, consider how having some of your money shielded from future market downturns could benefit you. A financial advisor can assist you with developing a defined strategy. There are some advanced strategies and financial products that you might not be aware of that an advisor can help build into your plan.
Many of us have benefited from this record nine-year bull-market cycle in the stock market. How are you currently swimming? The time to help ensure you&a;rsquo;re not swimming naked (as Warren Buffett said) is to prepare before the next major market event. Swim carefully!
&l;em&g;Investment Advisory Services offered through Retirement Wealth Advisors (RWA), a Registered Investment Advisor.&a;nbsp;Riedmiller Wealth&a;nbsp;Management&a;nbsp;and RWA are not affiliated. Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Opinions expressed are subject to change without notice and not intended as investment advice or to predict future performance. Past performance does not guarantee future results. Consult your financial professional before making any investment decision. DT&l;/em&g;&l;em&g;475083-0419&l;/em&g;&l;/p&g;