By Yvonne Marsh, CFP®, CPA
Wow, what a rollercoaster the financial markets have been this first half of 2022. The euphoria of the 2020 and 2021 pandemic recovery has given way to angst about inflation, supply chain blockages, and international conflict. Not giving way to emotional investment decisions is key to building long-term wealth in the markets.
What do I mean by “well-diversified?” It’s an often-used term. Typically, we think of diversification as having your invested assets spread among many asset classes, defined by size of the company or the type of industry. It’s impossible to predict which asset class will be the winner (or big loser) in any given year, so the premise is to spread your nest egg among large, mid, and small cap companies and then further between value and growth, with bond funds thrown in for risk balancing.
But I also take diversification one step further, especially if you are in, or quickly approaching, retirement. Peace of mind comes with allocating your wealth across 3 major categories: financial markets, bank accounts, and insurance companies. If you’re over 60, the days of swinging for the fences have passed, and now you are focused on preserving what you’ve saved while still having predictable growth to outpace inflation and sustain your lifestyle.
• Having a sufficient rainy-day and planned expense reserve in the banks is key. Yes, interest rates are low, but you still need some liquid “safe” money.
• Look to A rated insurance companies for tax-deferred annuities as another safer haven. Your principal is not subject to market loss and can provide a predictable rate of return. This strategy is often overlooked or misunderstood. Many wealth management professionals paint all annuities with one brush – vilifying an entire asset class unnecessarily. Yes, some annuities are better than others. But don’t throw the baby out with the bathwater.
• Finally, then, the rest of your wealth can be confidently invested in a diversified mix of financial market holdings. Your ability to withstand market headwinds comes with having sufficient safety and liquidity in other places.
Interestingly, my most relaxed clients are the ones who have just this sort of diversified portfolio. If you’ve been unnecessarily nervous this year, it’s time to take a fresh look at how you’re diversified. Give me a call or email if you’d like some help.
Marsh Wealth Management, LLC
Fiduciary Registered Investment Advisor
504 Ebenezer Road
Knoxville, TN 37923
865.622.2162
www.marshwealth.com
Financial Planning & Investment Advisory Services are offered through Marsh Wealth Management, LLC (“MWM”), an independent investment advisor registered with the state of Tennessee. Yvonne Marsh is an Investment Advisor Representative of MWM in the state of Tennessee. Marsh Professional Group, LLC is a TN registered public accounting firm and a separate legal entity from MWM. For a detailed discussion of MWM and their investment advisory fees, see the firm’s Form ADV on file with the SEC at www.adviserinfo.sec.gov.