Time to consider a cash flow based investment program?


In “The Sun Also Rises” by Ernest Hemingway, a character is asked how he went bankrupt. The answer: “Gradually then suddenly.”

This is how some bear markets feel. A few percentage points here, a few percentage points there, maybe a rebound, then a sustained decline.

So the bear market that officially started in mid-June, the 13th since World War II, might catch you off guard. Individual overvalued stocks in your portfolio, as well as market-cap-weighted index funds that were too concentrated, may have suffered significant declines before you had a chance to eliminate them.

Worse still, you may have known it was time to quit some farms and ignored the warning signs. Admittedly, one of those signs – rising inflation – had been in the news for months. Selling stocks that have done well for you is always difficult, but when they become overvalued, you have to decide if it’s time to find a better deal.

There are different measures to determine the value of a stock, but the most widely used is the price/earnings ratio. When you see P/E ratios for a stock that are much higher than normal for that position, it’s time to find out why. This could be because the price has gone up a lot, revenue has dropped, or a combination of both. Find out why, because over the long term, stock valuations tend to fall within a certain range.

To complicate matters in many portfolios, during the first half of the year the bond market was also in disarray. Bonds often provide support when equities fall, but “global fixed-income investors haven’t endured a rout like this since official data began in 1990,” wrote Quentin Fitzsimmons of T. Rowe. Price in May.

The best time to take on this portfolio management task was yesterday, but with the recent market rally, you have another opportunity to limit the damage. Examine your financial goals and whether the current price and velocity of your portfolio will get you where you want to go. Make the necessary changes today so you don’t rush tomorrow.

Given the many moving parts of today’s volatility, assessing your financial plan is likely more complicated than in the past. The many basic financial planning calculators you see all over the internet probably won’t do the trick. A more sophisticated program is probably in order here.

There are several good financial planning platforms out there, but the one I tend to favor is the cash flow based one. This type of program tracks all the dollars that come into a household and compares them to household spending and savings.

A cash flow-based program requires a thorough analysis of your finances and may take longer to implement than a goal-based program, which only tracks the funds you allocate to your financial goals.

The results of a cash program may be too detailed for some people, but in this environment, the more detail you can track, the better.

Evan R. Guido is the founder of Aksala Wealth Advisors LLC, a member of the Forbes Next-Gen Advisors 2018 list and a finance professional at Avantax Investment ServicesSM. Evan leads a team of retirement transition strategists for clients who consider themselves the “millionaire next door”. He can be reached at 941-500-5122 or [email protected] To learn more about his ideas, visit heraldtribune.com/business. Securities offered by Avantax Investment ServicesSM, member FINRA, SIPC. Investment advisory services offered by Avantax Advisory ServicesSM, insurance services offered by an insurance agency affiliated with Avantax. 6260 Lake Osprey Drive, Lakewood Ranch, FL 34240.


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