Financial Planning

[Host] The recent COVID-19 crisis has impacted the markets in unprecedented ways, as significant daily moves in the major market averages have become increasingly common. Against this volatile backdrop, it’s important to remain focused on long-term goals and adhere to pre-existing plans whenever possible. Financial planning experts Sabrina Bowens-Richard, Director, Portfolio and Market Strategy; Joe Sicchitano, Head of Wealth Planning and Delivery; and Brooke West, Senior Vice President and Private Financial Advisor joined us from SunTrust Investment Services to discuss the importance of financial planning in volatile times, and how advisor relationships can help you withstand bouts of uncertainty.

[Sabrina Bowens-Richard] This is Sabrina. Making investment decisions under uncertainty really cuts at the heart of investing. We're always grappling with things such as uncertainty over global growth, central bank policies, interest rates, geo-political risks, even the health of our corporations.

[Joe Sicchitano] Whether it's one big event or a collection of events, they tend to build to a critical mass and clients will say, "Even though my advisors have told me not to be worried, everybody else that I talk to is telling me that I should be worried." Finance experts, the media, friends and family, they really don't know the individual nuance of how the market conditions and volatility are going to affect you individually or personally. So, that's where anxiety can get a hold on people.

[Brooke West] I think we can't underestimate the power that the news media has in the way that they sensationalize business news. Bad news sells. The way that I like to help clients navigate periods of uncertainty is to focus on three things: education, planning and preparation. The first thing I like to do is really try to put the volatility in perspective. We'll talk about the fact that stock market volatility is inescapable, but the longer the investor is invested, it's much less significant to experience those bumps in the road. We frequently review their risk tolerance, which changes over time, and we need to stay on top of that. If after spending time educating a client about market volatility and reviewing their financial plan, we determine that the volatility they're experiencing makes them too uncomfortable, we will certainly reassess their goals and their investment allocation to minimize volatility.

[Joe Sicchitano] To build off of Brooke's answer, we want to plan for those types of life events or scenarios that we will have to be in a position to respond to. Now, notice that I didn't say, "react to," but chose the word, "respond to.” It means that we start with goals and objectives and craft a customized plan to achieve those goals and objectives. From there, we test it against collections of events that could happen.

[Sabrina Bowens-Richard] Just to reiterate what my colleagues have said, know what your investment goals are, know what your time horizon is, know what your risk tolerance is, and honestly, think about the loss that you can realistically stomach in a given year.

Portfolio diversification helps to mitigate risks and really is the key to long-term success. You should be comfortable with the assets you hold, especially the riskier ones. Each asset in your portfolio should have a purpose. It could either be for growth or capital appreciation, or you can be holding assets for portfolio protection.

We advise that you start with a strategic, all-weather portfolio that is based on long-term views and is in line with your risk tolerance. You can use tactical market opportunities to tilt away from those positions over the near term, but then do a portfolio check-up regularly and rebalance to ensure that your portfolio is always aligned with your goals.

[Host] It’s only natural to experience an emotional reaction to an up-or-down-swing in the markets. Next, our financial planning experts discuss how to navigate emotions and stay focused on planning.

[Brooke West] Emotions will drive us to make poor decisions. Our excitement and fears of missing out will often tell us to buy into an investment when it's at an all-time high. And conversely, our emotions will tell us to sell a really high-quality investment simply because the share price may have declined recently.

[Joe Sicchitano] We also have to realize that emotions can be positive, in that they are the fuel to staying committed to what we care about. But like Brooke said, positive emotions are just as capable of clouding our judgment. If you think back to some of the more emotional moments in your life, whether they're overly positive or they're overly negative, I think most of us would agree that we're not at our best when we're at one of those extremes. And that's exactly the point in time you want to not make a hasty financial decision that will undo years of great planning.

[Sabrina Bowens-Richard] What many people do not realize is that these emotional tendencies often impact the average investor’s returns. Just in 2018 alone, a year where we saw volatility pick up, investors sensed danger and took money off the table, but were poorly positioned when the market rebounded. So, if you can stay invested for 10, 20, 30 or more years, short-term volatility should not make you want to overhaul your portfolio.

[Host] When evaluating your investments, behavioral biases can become obstacles to achieving your long-term goals. Here’s how to recognize and avoid these biases.

[Joe Sicchitano] One thing that we want to acknowledge is that bias is not necessarily bad. In financial planning, what we're actually trying to do is encourage biases that are rooted in you. Your uniqueness, your situation, your circumstances, so that we arrive at, in a way, a biased solution that has embraced the biases that are unique to you.

Three of the more common ones that we tend to see, one of them is called "recency bias," in that, things that have happened most recently will be dominant in our minds and may have an undue influence. What the market did last week, what my portfolio did last month. These things will be front of mind and we may forget other things that have happened over the longer term.

"Confirmation bias" is the second one. What that is is an acknowledgement that, very often, we have a tendency to see what we want to see. And we will often seek out information or opinion that confirms what we already believe. We will literally be closed off to data as if it didn’t exist if it disagrees with what we have already pre-decided.

The last one is "anchoring." We reset the starting point based on the latest piece of information that occurs. So the market may go up or down a percent and a half today, and that's the new frame of reference, so we forget the fact that it's been up or down over the last year. That new data point has become our new anchor.

[Brooke West] The other bias that I often discuss with clients is, "loss aversion," which simply refers to a person's tendency to prefer avoiding losses versus acquiring gains. Meaning, as investors, we often feel the pain of loss much more significantly than the joy of a gain or appreciation. Understanding that bias can often help prevent clients from making an emotional decision, that deep down, they may know is probably not in their best interest.

[Sabrina Bowens-Richard] A well thought-out investment plan really helps keep you grounded, especially during times of stress. It helps you avoid trying to time the market and forfeiting returns, which pulls you further away from your goals. And I know it's hard to resist, but it just takes you out of the driver seat and gets you out of your own way.

[Brooke West] I think it's extremely important for you to feel comfortable being honest and vulnerable and talking about past experiences, fears, goals, life events, the good and the bad, as well as dreams, when you're going through the financial planning process so that your advisor can take that into account when creating and customizing your personal financial plan.

[Joe Sicchitano] Financial planning gives you all sorts of confidence. And it's that transparency, the collaborative nature of that that Brooke highlighted, that lends itself to a much more confident response in the event of market volatility, that's rooted in its impact on you and whether or not you should have a course correction.

[Brooke West] A good advisor is one that will be looking around the corner for things that should be planned for, and they should also be a problem solver for you and your family. The foundation of a trusting relationship is one where your advisor gets to know you on a deeply personal level so that they can provide you the most custom and personalized advice possible.

[Host] Thanks to Sabrina, Joe, and Brooke for sharing their financial planning expertise and perspective. For more information on how solid financial planning can help you weather volatility, contact your SunTrust advisor or visit us online at SunTrust.com/wealth.

The information and material presented in this podcast are for general information only and do not specifically address individual investment objectives, financial situations or the particular needs of any specific person. Nothing in this material constitutes individual investment, legal or tax advice. Investments involve risk and an investor may incur profits or losses. Claims made in this podcast may not be representative of the experience of other clients and are not indicative of future performance or success.