It’s with some relief that investors bid good bye to 2018. Despite a post-Christmas market rally, the S&P 500 offered up its worst annual performance since the Great Recession with over a 6 percent loss. This was not a December to remember as broader market indices ended with the worst final month performance since the Great Depression.
When we’re faced with markets falling at such a pace, it’s normal for us to want to take action. There are few investors who relish buying into falling markets as most have the instinct to cut losses by selling investments that have gone down in value. This may seem like a prudent move. But if you consistently buy into the markets once they have risen and then sell once they have declined, you are resigning yourself to less financial independence than you could potentially enjoy. Think about it: buying high (buying once stock markets have increased) and selling low (cutting our losses once our investments decline) is a vicious cycle inexorably leading to relative poverty.
So what should you do to improve your financial standing when markets have seemingly lost their minds? You should either have an Investment Policy Statement (IPS) in place that you follow that documents your overall investment strategy or purchase target date retirement funds that do the strategizing and implementing for you as detailed in this column (http://www.dailycamera.com/business-columnists/ci_32289213/david-gardner-should-you-rebalance-your-portfolio),
But there are many other positive steps to take to improve your whole financial picture regardless of market performance. Tabulating your net worth, your annual savings and spending; and putting the right insurance in place are all helpful.
Today we’re going to cover an important topic regardless of market performance: putting an estate plan in place. It’s not the most scintillating or upbeat topic for most but is critical if you care about your health care, financial affairs, your minor children, who will end up with your assets, and even the welfare of your pets when you’re no longer around.
An estate plan includes legal documents that support you when you’re living and helps your heirs upon your passing. Documents such as financial and medical powers of attorney can give your loved ones the ability to manage your affairs if you’re incapacitated. Having an updated will in place along with current beneficiaries on your investment accounts, life insurance, bank accounts, annuities, and other assets will ensure that they will go to your inheritors per your wishes. A trust could potentially help in these same phases of life if your financial and personal situations call for it.
If you need greater motivation to get an estate plan into place, you should know that that if you don’t get an estate plan in place, then state law will decide where your assets will end up. Regardless of how much respect you have for our state lawmakers, most don’t want them to indirectly determine who would care for your minor kids or divvy up your assets.
To set up an estate plan, work with an attorney who primarily focuses on estate planning rather than on many different areas of the law. A good first step is to look at members of the estate planning section of the local bar association and of national organizations such as American College of Trust and Estate Counsel at actec.org. You may participate in a prepaid legal program through work that reduces your legal fees if you use an attorney in the program’s network. If you can’t bring yourself to reach out to an attorney, at least get a semblance of a plan in place through using a service such as LegalZoom or WillMaker. The result won’t be as good as one from working with a qualified estate planning attorney, but is better than not having a plan at all.
If you don’t have an estate plan in place, resolve to do so in the first few months of the year. Your future self (and your family) will thank you.