The importance of thoughtful financial planning during turbulent times
This post is sponsored by MassMutual.
As volatility in global markets continues, investors are concerned about their financial health and stability. Having a thoughtful plan in place can help people understand how to address both short- and long-term financial priorities, even during turbulent times.
In this post, we talk with MassMutual’s Ken Verzella, Head of Financial Wellness Strategist Group, about recent market volatility and how financial advisors can help clients navigate these uncertain times.
Given the current market volatility, why is it essential to have a financial wellness plan in place?
The current market events and the speed at which they continue to unfold have had a tremendous impact on our everyday lives. While staying safe and healthy and doing our part to contain the virus must be our collective priority, it’s hard to ignore the resulting volatility in the global economy and financial markets. These uncertain times have caused surging financial distress for many Americans.
According to a recent MIT AgeLab survey,1 the top words respondents selected to describe their feelings about COVID-19 were “worried,” “unsure” and “stressed.” Moreover, across the different generations surveyed, all segments were “extremely and very concerned” about their long-term financial goals more than even their physical health.
In a 2019 MassMutual Financial Wellness survey, 8 in 10 plan sponsors believed their employees were struggling financially and often in ways that are not addressed by their current benefits offering. Those numbers were released before the global health concerns we are dealing with today.2
This period continues to underscore the importance of a thoughtful financial wellness plan that can provide direction on how to address both short- and long-term financial priorities.
What pointers are you giving participants now to weather the current market conditions?
In times of uncertainty and financial concern, individuals can benefit from reevaluating their short- and long-term financial game plans to maintain an overall sense of financial wellness. Current market realities are forcing many to evolve their approach, something we are seeing daily in the way participants are transacting with our call centers and through our portals.
Complementing the work of financial intermediaries, our life navigation-based financial wellness program has helped individuals evolve the way they think, behave and feel about their economic lives.
We introduced a digital solution called MapMyFinances to help people develop a financial game plan for addressing short-term priorities that can ultimately influence their long-term goals. By providing prescriptive steps to address pressing necessities, like budgeting and establishing emergency savings, long-term financial goals can be within reach.
We’ve been through uncertain times before. At MassMutual, we continue to be guided by our singular purpose: We help people secure their future and protect the ones they love.
Guidance may not be available for certain products. Guidance is based on MapMyFinances assumptions and information provided by the employee and employer.
What can financial professionals do to continue to improve the customer experience during downtimes?
Financial advisors are adapting to meet the needs of their clients during these fluid times. A survey of advisors recently conducted by LIMRA revealed that 84% of respondents changed the way they communicate with their clients. Additionally, 80% say they are interacting with their clients more often, in particular around the stock market volatility and low-interest-rate environment.3
But what else can advisors talk about to enhance their interactions? As an industry, we're educating plan sponsors on ways to help minimize participant "bad behavior" concerning retirement savings, such as taking out loans from their 401(k) accounts or stopping contributions. This behavior has a quantifiable impact on retirement-readiness. According to MassMutual's retirement income survey, 25% of all respondents exhibited bad financial behavior – and that was before the current downturn.4 Today, unfortunately, this may be a necessity for some to meet their short-term financial obligations.
Developing a game plan that balances both short-term financial priorities as well as establishing long- term goals can help prevent suboptimal behaviors for individuals. Advisors can discuss ways to help mitigate the need for tapping assets earmarked for long-term savings. By grouping financial goals into short-term and long-term categories, advisors have the opportunity to help individuals maintain long-term financial goals by helping them to address their economic reality now.
Individuals can benefit from this approach and learn how to establish an emergency savings account, or establish an HSA account for those participants in a high deductible health care plan. Other options may include refinancing debt like a mortgage or reevaluating budgets to find different ways to help protect their loved ones now and into the future.
How does the potential of a recession or prolonged downturn change financial plans and advice?
Market downturns are painful but are a naturally occurring component of equity market investing. The power of losses on investor behavior is well documented in behavioral finance. Legendary value investor Benjamin Graham famously wrote, “The investor who permits himself to be stampeded or unduly worried by unjustified market declines in his holdings is perversely transforming his basic advantage into a basic disadvantage.”
The causes of stress in capital markets may vary, as is the nature of adaptive markets. The reaction by market participants, driven by classic behavioral finance, has been the same. The rationalization that “this time is different,” that “the recovery will not come this time,” driven by loss aversion and herding, has been present during each of these tail risk events. It is this panic and fear that has led to opportunities and strong forward returns for investors over time.
MassMutual is committed to providing individuals with the power of perspective to help navigate these uncertain times. Reminders we have communicated to investors include:
- Keep calm. It’s not easy, but keep in mind that after downturns, history has shown that markets have recovered and delivered gains in the long term.
- Revisit your goals and stick to your plan. During market swings, it can be helpful to remember that a diversified and balanced portfolio may be a good defense for downturns and can help position you for potential market recoveries.
- Be sure to review your goals and keep your individual needs, risk tolerances and time horizons in mind before making changes to your investment strategy.
- Stay informed. There is a lot of timely information MassMutual is producing to provide data and perspective.
In his role, Ken Verzella is responsible for leading a group dedicated to delivering a life navigation-based financial wellness program that evolves the way participants think, behave and feel about their financial life, in partnership with employers and their financial intermediaries. Ken has more than 20 years of institutional workplace experience.
1 Source: March 2020, 2020 MIT Age Lab survey
2 Source: 2019 MassMutual Financial Wellness survey
3 Source: LIMRA 2020 Coronavirus (COVID-19): Advisor Pulse
4 Source: 2018 MassMutual Retirement Income Stud
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