by Tyson Ray | CFP®, CEPA®, CIMA® Founding Partner, CEO, Senior Wealth Advisor
Financial planning for major expenses includes saving money and making sure your investments are positioned to support your goals when the time comes.
Whether you’re planning a dream vacation, a home renovation, or another significant purchase, preparing ahead can help you avoid difficult financial decisions during periods of market volatility. Here’s a story that illustrates why timing and planning can make all the difference.
Early in my career, I worked with two siblings who had each inherited money from their parents. One of them had always dreamed of taking a three-week trip to Egypt. She was a conservative investor and hesitant to spend from her portfolio. As we talked, I asked when she hoped to travel. Once we had a timeline, we decided to set the money aside while markets were strong rather than waiting until the trip was just around the corner. The money sat in a money market account while she planned the trip.
About a year later, her brother called. He had decided to join her and needed roughly $30,000 for the same vacation. The timing couldn’t have been worse. By then, we were in the middle of the financial crisis. Markets had fallen sharply, and many portfolios had lost nearly half their value. Before the downturn, a $30,000 withdrawal represented only a small portion of his portfolio. After the decline, it required selling significantly more of his investments at depressed prices.
Those dollars were no longer invested when the market eventually recovered. Neither sibling could control what the market did. One simply had more time to prepare.
Selling investments during a downturn can have lasting consequences, which is why having a plan for near-term cash needs is just as important as having a long-term investment strategy. (See why staying the course during market volatility matters.)
Planning Creates Flexibility
That experience reinforced a lesson we still emphasize today: If you know you’ll need money over the next 12 to 24 months, whether for a major vacation, a home renovation, a vehicle purchase, helping family, or a charitable gift, it’s worth talking about early.
If you have a major expense on the horizon, we’d be happy to help you build a plan around it. Two main points we consider in managing your investment strategy are the need for income and liquidity.
When markets are favorable, we may be able to raise those funds and set them aside. Doing so can reduce the risk of having to sell investments during a market decline. If you sell all of your stock assets when the market is down, you can lose a significant amount of money. Waiting until the last minute leaves you dependent on whatever the markets happen to be doing when the bill comes due.
