How Do You Reallocate Assets Due to a Life-Changing Event?
In the wake of life-altering events, finance professionals must navigate the complexities of reallocating assets with precision and care. We've gathered insights from financial planners and wealth managers, who share their strategies—from adjusting allocation based on time horizon to conducting comprehensive assessments regularly. Explore these six expert responses to guide your financial realignment during pivotal moments.
- Adjust Allocation Based on Time Horizon
- Rebalance Portfolio After Major Events
- Reassess Risk Profile Post-Event
- Maintain Stability Through Flexible Strategy
- Anticipate Changes in Financial Planning
- Conduct Comprehensive Assessments Regularly
Adjust Allocation Based on Time Horizon
When managing asset allocation in response to a life-changing event, the primary factor to consider is your investment time horizon, or the period until you plan to utilize these assets. Life events such as retirement, launching a small business, or a child beginning their college education can significantly alter this time frame. As your goals and timelines shift, so should your approach to how much risk you're willing to take on with your investments.
Rebalance Portfolio After Major Events
When a major life event—like getting married, divorced, receiving an inheritance, or retiring—occurs, it can really shake up your financial situation. As a regular person, it's natural to feel a bit overwhelmed about what to do with your money and assets in those scenarios. That's where we can guide you through the process of reallocating things smartly.
The first thing we'll do is take a good, hard look at how this life event impacts your overall money picture—income, expenses, taxes, long-term goals, the whole nine yards. Then we'll revisit investment objectives and appetite for risk based on new circumstances. Maybe you can afford to take more risks after an inheritance windfall; or perhaps an upcoming retirement means playing it safer.
From there, we'll rebalance your investment portfolio by shifting money across different types of assets, such as stocks, bonds, and real estate, to align with adjusted goals and risk tolerance. We'll also make sure the portfolio is properly diversified.
Of course, we'll consider any tax implications of buying, selling, or moving assets around so you don't get hit with unexpected bills. And if it's an event like marriage or inheritance, we'll update the estate plan and beneficiary info accordingly.
The key is that big life-changing events often require changing how assets are allocated, but with some professional support, we can ensure that money continues working optimally for a new reality while avoiding costly missteps. Just a little proactive rebalancing can go a long way!
Reassess Risk Profile Post-Event
Asset allocation is primarily based on the goals of an individual through various life stages. Risky assets are suitable for a long-term goal, while conservative ones are better for short-term needs. However, in response to any life-changing event, the individual or family might abruptly need to change the plan.
The first step we take as finance professionals is to reassess the risk profile of the individual or family. Based on the current risk profile and the time horizon within which the individual or family would require access to the funds, we reallocate the assets.
For example, in the event of the sudden demise of the only breadwinner of the family, we reallocate from equity to debt or a balanced portfolio. On the other hand, for a newly born child, the allocation gets higher towards equity to protect the future of the child.
Maintain Stability Through Flexible Strategy
We are constantly going through changes in our lives; for that reason, our investment strategies have to be flexible. When responding to a life-changing event, it's essential to approach reallocating assets with a focus on maintaining financial stability and achieving long-term goals.
Take time to reassess your financial situation, considering your new circumstances, goals, and risk tolerance. Review your investment portfolio and reallocate assets as needed to align with your updated objectives and risk profile. This may involve rebalancing your portfolio, adjusting investment strategies, or exploring new opportunities that arise from the life-changing event.
By actively managing your financial plans and making informed decisions, you can navigate transitions successfully and ensure your financial well-being in the face of change.
Anticipate Changes in Financial Planning
In our experience, a life-changing event shouldn't require any portfolio changes if it's been anticipated as part of a proper financial plan.
We often have clients come to us to get help after these events have occurred, and by that time, we're trying to make the best of a bad situation. It's critical to discuss a client's portfolio time horizon in every situation—how long they need the money to last—especially in unexpected circumstances.
There's always a 'give' and a 'get' in portfolio reorganization, and it's important to weigh both short-term and long-term portfolio objectives, as well as lifestyle changes that might be necessary, before jumping into changing anything.
Conduct Comprehensive Assessments Regularly
Ensuring regular client check-ins, ideally through semi-annual meetings, is essential for staying informed of any life-changing events. Clients often have a lot on their plate during such times, and may not immediately recognize the financial implications of these events. As an advisor, it's my responsibility to provide support and guidance, ensuring my clients feel supported throughout these transitions.
When confronted with significant life events like marriage, parenthood, job changes or loss, or nearing retirement, finance professionals conduct a comprehensive assessment of the client's financial landscape, goals, and risk tolerance. This evaluation helps in understanding how the event impacts their financial needs and objectives, prompting a review of the existing asset allocation to realign it with the new circumstances.
Adjustments may involve rebalancing the portfolio to maintain the desired risk-return profile, or reallocating assets to address changing priorities. Effective communication throughout this process allows me to tailor my guidance and maintain a portfolio that is tailored to my client's evolving needs and preferences amidst life's transitions.
Portfolio rebalancing is comparable to adjusting the sails of a sailboat, to help investors navigate through choppy market waters to ensure they grow in harmony with their financial objectives, regardless of market fluctuations.
