Market Volatility

Of course we’ve been watching the market volatility for the last several days.  As we write this on Monday we don’t know when a market bottom will occur, but we are fairly sanguine about what’s happening.  Our message: don’t worry, don’t panic and just hold the course.

We think it’s important to put things in perspective while the stock market gyrations are headlining on most news outlets.  It looks to us like this “correction” is long overdue.  While the stock market has been largely “range bound” for about the past year, we’ve actually been in a six year bull market since early 2009.  Many of us have forgotten that the market normally bounces up and down.  We think this current drop will be ultimately healthy for the market and in fact necessary for further upside opportunities.

There seems to be a consensus on what has triggered this recent concern reflected in the market:

• While interest rates should probably be 1.5 to 2%, the Federal Reserve has held rates down close to zero, fueling at least part of the bull market
•  The U.S. economy has been OK, but not great, for several years
• China’s economy is slowing
• This means sales by U.S. multinational companies (Apple, Exxon Mobil, Caterpillar) will fall
• China’s stock market collapse has reverberated around the globe, affecting markets everywhere

If we believe you should make changes we will of course let you know.  Should you want to discuss any of this please don’t hesitate to call.  In the meantime, we hope these words of comfort are helpful and you will stay the course.

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How Can I Keep My Money from Slipping Away?

As with virtually all financial matters, the easiest way to be successful with a cash management program is to develop a systematic and disciplined approach.

By spending a few minutes each week to maintain your cash management program, you not only have the opportunity to enhance your current financial position, but you can save yourself some money in tax preparation, time, and fees.

Any good cash management system revolves around the four As — Accounting, Analysis, Allocation, and Adjustment.

Accounting quite simply involves gathering all your relevant financial information together and keeping it close at hand for future reference. Gathering all your financial information — such as mortgage payments, credit card statements, and auto loans — and listing it systematically will give you a clear picture of your overall situation.

Analysis boils down to reviewing the situation once you have accounted for all your income and expenses. You will almost invariably find yourself with either a shortfall or a surplus. One of the key elements in analyzing your financial situation is to look for ways to reduce your expenses. This can help to free up cash that can either be invested for the long term or used to pay off fixed debt.

For example, if you were to reduce restaurant expenses or spending on non-essential personal items by $100 per month, you could use this extra money to prepay the principal on your mortgage. On a $130,000 30-year mortgage, this extra $100 per month could enable you to pay it off 10 years early and save you thousands of dollars in interest payments.

Allocation involves determining your financial commitments and priorities and distributing your income accordingly. One of the most important factors in allocation is to distinguish between your real needs and your wants. For example, you may want a new home entertainment center, but your real need may be to reduce outstanding credit card debt.

Adjustment involves reviewing your income and expenses periodically and making the changes that your situation demands. For example, as a new parent, you might be wise to shift some assets in order to start a college education fund for your child.

Using the four As is an excellent way to help you monitor your financial situation to ensure that you are on the right track to meet your long-term goals.

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2014 Emerald Connect, LLC