The coronavirus pandemic shook the financial lives of many. The stock markets took major tumbles, and unemployment claims reached the 40 million mark. Which is creating a lot of uncertainty. Financial planning during tumultuous times is always challenging. Adding to it, the COVID-19 situation and the instability of the current economy. Trying to figure out what to do for your personal financial health is even harder. Luckily, financial advisors can help you navigate these seemingly treacherous waters. However, you do need to make sure you ask the right questions, ensuring you get the information you need. If you are scheduling a meeting, here are five questions you should ask your financial advisor now.
1. Is My Portfolio Too Risky?
Economic downturns leave many investors panicking. Stock prices can fall dramatically, reducing the value of a portfolio substantially in mere days. While making sudden adjustments to a portfolio usually isn’t a great choice, asking your financial advisor if there’s too much risk in your investments is a good idea.
When you ask a financial advisor to assess your portfolio’s risk level, you can determine whether it aligns with your tolerance and your current life stage. When it comes to risk tolerance, everyone is different. Your portfolio shouldn’t be keeping you up at night. If it is, there may be too much risk involved in your investments.
Usually, investments should start shifting toward more conservative options as a person reaches retirement, providing them with a degree of security. If yours hasn’t been rebalanced recently (or ever) to account for the passage of time, examining your investment choices from that perspective is a smart move. That way, you can make changes that preserve the value of your portfolio, ensuring you’ll have what you’ll need when the time comes.
Now, that doesn’t mean your financial advisor will think that major changes are necessary right now. An emotional reaction to portfolio risk levels isn’t a great idea, as there’s a strong chance you’ll overreact. At least some of the losses people are seeing today will likely recover, so talk about potential adjustments with your financial advisor to see what makes sense now and what may need to wait until a bit later.
2. How Are My Withdrawals Being Affected?
If you’re currently retired, here’s one of the most important questions you should ask your financial advisor. It lets you know how your withdrawal rate may change based on the market downturn. Then, you can use that information to reassess your distribution strategy.
Your goal is to determine whether you have enough in liquid assets to avoid having to sell those that you have designated for long-term growth. Additionally, it gives you a chance to ascertain whether you need to explore alternative income sources during these unprecedented times, giving you a chance to preserve the value of your portfolio and attempt to ride out the storm.
During this conversation, your financial advisor can review your portfolio and identify the portions that provide income and the segments that are meant to provide long-term growth. Then, you can examine your portfolio properly, with respect to your withdrawal plan, and decide whether changes are necessary.
3. How Can I Improve My Financial Situation?
Many people are facing financial hardships. Along with declining portfolio values, you may be contending with job losses, supporting adult children who’ve been laid off, business declines, loss of medical insurance (due to job loss), reduced rental property income, and more.
If your financial situation is different because of the impacts of the pandemic, discuss these changes with your financial advisor. They can help you assess the strength of your position, including whether your savings cushion is reasonable, how to adjust to a lower income level, how to allocate funds to help family members, and more.
With this question, you can gain a holistic view of your current circumstances and provide those details to your financial advisor. That way, they can adjust their recommendations with respect to those situations, ensuring that they have you on the path toward greater financial security during these daunting times.
4. Can You Tell Me About Your Fee Structure?
Unless you frequently visit your financial advisor, there’s a decent chance you don’t recall the nuances of their fee structure. While it’s always important to know the costs, it’s critical during market downturns.
Today, you’re likely dealing with investment losses, and fees make that pain harder to bear. Make sure that the costs make sense and are competitive. If they aren’t, you may want to change to a new financial advisor.
5. What Is the One Thing I Should Do Right Now?
When you ask this question, you’re essentially requesting that your financial advisor give you a single priority. It lets you know what they believe is the most critical action you could take based on the current situation.
This approach is particularly beneficial if your financial advisor tapped on several possible options during your conversation. It not only forces them to prioritize their recommendations, a move that may give you better clarity, but it also gives you insight into which adjustment may have the largest positive impact. Essentially, it creates an opportunity for focus, something that could be vital for solid decision-making.
Can you think of any other questions you should ask their financial advisor? Share your thoughts in the comments below.
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Tamila McDonald has worked as a Financial Advisor for the military for past 13 years. She has taught Personal Financial classes on every subject from credit, to life insurance, as well as all other aspects of financial management. Mrs. McDonald is a former AFCPE Accredited Financial Counselor and has helped her clients to meet their short-term and long-term financial goals.
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