May 2022 - Ferguson-Johnson Wealth Management

By Jon Powell, CFP®

It’s no secret that things in our world are a bit uncertain these days. It feels like we’re constantly waiting for the other shoe to drop. Most of us dislike this level of uncertainty, but do you know what dislikes it even more? The market.

Stocks have been plummeting lately, not helped by investors purging stocks out of recession fears. On May 19, the S&P 500 briefly dipped into bear market territory of a 20% loss from January’s high.⁽¹⁾

Even the big guns were not immune to a drop, with Amazon and Apple posting declines, among others.^(2,3) As a result, many economic leaders are predicting a recession in our near future.⁽⁴⁾

We can point our fingers at many factors as the cause of our recent nail biting, such as rampant inflation, the Fed’s solution of increasing interest rates, and international unrest, but the fact remains that we have no control over any of that.

We’re here to help you take a deep breath and walk you through whatever our markets decide to do. Here’s how we are watching over your finances and taking proactive steps to help secure your wealth.

Big-Picture Planning

We don’t make investment decisions based on what everyone else is doing or what’s popular in the investment industry. Whenever we make planning decisions with you and offer investment recommendations, we do it with your goals at the forefront.

When the markets get shaky, we go the extra step of reviewing your objectives to make sure you’re still on track and make educated decisions that are not based on panic or emotion.

This starts from the very beginning of our relationship with you. We use conservative return numbers when analyzing the potential outcomes of your plan because we know that corrections and bear markets will come again.

We also use asset allocation “buckets” that divide your wealth into short, intermediate, and long-term strategies to help you make the most of a volatile market.

And in times like this, it’s even more important to have an emergency fund or a percentage of your portfolio that is either in cash or liquid enough if you need it for unexpected circumstances.

While cash investments may not provide a lot of growth, having a cash contingency fund with at least one year’s worth of living expenses will protect you against having to sell investments at low values to free up cash.

We Know Your Risk Tolerance

Do you know that feeling in the pit of your stomach when you make a decision that was too risky for your comfort? Our goal is to help you avoid that feeling when it comes to your investments.

Before investing any of your money, we determine your risk tolerance, the amount of risk that an investor is comfortable taking or the degree of uncertainty that an investor can handle. Like most things in life, your risk tolerance may change with age, income, and financial goals.

We don’t want you to lose sleep at night, so we review your risk tolerance and how much risk you can afford to take and adjust your investments over time.

We also watch over your money like a hawk, and when it’s time to get out of an investment because the risk is rising, we will contact you about adjusting your allocation.

Timing Matters

During bear markets, it’s important to remember that investors only realize losses when they sell, so it’s critical not to sell when the market is down. When you need to access your money is an important factor in avoiding those losses.

For example, if you are a decade or more away from retirement, you can likely wait out a recession or correction and benefit from the recovery. If you need access to your funds in the next five years or are within your first five years of retirement (frequently known as the “fragile decade”),⁽⁵⁾ a recession will make more of an impact on your money and your plans.

From a practical perspective, we make sure your portfolio’s allocation is set up with your time horizon in mind. If you need money in the short term, your portfolio will hold safe investments like cash or short-term bonds.

Because retirement can last decades, you still want some of your money in investments that will produce long-term growth, but your portfolio will look very different from that of a 40-year-old in the peak of their working years.

We Are Your Emotional Support System

One of the most important rules in investing is to refrain from making emotional decisions. It’s easy to get swept away emotionally when the market negatively wreaks havoc on your finances.

But if you stay true to your investment strategy and avoid making decisions when emotions are running high, you won’t run the risk of losing even more.

Remember, bear markets have happened before and they will happen again. As long as you have created a disciplined financial plan and have a trusted advisor who is monitoring your money, you are doing your part to prepare.

If you don’t have someone you can turn to when the market gets wild, we’d love to support you and help you build your finances for a strong future. Reach out to us today at 301-670-0994 or by email.

It’s not hard to find a financial advisor. Google will spit out results in your area that can make your head spin. The challenge is finding the right financial advisor, someone you can trust to provide honest advice and help you achieve your goals.

Unfortunately, whether someone calls themselves a financial advisor, financial planner, wealth manager, or financial consultant, it doesn’t tell the consumer anything about the standard to which the advisor is held.

This can be incredibly confusing for many people. Rather than looking for a particular job title, it’s important to ask your current or prospective financial advisor whether or not they are held to the fiduciary standard.

Their answer will let you know if they truly have your best interests at heart.

Terms, Defined

If you’ve ever researched financial advisors, you may have noticed there are many different types of advisors from which to choose. Some of the most common types of financial advisors are brokers, fee-only fiduciaries, and independent financial advisors.

It’s important to know the standards each type of advisor is held to as you’re deciding who to hire.

Here’s the breakdown:

Brokers manage your portfolio but also sell financial products such as mutual funds or insurance policies, for which they earn a commission. They are not held to a fiduciary standard, so they may not always act in your best interest.
Fee-only fiduciaries may charge a flat fee, or a percentage of your portfolio, but they are always held to a fiduciary standard, in which they are required to act in your best interest.
Independent financial advisors have started their own financial firm. Most independent advisors act as fee-only fiduciaries, but some may act as fee-based advisors and sell additional financial products on a commission basis.

More About Fiduciaries

In general terms, a fiduciary is a person or entity who has the power to act for another in situations that require complete trust. When it comes to the financial industry, financial advisors who work for a Registered Investment Advisor firm must always act as a fiduciary for their clients.

CERTIFIED FINANCIAL PLANNER™ professionals are also held to this duty when providing financial advice to their clients. By law, a fiduciary advisor must be completely transparent and always act in their clients’ best interest.

They are also obligated to avoid and disclose any potential conflicts of interest.

Additionally, the ongoing services and investment monitoring they provide also falls under the fiduciary duty. In other words, their job doesn’t end after the initial meeting or purchase.

They must regularly review your accounts to help ensure your investments are in your best interest.

There are financial professionals whose services do not fall under the fiduciary standard. This doesn’t mean that they are out to steal your money and can never be trusted—far from it. These financial professionals who register with FINRA are held to a standard known as Regulation Best Interest (Reg BI).

This is a step in the right direction, but doesn’t take things as far as the fiduciary standard for Financial Advisors who work for a Registered Investment Advisor firm that registers directly with the Securities and Exchange Commission.

Why Should I Work With a Fiduciary?

There are several benefits to working with an advisor who serves in a fiduciary capacity. For one, they are open and transparent. Aside from the obvious goal of maximizing value for your money, working with a fiduciary will give you confidence that your advisor is working in your best interests rather than their own.

They’ll give you their true, professional opinion (even if it’s not the answer you want to hear). This is extremely valuable when you’re facing a big life decision, whether it’s purchasing a second home, transitioning into consulting work, or retiring earlier than anticipated.

By working with an advisor who holds to the fiduciary standard, you can be confident in your financial future. Clients have the power to ask questions and to demand the highest value for the service that advisors are providing.

Reviewing your entire financial picture, an advisor can show you the impact a decision may have on your future and how you can pursue certain goals.

As a Registered Investment Advisor firm, we understand people’s reservations or even negative connotations toward the underlying motivations of some advisors. We want to assure you that you can trust in the fact that our relationship with you is built on integrity and putting your interests above our own.

Comprehensive Coordination

Independent, fiduciary advisors do so much more than just pick your stocks. Working with an experienced financial expert can be a realistic sounding board to help provide you with a litmus test when you have questions or face a big financial decision.

They actively coordinate the accumulation, distribution, and transfer of your wealth, as well as between the estate, tax, and financial planning areas of your retirement plan.

An advisor who looks at the big picture of your financial life can help you optimize income and mitigate taxes in retirement.

For example, this type of advisor helps you create a retirement income plan that strategizes when you take your withdrawals and what accounts you take them from first.

Not to mention, they also design a social security strategy that optimizes your benefits, minimizes medicare confiscation, and addresses long-term care so you can feel confident that you’re on the right track as you pursue your long-term goals.

The objective advice of an independent fiduciary advisor can make an incredible impact on your financial situation in retirement.

Do I Need a Fiduciary?

If you want to feel empowered to make the best decisions for yourself and your finances, the answer is yes.

At Ferguson Johnson Wealth Management, we pride ourselves on being fiduciaries and upholding the highest integrity.

We are passionate about providing unbiased advice that puts our clients first, and we consider it a privilege to carry some of their financial burden and educate them so they can make empowered decisions for their future.

Whether you’re looking for an advisor for the first time or have been burned by bad financial advice in the past, we’re here to help you create a solid plan that helps you achieve your goals.

To get started planning wisely so you can live fully, reach out to us at 301-670-0994 or by email.