Trends vs. Discipline: Financial Planners Urge Staying Laser-Focused on Goals

The emergence of artificial intelligence (AI) in financial planning may leave investors wondering how it will impact the wealth management industry.

“The introduction of AI is in its introductory phases in the framework of software for planning projections, modeling for hierarchy of savings or where to save or pay down debt, and modeling for long-term planning goals,” said Ryan Swartz, partner, and managing director at Creative Planning.

“There are other advancements in portfolio and investment management and trading software, which can take advantage of scale and trends while providing more customized outcomes for investors.”

But as wealth advisers suggest, it’s not going to replace human interactions anytime soon.

However, Andrew Hunt, partner at Hiley Hunt Wealth Management, said AI may help wealth managers serve more clients.

“A proactive financial planner and proactive wealth manager can serve 100, maybe 150, households to really anticipate those client needs,” he said. “After that, you just run out of capacity to serve people if you’re doing a good job. What AI is going to do is it’s going to increase the capacity of a good wealth manager to be able to serve more clients at the margin.”

Consider when Turbo Tax emerged in the mid-2000s, he said. Rather than disrupting the industry, it helped tax preparers serve more complex clients.

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Prepare For Uncertainty

There are plenty of issues that will likely dominate the financial headlines in 2024. Unrest in Ukraine and the Middle East, the U.S. presidential election, and thorny questions about the nation’s economic health are primary among them.

“No one knows the future, but there is still significant economic uncertainty,” said Matt Munyon, retirement plan administrator at Swartzbaugh Farber. “Inflation is lowering but still elevated, there is a possible recession and there seems to be an increasing amount of geo-political uncertainty by the day.”

Munyon suggested making sure an emergency fund is set up. Consider household expenses, spending habits, and personal budgets.

“Build up a short-term savings account that is easily accessible and has between three to six months of living expenses in it,” he said.

Starting slow and building that fund will help shield against the unexpected.

Are You Saving Enough?

David Stevens, founder of Stevens Capital Partners, said the new year is the ideal time for savers at every stage of life to examine their strategies for retirement.  

“The first thing I advise my clients to review from the previous year is their cashflow worksheet. How much did they spend and how much was essential versus nonessential spending,” he said.

Next, he has clients look at their dividends and interest, followed by how the portfolio grew and appreciated. Finally, how tax-efficient were they?

“One of the best practices when entering a new year is to front-load any contributions to your accounts,” he said. “Many believe that they should spread contributions out over the course of the year, but you can actually contribute a larger deferral earlier in the year.

“Over time that can create a time value advantage as more compounding of assets can occur over many years. This would apply to gifts or even contributions to education accounts.”

Additionally, consider planning for taxes by “adjusting withholdings or paying estimated taxes.” 

“Finally, review your annual spending budgets and add the difference in savings to automated savings,” he said. “All of these practices can make a substantive difference over the long run.”

Remain Disciplined

At the same time, investors and savers shouldn’t make changes simply for the sake of making them.

A long-term approach means minimizing volatility and Swartz advised against substantially altering a strategy just because the year turned over or due to prolonged challenges in the market, such as high inflation.

“Generally, investors should be taking the long-term approach with investing and many of the best times to invest historically have been during the most unnerving,” he said. “To that extent, long-term investors can look at setbacks and economic uncertainty as opportunities for the future.”

Hunt said not only should investors not panic in challenging times, but they should maintain discipline in times of prosperity and opportunity, following the guidance of their financial adviser.

“With the market reaching all-time highs on January 19, we get a lot of questions from people about, what does that mean? Should I reallocate my investments?” he said.

“What I like to remind people of is history; when we go back and look at what happens to the S&P 500 after a bear market, what we see when we study this back to the 1950s is the go-forward returns, with just a few exceptions, are overwhelmingly robust.”

The exceptions? The period directly after the crash, which was propelled by September 11, and the oil crisis in the 1970s.

“Panicking rarely leads to good decision-making,” Munyon said. “Don’t abandon your portfolio’s diversification to chase short-term performance, no matter how tempting it can be.

He said just because an asset class performed well one year, doesn’t guarantee it will perform well the following year.

“Over time, diversification has been proven to reduce a portfolio’s overall volatility swings while increasing return potential,” Munyon said. “A diversified portfolio can help ensure access to better-performing asset classes while limiting exposure to those which are underperforming. Don’t abandon your long-term focus.”

For example, savers who have steadily contributed to fixed-income, low-risk investments.

“For the last decade, savers have really been penalized for owning bonds or fixed-income instruments,” Hunt said. “Now, for the first time, due to all the pain of 2022 and rising interest rates, savers are getting paid for the safe portion of their portfolio.

“That shouldn’t be ignored, especially for folks in retirement or approaching retirement. If you can get a nice yield off your lower-risk, fixed-income investments, that’s going to really change the game for folks. All of a sudden, a very diversified, modest portfolio is going to get a real yield.”