fi nancialforum Market Declines I

Investment Planning A good investment plan identifies your financial goals and assigns a dol- lar figure and time frame to each. Then, you can select the proper invest- ment instruments to sup- port those goals.

In part one of this two-part series about stock market corrections, Lt. Col. Shane Ostrom, USAF (Ret), CFP®, discusses managing your portfolio based on your risk tolerance.

In late August, as this column was being written, there were stock market fl uctuations. Some fi nancial journalists and analysts would call this a correction (aka a signifi cant drop), while others will say there was no correction. Who should you believe? And does it matter? Those saying yes will point to the fact

that the stock market was on a rip since March 2009, the historic average timeline indicated we were due for a correction, and data showed the stock market was overvalued (too expensive). Those who say no will say the stock

market was not overvalued, according to their data, and the sluggish economic data facilitate the stock market’s continued rise. I’m not going to off er any predictions,

nor have I in the past. Instead, I’ll provide some general planning guidance to consider when managing your stock portfolio. I generally recommend a planning

process that manages to the risk — what- ever the risk might be — in meeting your long-range fi nancial objectives. You can’t know what will happen in the short term, but planning for the long term is another matter. If you assume your port- folio risk is because of the stock market (now or in the future), that’s what you should manage to. If the stock market takes a 50-per- cent hit tomorrow (or any time), how will that aff ect you fi nancially? Will you care? Many will say, “Of course I’ll care!” However, your answer to this really

should depend on where you currently are in life. For example, if you are work- ing, making regular contributions to your 401(k)/Thrift Savings Plan/individual retirement account, and still years from full retirement, a down stock market is good for you fi nancially, because only in a down market are you increasing your future wealth by purchasing greater amounts of ownership.* On the other hand, if a stock market decline will cause you immediate fi nan- cial pain — you will sacrifi ce a current retirement income source or you risk running out of assets before the end of your or your survivor’s life — reevalu- ate your fi nancial plans, strategies, and portfolios now to account for a market decline before it occurs. It’s important to remember that your

fi nancial plan shouldn’t require constant oversight and adjustments to your port- folios based on current conditions and predictions. If you have proper fi nancial planning based on your objectives, a stock market decline is never a concern, because your fi nancial plan already ac- counts for that prospect. In part two, in the November issue, we’ll look at specifi c ideas for managing risks to meet your long-term objectives.

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— Lt. Col. Shane Ostrom, USAF (Ret), is a CFP® and benefi ts information expert at MOAA. Visit www.moaa.org/fi nancialcenter for other re- sources. Email specifi c benefi t and fi nance inqui- ries to beninfo@moaa.org.

*online: Read more by searching for “Practicing What I Preach” at www.moaa.org/financialfrontlines. 48 MILITARY OFFICER OCTOBER 2015

PHOTO: SEAN SHANAHAN