Podcast: Episode 1

The most important step you can take right now

Listen to why staying the course isn't the same as doing nothing. Find out which steps you can take right now to help keep you on track toward your long-term goals.

Podcast: Stay the course, but take action

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- [MUSIC] - Hi everyone. I'm Jim Daniello, a Certified Financial Planner and Wealth Management Director for TIAA. Thanks for joining me for TIAA's new "Perspectives Podcast". This is the first in a series of podcasts where we'll be discussing financial planning ideas and money management tips. And, most importantly, answering some of the questions we're hearing from clients just like you. Our goal is to provide you with actionable steps that address your concerns during this uncertain time. Now before we begin, I want to share a personal story related to the Coronavirus Pandemic that's impacting all of us right now. Back on March 16th, I was at the office when I received a call from my son who had just come home from college a few days earlier. He called and said he was feeling tired and achy, and was even running a fever. I asked that he drive himself immediately to the doctor's office where he was tested for Coronavirus. Now his doctor felt he had nothing more than the common flu, but I was still told to quarantine him for some time. And then on March 21st I received a call indicating that his test results had come back, and, in fact, he did test positive for the Coronavirus. The entire unfolding of this pandemic has been pulling on my emotions since it's inception in Wuhan, China. I remember expressing concern when first hearing about it. When it arrived in Europe, my concerns escalated for sure. I became nervous when it reached San Francisco. That's where my brother and his family live. Then it came to my state, my county, my town, and now, it was in my home. And that's when panic quickly set in. Now, by the time my son's results came back, he was fully recovered. But I also have a wife who's immunocompromised and three other children who may have been exposed. I was concerned for anyone he had come in contact with over the prior weeks. For a short period, my world was absolutely spinning. When my brain finally settled down, I went immediately into a mode of evaluating, and organizing and prioritizing and taking action. First, my wife and I created lists of everyone who needed to be contacted, to be made aware of his test results, and we made those calls. The second, knowing we were now under a two week quarantine, we came up with a plan for food delivery services, and third, in case my wife and I fell sick at the same time, we developed a plan for my recovered son to take control of the household and prepared him to do so. And then finally came the mental accounting over financial matters. And this relates to today's topic. I started reviewing all of my financial matters. Not to be dramatic, but simply to be responsible. For example, if I needed my son to access any of my accounts, is there a power of attorney in place for him to do so? When was the last time my wife and I updated our wills and advanced health care directives? How much life insurance is in place for both my wife and I? I started adding all of this up. Now I am happy to report that it has been a month since my son became ill, and the entire family remains healthy. But my point in telling you this story, is that while the presence of Coronavirus in my home was unnerving to say the least, the ability to organize, prioritize and take action where I could was empowering. Which is a great segue to today's topic. The title for today's episode is, "Stay the Course, But Take Action." Let's talk a little bit about what that means. When faced with unforeseen and unprecedented events, it's normal to feel anxious and concerned. Or even worse, that things are spiraling out of control. So it's important to understand that staying the course does not mean sit still and do nothing. There are ways you can take control and move forward with great confidence despite the uncertainty that surrounds us. In fact, the single, most important step you can take right now is to take a full inventory of your assets by scheduling what's called an asset location review with your wealth management advisor. It's important to note that asset location is very different from asset allocation. The term asset allocation refers to having the right mix of investments within your accounts. Asset location is the process of collecting and organizing your assets all on one page. It then employs a surgical approach to identify the purpose and the time horizon behind each account, to ensure assets are responsibly located in account types that will best serve their purpose. The asset location process is an extension of your overall financial plan, and it operates as a blueprint for the actions that can be taken today to keep your plan on track. So the asset location process begins with the first step of organizing your assets across three columns. I'd like you to visualize a worksheet if you will. On one page, three columns. The first column, you have a header that reads, "Taxable" or "Tax Now". The second column would have a header that reads, "Tax Deferred" or "Tax Later". And the third column would have a header that reads, "Tax Exempt" or "Tax Never". Taxable accounts, or Tax Now accounts may include your bank checking and savings accounts, and your brokerage accounts. These accounts would be placed under the Tax Now column. Tax Deferred accounts may include some of your longer term assets. Those you may plan to use to generate income and retirement, such as your 403B, 401K, your IRA, or even an after-tax annuity. These account types may benefit from tax-deferred growth until it's time to begin taking distributions. These accounts would fall under the Tax Later column. And finally, you may even have assets that are earmarked for very special purposes, such as funding the education of a two-year-old grandchild. Accounts such as a 529 plan are an ideal location for this purpose, enabling the account to benefit from tax-deferred growth and tax-free distributions when used for qualified education expenses. These assets would fall under the Tax Exempt, or Tax Never column. The second step is tying a purpose directly to each account for what and when will you use this account. Think of it this way, every dollar has a job. Tying a purpose to each asset will help ensure that we properly locate each dollar to do it's job in the most productive and efficient location. The third step is the triage part of the process. We will prioritize our attention and our actions on accounts that are most vulnerable to market fluctuations because they either are needed or may be needed in the short or near term. So why is the asset location discussion so important right now, during a time of extreme market volatility? The objective here is to pinpoint and isolate accounts that have been impacted by market volatility and prioritize the accounts that you rely upon for your short term goals. We're effectively triaging your accounts so we can identify and shore up the assets that are most critical to your financial health right now and in the near term. So I'm gonna break the rest of this discussion into three benefits asset location will provide you today. The first benefit is account prioritization, identifying what accounts we need to review and immediately to take action where adjustments in your investment process may be needed right now. The second benefit is taking action by leveraging the right financial planning tools and the right techniques to buffer, secure, and prioritize your planning. And the third and final benefit is to take action by gaining the discipline and perspective to help manage your emotional response in this volatile environment. Let's begin with taking action by prioritizing accounts and making adjustments to your investment process where adjustments may be needed right now. Once we prioritize the accounts that need immediate attention, we'll look to ensure your asset allocation is appropriately aligned to your risk tolerance and that you have a rebalancing process in place to maintain your allocation going forward. Remember, your asset allocation is the investment mix that makes up your portfolio. Over time, market swings can throw your asset allocation and potentially your risk targets and investment goals way out of balance. This can result in your portfolio being over weighted or under weighted in a specific asset class as individual investments or sectors out preform or under preform their targets. Asset location in conjunction with our life goals analysis financial planning software will lead to ensuring that you have a consistent process in place to rebalance your accounts to get back to their initial, or target asset allocation. Or if that allocation needs to be adjusted based on a re-prioritization of your goals, or your risk parameters. This is important because in recent weeks, some of the market swings we've witnessed in a single day of trading had been the equivalent of what we would traditionally see on an annualized basis. Wide swings like we saw in early April, can offer opportunities to rebalance your portfolio to stay within your target allocation while at the same time, taking advantage of inefficiencies in the markets to capture gains. This wraps up the first benefit of taking action by prioritizing accounts. Now, let's take a look at the second benefit of improving the way you leverage financial planning tools. An asset location review also plays an important role in the financial planning process, helping to identify ways to buffer, secure and optimize your planning to allow damaged account assets to recover and avoid cementing losses. You may have longterm investment accounts that you are drawing upon for your immediate or short term income needs such as your 403B or your IRA that have been damaged due to market volatility. Taking inventory of your assets through asset location will help determine where you can create a buffer for these longterm investment assets. For example, can you draw current income from an emergency savings account to avoid realizing investment losses? Keep in mind that circumstances like these that we're facing today are why you have an emergency savings account in place. So think about giving yourself permission to use those savings while you allow assets that have been impacted by market volatility time to recover. If you're retired and relying on your accounts to generate income each month, an asset location review can help secure your income by evaluating your guaranteed income sources such as Social Security, pension, and lifetime income solutions. By changing the way you view your accounts through asset location, you'll be able to better assess where and when you pull income from various accounts, maintain a tax-sensitive income strategy, and most importantly, create security through various sources of guaranteed income. Having enough sources of guaranteed income to cover essential expenses can minimize worry during periods of market turbulence. If you have access to lifetime income through TIA retirement plans, consider if now is the time to pull that lever to further secure your income needs. If you're uncertain about how much guaranteed income you may need, or where it will come from, your TIAA wealth management advisor has the analytical tools to help you evaluate your overall lifetime income options. An asset location review also provides an opportunity to optimize everything you own. Think about the last time you moved and were unpacking boxes. Did you open any boxes and wonder, "Why do I still own this?" That can happen with your financial accounts and investment holdings as well. Asset location is a form of unpacking your accounts and reorganizing them to ensure your money is working with intention and purpose towards your goals. If you're not sure why you own an account, or what its purpose is, you're probably not using it to your best advantage. A thorough inventory of your assets can really help ensure each account that you own is located and invested in a way that best drives your needs, wants and wishes. And, in combination with our life goals analysis financial planning software, an asset location review can also help you determine if you need to reprioritize certain goals. Or reduce spending to free up some cash and give longer term assets more time to recover before you plan to take distributions. If you're nearing retirement, it can help you determine if you have enough income from guaranteed sources to retire as planned, or if working another year or two would make more sense for you. These are some of the levers that are built into your financial plan to help accommodate change and unexpected events. But let's face it. Right now, when it comes to spending, most of us are already spending less these days due to social distancing. We're not commuting, traveling, dining out, going to the movies, concerts or ball games. While all of that discretionary spending adds up, you probably haven't had a chance to factor these savings into your budget yet. Nonetheless, it's something to consider when thinking about your current income and spending needs. Okay, so this concludes the second benefit of how asset location helps you better leverage financial planning tools. Now let's discuss the third and final way and asset location review can help you take back control by managing your emotional response to what's taking place in the markets and the global economy. During times like these, it can be really easy to allow emotions to take over, which can lead to poor decisions such as selling and drawing down on declining assets, which simply results in locking in losses. It's important to keep in mind the psychological effects an investor makes during volatility. Studies have shown that losses loom twice as heavily in our minds as gains. When confronted with losses, some of us may experience a kind of paralysis where we feel powerless to do anything. Others may panic and sell everything. While others may succumb to what we call herd mentality, mirroring the behaviors of others instead of doing what's best for their own situation. The one thing these reactions have in common is that they're driven by emotions. Emotions make it easy for us to lose sight of the fact that no matter where our account values are today, gains and losses are never locked in until we sell securities or take distributions. So, how we respond to market volatility is a significant factor in driving individual outcomes. The degree to which we're able to avoid reactive, emotionally based decision making is key to how we recover. If you're feeling emotionally unsettled by the ongoing volatility we're experiencing in the marketplace, engaging in an asset location review with your advisor can help bring you back to center. That's because confidence comes from knowing you're following a disciplined and tested investment process, where each asset you own is aligned with your short and longterm goals, and has a clear purpose in driving outcomes you desire. And with that, we'll conclude the third and final benefit that asset location will offer during market volatility. I can't emphasize enough, if you're looking for ways to replace concern with confidence, the single, most important step you can take right now is to schedule time with your advisor to complete the asset location worksheet. The worksheet creates a blueprint for which actions you can take now to create a buffer to avoid locking in losses, maximize your lifetime income, optimize your planning, and take advantage of new opportunities. While we can't meet with you in person, I want to emphasize that your advisor is working and available to meet with you by phone or video conference. Thanks to our business continuity planning and technology capabilities, we're able to deliver the same planning experience that you would enjoy in our offices, including full access to our planning tools and illustrations in real time. Your advisor also continues to have access to our specialists who are adept in various areas of planning to deliver on your most complex needs and goals. So don't hesitate to reach out to your advisor to talk about how an asset location review can help you keep moving forward towards your goals. Thank you for spending a few minutes of your time with me today. I hope this podcast was able to address some of your questions and concerns during these difficult and unusual times. Plan to join me again next week as we talk about planning opportunities under the CARES Act. Stay safe, stay positive, stay the course, but take action. [MUSIC]

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