Navigating Market Volatility
March 7, 2025 | Sage Capone
Maintain a Customized Financial Plan
As American investor Joel Greenblatt says, “the best strategy is the one you can stick to in good and bad times.” Market volatility and political uncertainty may test your patience and your financial plan.
Depending on if you’re retired or plan to retire in the next 5 years, it is important to analyze how your investment plan, income plan and tax plan are efficiently coordinated for your peace of mind.
Starting with the investment plan, meeting with your Hawaii Financial Advisor will help to provide you clarity in knowing that you and your family are still on track with a customized financial plan.
The asset allocation that fits your risk profile and time horizon should be stress-tested to ensure that you will be okay regardless of the economic environment and market volatility.
The long-term outlook for the stock market remains favorable, but as I said in my previous post, “The President’s First Year,” drawdowns and declines are normal, but the odds of positive returns will improve as your time horizon increases over time during the four year presidential term.
It is always important to take a step back and ask yourself and your Honolulu Financial Advisor if the investment plan you have set up, based on when you plan to retire, is still on track. Investing is hardly a smooth ride, but we invest in public markets for the long-term return and price appreciation.
Keep in mind that work is an option and not an obligation as you get Retirement Ready. Annual returns for you and your family can be achieved with stocks, bonds, real estate, and/or alternative investments.
It is vital to understand the most important questions you may have for you and your family, such as:
- When can I retire?
- Does my plan align with my risk profile and is it stress-tested?
- Will my family be okay?
The main reason we place our hard-earned capital at risk in the stock market is to retire earlier and enjoy the lifestyle you desire. Money is a way for us to be free from financial burden and to spend our time the way we want. Inflation can have a big impact, and we need to plan for it before we retire.
Inflation can erode the purchasing power of dollars in the future, therefore, we need to plan if $5,000 (in today’s dollars) at 3% inflation will be worth $12,135 in 30 years. The reason you invest is to outpace inflation and safeguard yourself from the risk of increased costs in retirement.
Now that we understand that proper planning is very important to have a strategy and financial plan that coordinates your investment plan with your income plan and your tax plan. Let’s review the most common asset classes that you can have in your investment portfolio.
When you talk about investing, you need to understand what an asset class is. There are five main asset classes that you can choose from.
- Cash
- Fixed Income (Bonds)
- Equities (Stocks)
- Real Estate (REITs)
- Commodities
Before choosing the mix of asset classes that could fit your needs, let’s look at some data on the asset class returns. While assessing risk and return, I suggest you use history as your guide to make a thoughtful decision.
A professor of Finance at the Stern School of Business, Aswath Damodaran, produces widely used academic content on valuation, corporate finance and investment management.
One of my favorite spreadsheets Professor Aswath creates is an excel sheet that tracks annual returns on major financial asset classes. The data has arithmetic and geometric annual returns.
As a reminder, arithmetic is the simple average over a specified period and geometric is the compounded average over the same period.
The main asset classes Professor Aswath provides data on are large cap stocks, small cap stocks, US treasury bonds, US treasury bills, corporate bonds, real estate and gold.
Narrowing in on the two best performing asset classes since 1928, (in terms of annual returns), are the large cap stocks and small cap stocks. See chart below:
Source: Aswath Damodaran
Today, you need to make an important decision on how you will allocate to the different asset classes based on stocks, bonds, and treasury bills over time as your financial priorities change.
Remember, important factors like age, capital, net worth and time frame are vital when creating an investment philosophy and investment policy statement for your family’s investment plan.
When meeting with your Hawaii Financial Advisor, you will create a plan that achieves all your short-term, medium, and long-term goals.
The comprehensive, personal financial planning process is designed to provide a sensible financial plan for your future in a holistic way.
As a Hawaii Financial Advisor, I wake up every day before the market opens to read market data, articles and news that pertains to my client’s accounts and custom portfolios.
Answer those nagging questions:
- Do you know if your investments match your risk tolerance?
- Is your portfolio asset allocation risky or conservative?
- Are your investments aligned with your goals?
As always, please do not hesitate to contact Sage Financial Investments for a Free Strategy Review or Second Opinion, to discuss your portfolio, or to revisit your risk profile.
Registered Investment Advisor Representatives act as fiduciaries for all our investment management clients. We have an obligation to act in the best interests of our clients and to make full disclosure of any conflicts of interest, if any exist. Please refer to our firm brochure, the ADV 2A item 4, for additional information. Investment advisory services offered through Brookstone Capital Management, LLC (BCM), a registered investment advisor. Investments and/or investment strategies involve risk including the possible loss of principal. For a complete description of investment risks, fees and services, review the Brookstone Capital Management firm brochure (ADV Part 2A) which is available from your Investment Advisor Representative or by contacting Brookstone Capital Management