Key Points of a Divorce that Everyone should know

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It is our goal to provide each client with education and empower them to integrate finances into their lives so that they can support their wishes now and for the future. We should all know the financial impact behind our decisions before making our choices. Couples can find that finances along with shared future goals can empower and strengthen their relationship but at times, future goals are no longer aligned, and couples choose to go their separate ways.

A divorce is a legal process to address the separation of two lives in an orderly and legal manner and allow each adult to move forward in their new lives. In California, it doesn’t matter if this is a traditional marriage or a domestic partnership nor does it matter if it is with same or opposite sex partners.

Over the years I’ve attended many divorce financial planning events and, last weekend one that was particularly good, so I thought I’d share what these professionals said about the next most important step after deciding to divorce.1

My goal below is to educate everyone and is not intended only for those considering a divorce.

What needs to happen to obtain a divorce?

A divorce is granted either by an agreement generated by a judge or one generated by negotiation— or usually both. A divorce judgment is a legal document that declares that the marriage (or domestic partnership) is dissolved and typically includes an agreement on income, debt, assets, and parenting responsibilities. To receive a divorce judgment requires that a petition be filed, a declaration of disclosure, and then wait 6 months plus a day. [Keep in mind that the professionals, at this event1, were all talking about California which is a “no-fault state.” In California it doesn’t matter who serves the divorce petition but in other states the process can be significantly different.]

In the divorce process there is a great deal of paperwork particularly around finances and parenting that is easier to assemble if you have a non-adversarial approach. For finances there is a requirement to file Declarations of Disclosure (initial & final) which includes income & expenses, assets & liabilities (emphasis on all assets), and income tax returns.

How can you go about obtaining a divorce?

  • DIY – Do It Yourself divorce. This process has the fewest fees and couples retain most of the control, but it does require agreement on the process and terms. Together you must cover the legal, financial, and emotional conversations in a respectful and non-threatening manner.
    We recommend that, at minimum, you have an attorney review your agreement before submitting it to the court. The costs will be limited to a filing fee and payment for the attorney and any other professional(s).
  • Traditional divorce, where the decision is ultimately made by a judge, takes control out of your hands. Instead, the judge will apply the law to determine your rights, responsibilities, and entitlements in what is an adversarial platform. This process is the most familiar, most expensive, and often most aggravating. The courts are swamped with cases, so this approach takes the longest to complete. The judge, moreover, doesn’t know you and will, nevertheless, pass judgments that will be binding. The law defines your rights, and the court can compel a party to adhere to the terms regardless of fairness.
  • Mediation is the polar opposite of the traditional divorce. It is a facilitated process to help the divorcing individuals come to an agreement using neutral professionals. In this process it is important to hire a mediator who knows family law and is not adversarial in nature. This private and voluntary process will require conversations and thinking outside the box so as to deliver an outcome that is acceptable to both. The intent is for an agreement that will last, take shorter time and be less expensive than traditional divorce, BUT equally binding. We find this process requires compromise and a willingness to reach a settlement. The challenges for this type of divorce are that each person MUST be able to remain civil and even friendly during mediation since both will need to compromise. This process is, therefore, not appropriate when there is a coercive, substance abusing or violent relationship. Unlike the traditional process you can’t force anyone to keep to their process or make decisions but once an agreement is signed and approved by the court then it is enforceable.
  • Collaborative process. Collaborative divorce is similar to mediation but is structured so that decisions are made together with a team of legal, financial, and mental health professionals on both sides that follow the same ‘collaborative’ approach. The goal of this process goes beyond the agreement and is particularly important for those who have children or will need to interact with each other for a period of time after the divorce (such as for co-parenting tasks that can last the life of the children). The process often results in private confidential and controlled agreements, but it can be very expensive since all the professionals concerned must be experienced and trained in the collaborative process, which is not the usual adversarial legal system. Although it can be the most expensive, the process may yield a more workable outcome. Like mediation, a collaborative divorce doesn’t work for anyone experiencing violence, coercion, or substance abuse.

Divorce is a dramatic change and is often accompanied by conflicting emotions of grief, anger, fear, and anxiety. It is therefore very difficult to make complex decisions during these emotionally intense periods. We have to acknowledge that humans are wired to perceive and respond to danger/fear with an automatic survival response which is the opposite of calm thoughtful thinking. The goal is to generate a calm and thoughtful environment. It is, therefore, particularly important to ensure that the behaviors, words, and actions be those you would find acceptable in the long-term, particularly in front of children. If children are involved, you must also follow Standard Family Law Restraining Orders.

What is AIKAPA’s Role?

We are not divorce professionals. Our role is to provide each of our clients with support regarding their finances by generating needed documents and answering specific questions. For some, this can be done by giving us permission to discuss your finances with your divorce professionals and for others it is done by answering questions posed by each client in individual or in joint conversations. When requested, we also create new financial plans for each client so that they can visualize their finances in the future. In Domestic Partnership dissolution we must also consider federal and state rules that will allow for the same outcome as is experienced for those in traditional marriages.

As a fiduciary, AIKAPA, must respond to both parties openly and completely.

We will not execute financial transactions without approval from both clients once we are aware that you’ve decided to divorce. We work to provide the necessary supporting financial materials in a balanced, sensitive, and factual manner.

Since we understand that a financial agreement in a divorce is a very personal and emotional document, we do not participate in creating the agreement with our clients. We encourage our clients to work together and ask us questions or hire individual divorce professionals to ensure that your agreement represents your wishes today and in the future.

Once there is a joint agreement and a court divorce judgment, we are tasked to ensure that the family portfolio assets are split as indicated in the agreement/court decision.

AIKAPA is here to support the family in each financial decision, but the choices and preferred actions rest with the family.

1Much of the content for this article was from a presentation by Collaborative Practices California – Collaborative Divorce North Bay. If you request it, we can share notes with you or you can join one of their Saturday morning webinars on this topic.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Silicon Valley Bank (SVB) failure and the FDIC

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As many of you are aware, the FDIC placed a California bank (SVB) under receivership. The FDIC took this action to protect depositors in the face of unsustainable withdrawals (a “run on the bank”). SVB is a regional bank best known for supporting new venture businesses (in technology and biotechnology) and with assets worldwide. An additional small regional bank located in New York (Signature Bank or SBNY) was also placed into FDIC receivership just two days later.

What happened? SVB sold assets (long term bonds) at a significant loss just to cover deposit outflows which triggered more outflows.

What impact does an FDIC takeover have on your deposited money? None, if the account is FDIC insured and the balance is under $250K, though there may be a delay to access this cash. This is why we recommend that you retain an emergency account in an FDIC savings account at a separate bank.

In this case, the Federal government also stepped in and guaranteed all deposits to ensure accounts were made whole. The timing was particularly important since mid-month liquidity was needed to make business payroll and loan payments. Except in the Venture Capital space, SVB and SBNY are not household names, so why was prompt action required? The concern was that fear would spread to other institutions even though most other financial institutions are well capitalized, highly liquid, diversified, and risk compliant. In fact, we did see contagion to banks like First Republic Bank (FRB—which, incidentally, is popular with several of our clients) which had to obtain additional liquidity from the Federal Reserve and JP Morgan. In our view this failure was isolated and is nothing like the 2008 bank crisis. It was a result of regulatory exemptions (approved by the US Senate which was extensively lobbied by the CEO of SVB) and poor Risk Management at SVB.

As a consequence, the regulatory environment will likely tighten for regional banks and the Federal government will expect a fixed Balance Sheet within a year. In the meantime, the Justice Department has already launched an inquiry into the collapse of SVB and the actions of its executives who sold bank shares just prior to the collapse.

What long-term and short-term impact will this collapse have on your portfolio? We do not expect any long-term negative effects. In the short-term, we are expecting more volatility and a delayed recovery for technology, financial services, and fixed income sectors. It is also worth noting that this crisis affords a long-term opportunity to buy into this downturn ahead of the recovery.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

SECURE Act 2.0

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The first “Setting Every Community Up for Retirement Enhancement” Act (SECURE Act) was passed December 2019 eliminating the ‘stretch IRA’ for non-spouse and changing the RMD (Required Minimum Distribution) age to 72. These were changes that impacted everyone across the board. With the Secure Act 2.0, congress appears to be reversing its prior leanings and instead allowing Roth conversions. The reversal towards ‘Rothification’ (encouraging ROTH savings/conversions) appears to be with the goal of increasing tax revenues today. It is fair to say that no single provision made by the SECURE Act 2.0 appears to have the same impact across so many as the elimination of the stretch, which now requires many inherited distributions to complete within 10 years, rather than spreading distributions over the entire beneficiary’s lifetime. Even so, 2.0 has so many more detailed provisions that it will impact most in some way. It is already evident that implementation will take more effort than the first SECURE Act.

Some of the new provisions included in SECURE Act 2.0 will be implemented over the next two years and require preparation in 2023. We will explore the provisions that may be relevant to your specific situation during our meetings this year. Let us know if you have any questions.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Fed Action and Your Portfolio

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The last Jackson Hole meeting was hugely anticipated, and Federal Reserve Chairman Jerome Powell reiterated that he would stay true to the current approach to tame inflation. The market reacted with a sharp sell off. Why? Because some were expecting the Fed to return to a loose monetary policy at the slightest economic weakening. January 4th, we heard from the Feds that any pivot prediction is misguided.

It is important to recognize that there are more important factors that drive stock prices than Fed policy – corporate earnings and greed actually impact prices far more!

While I agree that the Fed policy can and does impact economic activity, it is company earnings, economic growth, geopolitics, sentiment, innovation, and global economic trends that will certainly play a bigger role in our economic future and support higher lasting market valuations.

It appears that the media and market participants are fixating on every Fed utterance. Do not follow their lead. We are expecting a cool market over the next months, but inflation appears to be responding. If we stay the course and not return to easy money, we may recover without stagflation and the economic downturn associated with it.

Edi Alvarez, CFP®
BS, BEd, MS

www.aikapa.com

Stress Testing Your Retirement Plan for Social Security

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Social Security is a unique guaranteed source of income in retirement and one of the essential components in everyone’s retirement plan. Findings from the Annual Social Security Trustees Report for 2022 shows that at the current rate, existing reserves will be depleted in 2034. It is also estimated that on depletion, continuing social security tax income will provide for 77% of guaranteed benefits.

Social Security is inflation adjusted (COL). The 2022 COL was 5.9% and increased to 8.7% for 2023. This increase will certainly accelerate the level of depletion. We don’t yet know if the trust reserve will be amended to last beyond 2034 so we need to consider how to stress test your retirement plan for this potential risk. How might we prevent depletion of the trust?

  1. Raise social security retirement age again?
    This is least likely since the benefits take a long period of time to be effective and the impact is highest on those with least savings. Can you imagine the reaction if the full retirement age was changed from age 67 to 70? This strategy would need to be implemented early enough to have an impact.
  2. Raise the income cap or eliminate it as we did with Medicare?
    This is more likely and, in a small way, is already taking place. For example, Social Security taxable earnings in 2022 were capped at $147K and increased 9% to $160K for 2023. This should provide additional assets for the Social Security benefit trust, BUT it will also reduce disposable income and impact economic growth.
  3. Follow an IRMAA-type of income/means testing of benefits?
    It has been suggested that Social Security benefits should be reduced like Medicare based on your retirement income (means tested). This appears to have traction since it is currently working for Medicare (which uses the IRMAA annual tables to increase Medicare premiums on those with higher retirement income).
  4. Target a % Reduction of Social Security benefit?
    This is possible and much easier. This approach will occur by default if congress doesn’t take some alternative accommodation before 2030. The estimates are that we are looking at a 21%-25% reduction in benefits.

    On a positive note, although the potential fixes outlined above are outside of our control, they nevertheless could push back the depletion date of this essential benefit or reduce the benefit reduction that will be required if the trust is depleted.

    Either way, we include social security stress testing once we have a functioning retirement plan and after we’ve considered all other risks (like long term care).

    Edi Alvarez, CFP®
    BS, BEd, MS

    www.aikapa.com

    SEC’s Office of Investor Education and Advocacy Alerts

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    The SEC made these recommendations to prevent fraud and avoid certain vulnerabilities. I agree and have added a comment when appropriate.

    1. Investors should not make any investment decisions relying solely on information from social media platforms and apps. Best to email us and research outside of the platforms/device.
    2. SEC states that celebrities and millionaires, and influencers are paid to make investment recommendations on social media and investors should not be swayed by these testimonials or celebrity endorsements. This applies even if they are not paid. It is surprising how many can be swayed when enough fame surrounds a topic.
    3. Find and verify the identity of the underlying source. Particular attention paid to slight variations in the email address, screen name, account name. Only contact a broker/advisor with a number listed on the SEC website or from the advisor ADV/agreement. If in doubt, contact us.
    4. Though a verified account (like Instagram, Twitter, LinkedIn) can help towards some authenticity. You are encouraged to verify all information outside of social media. These ‘verifications’ are not regulated.
    5. If you receive a message from an advisor recommending that you buy a specific investment, then first contact them directly (outside of social media) to ensure they were the source of that recommendation. Do not invest your hard-earned dollars based on an app or an online conversation.
    6. Be aware that there are many crypto scams that promise high investment returns with rapid increase and touted as having little to no risk. Any time you see little or no risk, STOP, this is likely fraud since crypto has real risks.
    7. Do not share your financial information or identity when in a new romance. Your SSN, DOB, passport, bank accounts are the keys to your financial life and electronic identity – protect them. If travelling be wary of a travel romance that accelerates quickly into financial involvement or marriage.
    8. Be cautious of postings from social media accounts that have minimal history or a history of reporting company stock prices. It is common to do ‘pump and dump’ strategies through social media (remember that I described ‘pump and dump’ mailing strategies a few years ago – these are just online versions of the old scams). These are most common with Penny Stocks since they are easily manipulated.

    Let us know if you encounter any financial product before you purchase them. Sometimes it is not a fraudulent product but one that is not ideal for your long-term goals.

    Edi Alvarez, CFP®
    BS, BEd, MS

    www.aikapa.com

    Perspective on Inflation, Recession, Stagflation, Deflation

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    To date, we’ve all seen price increases (inflation) and also shrinkflation (smaller content of a product for the same price) but so far no hyperinflation. As consumers and investors, we participate in this process but seldom acknowledge the interplay. For example, when we decide to spend freely at this point in the economic cycle, we are contributing to inflation but not spending at all can contribute towards deflation.

    To me, recessions are a natural cleansing mechanism for the economy. Over the course of economic expansions, companies become flush with excess. Meaning that their processes loosen, they hire too many people, they accumulate too much inventory. Recessions are a business cycle’s ‘diet plan’ for companies that need to shed excess but do so reluctantly – with negative growth. Recessions are never fun (the pain will certainly be felt more by those without adequate resources or with less certain employment), but historically they tend to be short-term interruptions between economic expansions. It is accepted that the greater long-term risk to the economy is not recession, but stagflation (slow growth, increased unemployment, and inflation) or even deflation (drop in demand for goods).

    Despite headlines to the contrary the ‘tightening’ of monetary policy by the Federal Reserve is essential to economic recovery, which means raising interest rates have to be tolerated to slow down inflation and hopefully without dramatic increase in unemployment.  With that, it is “quite likely” that the unemployment rate will rise “a fair bit” from  where it is now, at 3.6%. If it rises more than a ‘fair bit,’ we could see a period of stagflation.

    You’ll likely see headlines through the next months about the last time the US experienced stagflation. Briefly, in the 1970s the onset of stagflation was blamed on the US Federal Reserve’s unsustainable economic policy during the boom years of the late ‘50s and ‘60s. At the time, the Fed moved to keep unemployment low and to boost overall business demand. However, the unnaturally low unemployment during the decade triggered something called a wage-price spiral and hyperinflation. The impact of inflation on our economy will depend on the differential between the inflation rate and wage growth. This is what the Fed is trying to control as it maneuvers for a ‘soft landing’. The higher the unemployment, the greater potential for stagflation.

    Stagflation may happen if a recession sets in before inflation has gone down low enough. For example, if unemployment were to go up to about 5% and consumer price index inflation was also above 5%, then that would be a kind of stagflation, though nothing like the degree experienced in the ‘70s. In the near term, we expect the labor market will more likely just cool, resulting in fewer vacancies rather than unemployment. It is likely that we will enter a recession this year and/or in 2023 but hopefully not stagflation. Much depends on how the economy and businesses react to Fed rate hikes.

    Before focusing on the unknown future, we should remind ourselves that in the last 20 years, we’ve seen declining interest rates and low inflation, which in turn caused a seemingly never-ending increase in housing prices. This put extra money into our pockets and drove prices of all assets up, which in turn boosted consumer confidence, as people felt wealthier and were encouraged to spend. In addition, during the last 20-plus years every time the economy stumbled, the Fed worked to bail it out – by lowering interest rates, injecting the market with liquidity. This caused the economy and equity market to recover quickly and without much pain. The pain we were spared was stored, metaphorically speaking, in a pain jar (represented in part as increased debt, income discrepancies) awaiting the next crisis. Today, to prevent inflation turning into hyperinflation, the Fed has no choice but to raise interest rates. We expect that this process will take time and likely be cyclical since the Fed only controls a couple of components. Consumers, by their purchases, will play a role in which companies survive this market cycle. The larger goal is for the business cycle to trim inefficient businesses while avoiding hyperinflation, stagflation, and deflation.

    Though price drops are considered a good thing—at least when it comes to your favorite shopping destinations – price drops across the entire economy, however, is called deflation, and that’s a whole other ballgame. Large scale deflation can be really bad news.

    While inflation means your dollar doesn’t stretch as far, it also reduces the value of debt, so borrowers keep borrowing and debtors keep paying their bills and the economy continues to grow. Modest inflation is a normal part of the economic cycle—the economy typically experiences inflation of 1% to 3% per year—and a small amount is generally viewed as a sign of healthy economic growth. You might have heard that 2% is the Fed’s target inflation rate.

    Inflation is also something consumers with assets/resources can protect themselves against, to some extent. Investing in equity markets, for instance, grows your earnings faster than inflation, helping you retain and grow your purchasing power. Protecting yourself against deflation is trickier because debt becomes more expensive, leading people and businesses to avoid new debt. They instead payoff increasingly pricey variable rate debts from prior purchases and avoid new purchases, decreasing growth.

    During periods of deflation, the best place for people to hold money is generally in cash investments, which don’t earn much. Other types of investments, like stocks, corporate bonds, and real estate investments, become riskier when there’s deflation because businesses (even businesses with good market performance but with high debt) can face very difficult times or fail entirely.

    Overall, in the USA we’ve primarily experienced inflation, not deflation.

    As consumers and investors, we don’t control these market components, so what might we do? We focus on what we can control and work to feed the economy while trimming our excess spending.

    This is actually a really good time to revisit your financial fundamentals. Do you still have a reasonable emergency fund? Are you spending consciously and aligned with your values and budget? This is certainly a time to re-examine any adjustable-rate debt and determine how to best lock them in. It is also a great time to examine your career and ensure you are professionally valued and not likely in any potential layoff pool. Most importantly, this is a time to get comfortable with what you value and control.

    Do not let fear derail what you do. Instead prepare your finances to take advantage of whatever situation presents itself.

    Edi Alvarez, CFP®
    BS, BEd, MS

    www.aikapa.com

    Family Loans

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    Lending money to family is often intended to be a gift of love and to provide assistance, but it is also rife with perils, for both the lender and the borrower.  It goes without saying that lending money should only be considered when permitted by your financial plan. In other words, don’t give money away at the expense of your future cash flow.

    If all goes well, the loan will be repaid in a timely manner and will be a win-win for the lender and the borrower. In our experience, this is not usually the case.

    In fact, most family loans are forgiven and often turn into gifts. In some cases, family discord and financial stress derail the family relationship when the borrower is unable to repay, and the lender needs the funds for their financial well-being. At other times the loan repayment is not the issue, but other squabbles (like unequal lending to family members) arise which can cause defaults and family resentments.

    Lending money to a family member in exchange for a promissory note must follow IRS rules. The IRS requirements are clear, the loan must charge a minimum interest rate, must document transactions, and require repayments. If it is instead a gift (no repayment expected), then it must be stated as such and recorded for gift tax purposes (and may require filing an IRS Gift Tax Form).

    The recent highly publicized case of Bank of America independent director David Yost’s daughter’s divorce is an appropriate example. Yost appears to have made $8M in loans to the couple years earlier and on divorce demanded repayment from his soon to be ex-son-in-law. The ex- claimed they were not loans but gifts that Yost made to appear as loans to evade taxes. This landed both families in court with suits on both sides and the IRS watching from the sideline.

    It is common for highly affluent families to make private loans with assets they do not need in their retirement. It is particularly beneficial when loans are used to purchase assets for the next generation without tax liability and to simultaneously reduce the size of the lender’s estate while avoiding future estate taxes (currently, this estate tax reduction strategy is relevant for families with estates greater than $12M).

    My concern over family loans arise when the financial plan doesn’t comfortably cover the loan and yet the lender feels emotionally inclined to make the loan despite the projected shortfall in future cash flow. I find that lenders who are family members do not recognize that despite best intentions the possibility exists that the money will not be repaid, and money not market invested is missing out on gain that will be needed later in retirement. In addition, most are not aware that without proper documentation the IRS can label this transaction as a tax avoidance technique.

    Edi Alvarez, CFP®
    BS, BEd, MS

    www.aikapa.com

    Manipulative Investment Products:  Politics and Emotion

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    The investment world frequently capitalizes on emotions by creating products (funds) that cater to the latest fads or emotionally charged topic. A recent trend has been to create funds that filter companies based on political views.

    A recently concocted fund demonstrates this trend precisely. The adviser ostensibly boycotts certain companies in the S&P 500 perceived to be too liberal and calls it a new fund. The fund’s very name is designed to excite and exploit political passions, irrespective of what the client might need in their portfolio. In addition, defining one company as “left-leaning” or another as being “more Conservative” is not only arbitrary in practice, but also contrary to the entire idea of diversification, and the “rational investor.” The marketing pitch captures people who believe that filtering using personal conservative ideals, beliefs, and values will yield needed market returns while investing in companies they think fit with their political beliefs. This is not likely to have the expected outcome since markets seldom behave how we want or expect them. They are encouraged to invest dollars without regard to capital market behavior or diversification. Amazingly they do claim to be ‘diversified’ and not to compromise performance without much history.

    Whether “pro Right” or “pro Left”, I consider this trend more insidious than other marketing techniques because it encourages investors to use politics and emotions to select investments for a retirement portfolio. Retirement portfolio allocation shouldn’t be derailed by fads or emotions but capture gains when others react emotionally.

    Edi Alvarez, CFP®
    BS, BEd, MS

    www.aikapa.com

    Market Volatility – Panic has a Price

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    Market volatility is part of the deal when investing for the long-term. Currently, some of the volatility is due to inflation and the invasion of Ukraine but most of the volatility is from fear of the unknown (by market participants). We’ve had many periods that generated panic and each time an emotional reaction or seeking ‘safety’ had a price.

    Since 1960, the markets have dropped more than 30% during seven crises.

    Instead of seeking ‘safety’ during a crisis, we encourage you to let us do what we do best and make the most of these crises and instead focus on things that you directly control.  The best way to handle market volatility is to have a plan in place and let it be executed without ‘fear’.

    So, what should you do during periods of volatility?

    1. Take care of your health by not over focusing on media hype – crises are a bonanza for media outlets. For example, CNN searches were up from 89% to 193% during March of 2020. ‘Googling’ trending topics only makes us more anxious. Online searches will not guide you to how your portfolio and your finances should be managed to get you to your goals.
    2. Do not check your portfolio every day but do evaluate your anxiety level – if you find that you are overly anxious then we need to re-examine your asset allocation once the market recovers. Keep in mind that unless you depend on the portfolio for cash support, what happens in the market today is not relevant.
    3. Monitor your cash flow – ensure that you have the cash flow you need and that you have the necessary emergency fund.
    4. If you have a long-term horizon (meaning that you are not planning to draw from your portfolio over the next 3 years) then view the volatility as dips that we will use to reallocate your portfolio.
    5. If you depend on the portfolio for ongoing cash flow and we developed a distribution plan for you then you have a withdrawal plan for the next 3-5 years regardless of the market dip. Stay within planned spending.

    I don’t deny that there is good reason to be anxious about the war in Ukraine and the impact it will have on our lives and the economy. Even so, this is not the time to decide that you want to make your portfolio ‘safer’. ‘Safer’ often means going to cash or bonds but the time to move to cash is when markets are doing well not during a crisis. During a crisis the ideal action is to use cash to buy positions that will benefit your portfolio in the long-term even if they underperform in the short-term.

    The graph below illustrates how a hypothetical “fearful” investor, who chose safety during market downturns of 30%, missed gains time and time again during market recoveries. This investor traded long-term results for short-term comfort likely because the constant drumbeat of negative news made it difficult to stay true to the investment plan.

    But how about market timing? Research shows that market timing strategies do not work well for individual investors. Dalbar’s Quantitative Analysis of Investor Behavior measured the effects of individual investors moving into and out of mutual funds. They found that the average individual investor returns are less—in many cases, much less—than market indices return held through the crisis.

    But how about, “it is different this time”? Of course, each crisis is different BUT the US has experienced 26 bear markets since 1929 and the markets recovered all 26 times though some took a long period of time to recover. The key to market recovery is that businesses must continue to make profits.
    If you find that you are overly anxious about your portfolio, then record this in your Aikapa folder and let us seriously address your portfolio allocation and the tradeoff to your long-term goals once the market has recovered.

    If you find you have unexpected/unplanned cash flow needs from your portfolio, then let’s talk about it and find ways to provide what you need today minimizing damage to your long-term plans.

    Edi Alvarez, CFP®
    BS, BEd, MS

    www.aikapa.com