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We’ve had a few rough years beginning with Covid and all the changes it forced on us, followed by daily feeds of death and destruction in Ukraine on social media today.

Labor and material shortages caused by a variety of factors sparked inflation last year, and the Ukraine crisis has added fuel to the fire, with gasoline prices jumping 38% in February over 2021 levels and food prices up 8.6%.  Last week headlines announced inflation has hit a new 40-year high of 7.9%.

If you find yourself in a state of low-grade anxiety it would be perfectly reasonable.  And when we’re anxious, our first response is to look for ways to calm ourselves.

I’m betting there were many pints of Graeter’s ice cream eaten while binge watching The Great British Baking Show, and drinks poured to take the edge off over the last few years, which is why alcohol consumption increased.  While these may not be the healthiest ways to comfort our nerves, they are human ways to react.  Another is to look for ways to feel more financially secure.

During times like these we get questions from clients about paying off mortgages or reducing their stock holdings in their portfolio.  Eliminating everything that makes us feel vulnerable helps improve our sense of financial security.  But like alcohol and mindless eating, it may feel great in the short run, but you may also regret it later.

So, with all that’s going on in the world today, should you make changes to feel safer?  First, take a deep breath and consider a few things:

Times like these have been factored into your plan.

When we work with you to develop your financial plan, we don’t use an average rate of return to determine how your portfolio will grow or whether your savings can support you for your entire life.  Investment returns are variable – and sometimes stress-inducing – which is why we use randomly generated historical returns to create a more realistic projection of what you can expect.

We add inflation, ranges of spending, tax considerations, and other factors.  We look at the possibility of losses in the early years of your retirement and review the ranges of potential outcomes over your lifetime.  If you need to make adjustments to make your plan work, we tell you.  If we tell you your plan is in good shape, you can believe it.

Stocks are still the best inflation protection.

If we are headed into a long period of higher inflation, stocks have been shown to provide a better level of protection, as they have a better chance of appreciating and keeping pace with price increases than bonds and cash.

If your instinct is to shift your portfolio for inflation protection, you are better off basing your asset allocation on your personal financial plan.

But it doesn’t mean you should never consider making a change.

We don’t prepare a financial plan and put it on the shelf.  Your plan changes and evolves to reflect changes in your life and your goals.  A recent conversation with a long-term client provides a good example.

For many years, this person’s goal was to grow their portfolio as much as possible.  During every volatile period in the market any concern about reducing risk was outweighed by their focus on maximizing returns and the goal of increasing their net worth to pass on to the next generation.

After many years of working together, and last year’s out-size returns, we had another discussion.  Their financial plan is in excellent shape.  But this time they recognized the net worth they had accumulated was significant, and they realized the risk of losing what they had accumulated was of greater concern to them than the possibility of increasing their net worth further.  Their goal had moved from growing to preserving what they had already accumulated.  So, we agreed to make a change in their asset allocation.

Mortgages also come up when markets are volatile.  Historically low interest rates have made mortgages more attractive, and many retirees are still making mortgage payments in retirement.  If your interest rate is very low and fixed, it makes sense to keep it in place due to the difference in long-term expected returns in a diversified portfolio vs. a 3% mortgage rate, for example.

But we recognize there is a ‘sleep-at-night’ factor too.  If your financial plan can support paying off your mortgage and it provides you with a sense of security that will help you maintain your overall investment discipline going forward, then paying it off isn’t a poor choice.

The past few years and current news have made many people emotionally exhausted and looking for ways to reduce their stress levels.  I don’t mean to trivialize those feelings when I suggest turning off the TV, putting down your phone and shutting off your computer because stepping away from the constant information flow can help.  Hug a person you love, go for a walk in nature, or call a kindergartener at 707-8PEPTOC (707-873-7862) for a pep talk.

We are here to discuss any concerns you have about current events and can review your plan with you to give you greater confidence in your financial security.  And we won’t judge you if you decide you need to binge watch Ted Lasso with a pint of Graeter’s raspberry chocolate chip as well.