Biggest Threats to Your Financial Goals and Security
You save regularly, make sacrifices in hopes of achieving a secure retirement, having a strong rainy-day fund or being confident about any life aspirations. Nothing can get in the way of your dreams now, right? Hopefully, But life isn’t always that simple. Here's how to get ahead of some risks you might face in achieving your dreams.
Threat #1: Market Decline and Inflation
Prepare by:
Staying Diversified: The financial markets are fairly unpredictable, but understanding how much risk you are willing - and able - to take as well as having a properly constructed portfolio can help you prepare. This can include:
Working with quality investments with strong and proven track records and rebalancing as seems appropriate.
Diversifying your savings and investments across financial products like stocks (which can help fight inflation, and can be further diversified across industries), bonds, and cash so your success isn’t tied to one type of investment.
Focusing on your long-term goals and not be flustered by short-term fluctuations.
Understanding your risk tolerance: Assess how much risk you are willing and able to take, so you can be better prepared to stay on track during the inevitable short-term fluctuations.
Being flexible with your spending: Regularly review your spendings and withdrawals (especially post-retirement) and especially during years when the markets aren’t performing well.
Consider a CD/short-term fixed-income ladder: Laddering can be used to maintain a steady cash flow and will make you less susceptible to changing interest rates. It involves buying multiple fixed-income financial products like bonds and CDs (certificates of deposit), each with different maturity dates. Tracking the interest rates on these varied investments with mautrities 5 years and less can help you navigate a down market.
Threat #2 : Personal Liabilities
Prepare with:
Asset ownership structures: Specified ownership structure created to hold certain assets, such as small business or rental property, could potentially reduce your personal liability in the case of an accident or laws
Umbrella liability insurance: This is extra liability insurance as the primary role is to cover liabilities that the existing policy can't/don't cover.
Threat #3 : A Need for Long Term Care or Unexpected Health Care Costs
Prepare with:
Budgeting for long-term care costs: considering the fact that most of the tertiary level healthcare in India is catered to by the private sector, which can lead to unexpectedly high strains on anyone’s finances, one should always consider planning for some type of assisted living or home care health care costs.
Protecting against long-term care expenses: Several options are available to help pay for long-term health care costs, including traditional long-term care insurance or combining life insurance with a long-term care benefits rider.
There are several other threats to your financial security, but a financial advisor can walk through different scenarios with you to stress-test your strategy and make sure you stay on track - even if one of these threats becomes prominent.
"Financial peace isn't the acquisition of stuff. It's learning to live on less than you make, so you can give money back and have money to invest." - Dave Ramsey