When It Comes to Your Finances, Start Living Intentionally in an Unpredictable World (July 2022)
Discover How to Confront Your Financial Fears and Replace It with Peace of Mind
For this reason, I say to you, do not be worried about your life, as to what you will eat or what you will drink; nor for your body, as to what you will put on. Is not life more than food, and the body more than clothing? Look at the birds of the air, that they do not sow, nor reap nor gather into barns, and yet your heavenly Father feeds them. Are you not worth much more than they?
It’s natural to feel nervous about the future of your finances when the market is going through a period of volatility. Interest rate changes, stock price fluctuations, inflation, and other economic factors can all lead to feelings of uncertainty.
What’s important to remember, though, is that the movement of the market does not always affect you. Over time, many fluctuations will stabilize. If you’re making smart choices and diversifying your investments, market challenges do not have to pose a significant threat to your finances.
How you should respond to market volatility ultimately depends on your risk tolerance and timeline. Let’s look at some specific factors to consider and break down some financial planning strategies that make sense in a few different situations.
What Are Your Financial Goals?
It’s impossible to make any real progress without a goal in mind. This is as true of your finances as anything else in life. You need a clear picture of why you are saving this money and what purpose the funds will be applied toward. Are you setting aside an emergency fund? Saving for retirement? Setting up college funds for a child’s education? Preparing a foundation to pass along generational wealth?
Every financial goal should have a dollar amount and a timeline attached to it. How much money do you need to have saved? When will you need access to that money?
For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Luke 14:28
Once you have those two pieces of information, you are in a good position to make investment decisions that will leave you in the right place when volatility comes.
How Soon Will You Need Your Money?
The timeline of your financial goals will guide the nature of your investments.
0-2 Years: If you’re setting up an emergency fund or saving toward a smaller purchase you plan to make within the next year or two, your priority is preservation and liquidity. This is not a time to take any risks with your investment. Opt for a high-interest savings account, a certificate of deposit (CD), or a low-risk investment like a money market fund or short-term bond.
3-5 Years: Goals with this timeline might include saving for a down payment on a home or a child’s education fund. The goal is moderate growth, which involves slightly more risk. A diversified portfolio with less than 60% stock and the rest in low-risk options will usually provide the best balance of growth and security.
6+ Years: Longer-term savings such as retirement funds can afford to be a bit more aggressive. Aiming for high growth over a longer period means being able to weather the storm of short-term market volatility. A balanced portfolio with 60% or more in stock is poised to grow best in the long term without risking too much of your principal.
Long Term: An “infinity” portfolio for multigenerational wealth accumulation can afford to be much more aggressive. This is money that will go beyond you and your children and help to serve future generations of your family or contribute toward a charitable legacy. Because liquidity is not an issue with this type of fund, you can afford to be more aggressive. Up to 80% stock is appropriate here. Research suggests that an 80% stock portfolio has nearly the same return as placing 100% in stocks but experiences significantly less risk and volatility.
Regardless of the timeline, a diversified portfolio is an essential part of financial planning. Even the most aggressive investments should follow the principles of diversification by spreading investment dollars across multiple stocks and avoiding speculative investments. Your financial planner can help you create a portfolio that best balances risk and growth to serve your long-term goals.
Different Goals, Different Strategies
When approaching money management, it’s best to think in terms of individual buckets or silos that hold funds for different purposes. You likely have a variety of financial goals, and each of those goals has its own timeline. Maybe you’re saving for a big vacation next year or a vacation home within five years. Perhaps you’re planning a large gift of appreciated securities to a charity in the future and need to grow it first. Segmenting your money allows you to be more intentional about your investments and plan more wisely.
Keep your funds separated and maintain multiple risk portfolios to maximize returns on specific investments while minimizing risk to your overall wealth and future goals.
Eliminate Anxiety with a Long-Term Perspective
Market volatility in the day-to-day has little effect on most long-term investments. A properly diversified portfolio will weather most storms and grow over time regardless of more minor ups and downs. Remember, Satan is the author of fear and anxiety. We can live in victory, regardless of our financial environment, while prayerfully taking steps to be the best stewards of God’s finances (He owns it all!) When you keep a sense of perspective about your goals, you can be confident about the financial planning decisions you make today regardless of market challenges. Keep in mind, you are built in the image of a patient and purposeful Father. I encourage you to recognize Satan’s lies and pray for God’s peace, patience, and wisdom when financial stress is present. Live victoriously and rest in whose you are!
For God has not given us a spirit of fear, but of power and of love and of a sound mind.
2 Timothy 1:7
John Moore Associates is not affiliated with Family Life Radio
Any opinions are those of the author and not necessarily those of John Moore Associates or Family Life Radio