You are probably glued to the tube thinking, "Why didn't I see this coming?" while listening to the "experts" who say, "I saw it coming and said so seven weeks ago." It's probably the same guy that predicted the 10 percent market drop in March 2009, when the market bottomed out after the 2008 meltdown.
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So if you're having a hard time with the recent market correction, I have some advice for you: Talk to your adviser. Here are five things you should cover:
Discuss the difficult, complicated, and unpredictable equity market. There are no easy answers, and if anyone had all the answers, they'd keep their mouths shut and make money quietly. Anyone who claims to have the answers or a quick-fix solution probably has something to sell.
Discuss your individual situation. How has the latest market action affected your financial plan, both in the short term and the long term?
The television has conditioned us to pay attention to the "distraction of the moment." TV stations sell advertising. To sell air time for commercials, they need viewers—the more the better. The old saying "If it bleeds it leads" applies to the financial news market as well. They have to create the distraction of the day, every day.
If you have a good solid financial plan, tune out.
Review the actual probability of achieving the goals in your financial plan. Having a cash-flow based financial plan is so important—not the so-called "goals-based analysis" popularized by some large Wall Street financial institutions. You need to be able to measure the probability of success of your plan given inflows and outflows of cash over a period of time, which can only be determined by a true financial plan. If you are unable to have a discussion about this, get a new adviser.
Discuss your investing personality (and your adviser's). Is either of you buying, selling, holding, or even all of these at once? Is it the right thing to do or the wrong thing to do? That's the real question, right? The answer: yes, no, and maybe.
It depends on your personal situation and your financial plan. Unless your short-term cash flow situation has changed, you probably don't need to do anything. Don't ditch your plan over an emotional reaction—that's one reason why you have a plan in the first place.
Determine what asset management costs you. There is more than the explicit costs you pay for asset management. Taxes can take a big bite out of your returns, too. If you or your adviser are trading in this market, especially over the short term, you may be giving away 15 to 40 percent of your returns to the government in the form or short- or long-term capital gains tax.
David B. Armstrong, CFA, is a managing director and cofounder of Monument Wealth Management in Alexandria, Va., a full-service wealth management firm. Monument Wealth Management is backed by LPL Financial, the independent broker-dealer and Registered Investment Advisor. David has been named one of America's Top 100 Financial Advisors for two straight years by Registered Rep Magazine (2009 and 2010, based on assets under management) and has been interviewed by several national media sources over the past several years. Follow David and Monument Wealth Management on their blog Off The Wall, on Twitter at @MonumentWealth and @DavidBArmstrong, and on their Facebook page. Securities and financial planning offered through LPL Financial, Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for individual investors. To determine which investment is appropriate, consult your financial advisor prior to investing. All performance references are historical and do not guarantee future results. Asset allocation does not ensure a profit or protect against a loss.