Timing is everything — whether it’s navigating traffic to get to work on time or getting a table at a popular restaurant. If you miss the window, you might end up stuck in traffic or waiting in line longer than you’d like for dinner. Timing can be tricky for everyday activities, and it’s even more challenging when it comes to the markets. If your timing is off with the markets, research shows it could cost you. It’s a significant risk.

Making the right call

For some investors, timing the market is like calling the right play in football: If you do it right, the risk could be worth the reward. However, if your timing is off, you could end up getting sacked. Missing even a handful of the market’s best days can dramatically cut your investment returns. Conversely, missing several of the worst days in the markets can potentially offer higher returns, but the strategy behind trying to miss the bottom of trading can be challenging.

Based on the historical performance of the S&P 500 Index, missing just 10 of the best days in the markets, a very small amount over a 30-year period, would have dropped your annual average price return from 8.36% to 5.48%. Missing the 30 best days would have caused the drop to be even more steep to 1.98%. If you missed the 40 best days, the drop would have been even more still to .57%. Change that to a 50-best-day miss and your return would have hit a negative, -.73%.¹

In the news

Markets fluctuate greatly and interest rates rise and fall, but outside factors like politics and international trade can also affect investment returns monthly, weekly, even daily. Predicting change is really just guessing.

Diversification in investments can be a better overall strategy, limiting exposure and risk by building your portfolio to address your short-term and long-term goals. As life changes with marriage or divorce, a new baby, a new job or even retirement, it’s important to review your financial goals.

The bottom line

At TrueJourney, we believe the best strategy to help manage your risk is to avoid trying to time the markets and remain fully invested throughout a complete market cycle rather than attempting to time the market by buying and selling to avoid volatility or capture significant gains.

It’s also a strong recommendation to consider rebalancing your portfolio, buying asset classes that have fallen below a portfolio’s long-term allocations and selling those that are above it while staying fully invested. Regular rebalancing can lead to more consistent returns and help manage your risks, something we always want to do. The markets are never a completely smooth ride, but some simple strategies can help reduce losses and help you maintain performance in the long term.

When the stock market is on the rise, investors can fall into the trap of believing the good times will never end. But in all probability, market volatility will return, and chances are it’ll be when it’s least expected.

Rather than waiting for it to happen and risking the possibility of panicking and making costly investment decisions, you may want to think about volatility during those good times. That way, you can be strategic rather than emotional about dealing with it, which may lead to better outcomes.

What type of investor are you?

What you should be considering now depends on whether you have an investment plan.

Quite simply, if you don’t have an investment plan, you should think about creating one, and here’s why: A well-thought-out plan is built around what you’re investing for (goals), how long you have until you need to tap into your investments (time horizon), and, most important for this topic, the amount of market volatility you’re comfortable with (risk tolerance).

Taking these factors into consideration, your plan should include a strategic asset allocation, which is how your portfolio is divvied up between different types of investments — primarily stocks, bonds, and cash alternatives.

You may be the type of investor who takes market volatility in stride. In that case, you likely have a relatively high risk tolerance. On the other hand, volatility may make it hard for you to sleep and cause you to panic, which would mean your risk tolerance is probably rather low.

If you’re the second type of investor, a larger portion of your asset allocation would likely be in bonds, which historically have been more stable than stocks. However, along with that relative stability generally comes significantly lower returns.

The potential benefit of having an investment plan is you may be able to do a better job of dealing with volatility because you’ve “baked it into” your plan so you should be better prepared for its possible impact and your reaction to it.

What if you already have a plan?

If you have an investment plan, you should be thinking about whether your portfolio is currently aligned with your strategic asset allocation.

While it might be nice if you could set and forget your asset allocation, the fact is over time market activity can cause your investments to drift away — sometimes far away — from where you want them to be if you don’t keep an eye on them.

For example, a hypothetical 50% stocks, 45% bonds, and 5% cash alternatives portfolio could become a 60% stocks, 35% bonds, and 5% cash alternatives portfolio without you realizing it. While that “new” portfolio may provide better returns, it’s also likely to fluctuate more in value if the market becomes volatile. In other words, you could be exceeding your risk tolerance without being aware of it.

To help avoid this situation, consider periodically rebalancing your portfolio when necessary, which may require selling some investments and purchasing others to bring it back to your intended asset allocation.

Because creating a plan and keeping it in balance can be complicated, you may want to turn to a TrueJourney financial advisor with the necessary tools and experience for help.

Note: TrueJourney asked colleagues and friends what they would tell someone who has just graduated and/or is starting a new phase in their lives. Here are some of the thoughts they shared.

As you enter a new stage of your life, it makes sense to give some thought to how your money factors into your routines and habits.

Take a close look at your money attitudes and behaviors.

Maybe you have saved every dollar you ever received for every birthday and holiday since you were young. Or maybe you’ve spent every one of those dollars and do the same with every paycheck. This may be a good time to recognize and perhaps start to change any behaviors that may be contributing to a less-than-optimal outcome. It is never too late to start paying yourself first.

Be intentional in your money decisions.

It is tempting, if starting out with a new job with a steady income higher than you’ve ever had before, to want to go on a spending spree. Before you start spending, give careful thought to ALL the jobs that money can do for you. Money can buy things, but it can also, depending on how you use it, create stability or help you reach goals you set for yourself. Devote some time to think about the role money will play in your life. Your decisions about money can have very positive or very negative results. Will money be your friend or your enemy?

Have a plan.

Some people have a clear plan for their entire lives and start to work that plan upon graduation or at the beginning or completion of a life milestone. If you are not one of those people, at least create a one-year plan for your life activities and calculate the amount of money you will need to support that. Set that budget, and stay true to it for that first year. Commit to some amount of money to save that you will consider untouchable for this first year. At the end of that year, assess your progress, celebrate your successes, and learn from any setbacks. Adjust and implement your plan accordingly.

Pay yourself first.

Create the “pay yourself” habit, and automatically increase contributions as your income rises. Sign up for workplace savings and retirement accounts. If your employer offers a certain percentage match, at least participate to that level to receive the “free money” your employer provides. And with every increase in wages, increase your savings contributions as well.

Pay off your debt AND start saving.

“OK,” you say, “I want to save but I have school loans or other debt.” Work to rebalance the scale — pay off your debt to stop your cash outflow and reroute that cash flow back to you. Everyone has a unique set of circumstances to consider in order to reduce debt and save more.

Manage your credit to your advantage.

Resist the temptation to accept every credit offer you get. It’s important to establish a credit history in order to build your credit rating, but the use of multiple credit options could lead to unwanted debt. If your money plan includes a credit component, have a clear understanding of how much that credit is costing you. Also keep track of your credit rating and understand actions you can take to improve it. Check your credit report on a regular basis to be sure that all the information that appears there is accurate. If it is not, report the discrepancy so that it can be corrected on your credit report.

Enjoy the rewards your hard work earns for you.

It takes effort to earn money and to manage it to implement the plans you’ve made. Include in your plans rewards that are meaningful to you. Take time to enjoy the results of your efforts.

Imagine sitting in a rowboat and wanting to get back to shore. If you just sit there, the wakes from passing boats and the wind could cause you to drift further toward the middle of the lake — not where you want to be. Of course, they might actually move you toward the shore. Who knows?

On the other hand, you could use your paddles. It’s more work, but it’ll increase the possibility of your reaching your destination.

It’s similar with your portfolio. If you neglect it, market activity may cause it to drift away — possibly far away — from where you want it to be.

Take, for example, a portfolio that starts out 60% stocks / 40% bonds. If stocks were to have a particularly good year and bonds a bad one, the allocation could shift to, say, 70% stocks / 30% bonds without the investor even realizing it. While this portfolio likely has better growth potential than the original, it could also take a bigger hit if stocks, which tend to be more volatile than bonds, turn around and have a bad year.

To help avoid this, you should consider periodically “rebalancing” your portfolio. This involves looking at how you’re diversified across different types of investments and considering selling some investments and buying others when necessary to bring your portfolio back to the asset allocation you originally intended. In the example above, you might think about selling stocks and buying bonds to get to 60% stocks / 40% bonds.

You may take a “set it and forget it” approach to investing. But, over time, life events, the timing of when you need the money, and market events are likely to compel you to revisit your strategy. Here’s some things to consider when they arise.

Dealing with life events

Events, both expected and unexpected, like the following could cause a change in your long-term goals and time horizon:

• Graduation
• Marriage, divorce, or remarriage
• Birth of child or grandchild
• Change in health status
• Job loss, retirement, or early retirement
• Death of a loved one

These types of events may prompt you to revisit your investment strategy, and in fact, they may be good reasons to make changes. Do you need to reprioritize your investment goals, spending, or how much debt you need to pay down?
Before you reallocate your investments, remember to plan with the same careful consideration you gave to creating your original investment strategy.

Responding to market action

In addition to life events, you may want to revisit your investment strategy when there’s market volatility. Is that college tuition/mortgage/vacation payment nearer than you anticipated, making you realize that you may need to be more conservatively invested?

It is worth noting that your time horizon for needing the money is the key factor here. Avoid making emotional decisions based on today’s 24/7/365 news cycle. It can be tempting to react to the headlines when you might be better off simply riding out the volatility if you have a longer time horizon.

That doesn’t mean you should never respond to market action. However, it’s often a good idea to think long and hard before you change or, at the extreme, abandon your strategy.

Not sure whether your investment strategy still aligns with your goals? Connect with a TrueJourney financial advisor to help evaluate your time horizon, risk tolerance and changing financial needs.

A donor-advised fund offers a middle ground between participating in simple “checkbook charity” and starting a nonprofit foundation.

Often considered smaller and nimbler cousins of private foundations, donor-advised funds offer many of the benefits of foundations, including the ability to:

• Involve multiple members of the family, friends, or other advisors
• Research potential recipients
• Recommend how funds are distributed

But, unlike foundations, donor-advised funds require less legal and financial paperwork, such as an annual tax filing that is subject to public inspection, regulatory requirements, and excise taxes.

How do you contribute?

Donor-advised funds allow you to contribute cash, stock, real estate, or other assets, such as business interests. These contributions can be bunched to combine multiple calendar years’ worth of gifts into one year, which may offer tax benefits if you are close to your standard deduction limit.

You may partner with a donor-advised fund sponsor or the sponsor may run your fund. A fund sponsor can be a financial institution or a community, educational, or religious institution. Grants may then be recommended by you or your designee to your charities of choice.

Rather than keeping track of gift receipts from multiple charities, a donor-advised fund serves as your single source for tax receipts and grant-recipient information. Keep in mind, your potential deduction is based on your contribution(s) to the fund itself, not the individual grants distributed from the fund.

More potential considerations for donors and recipients

Donor-advised funds are gaining popularity for other reasons, including:

• Anonymity. When you give gifts to a charity through a private foundation, those gifts become public record through IRS form 990-PF. In contrast, you can choose to make your gifts from a donor-advised fund anonymously.
• Recurring gifts. Many donor-advised funds have recurring gift options so you can optimize your giving in line with your giving strategy and the organization’s needs. If you had previously used credit cards to make recurring gifts, you can use tax-advantaged dollars and save a charity from costly credit card processing fees.
• Noncash gifts. Appreciated stock, real estate, or collectibles are easier to handle for both the giver and the recipient through a donor-advised fund. This holds true even for highly liquid yet noncash assets like cryptocurrency.

While many charities may be unable to take noncash gifts given the level of complexity, donor-advised funds serve an important role to help charities benefit from the wealth accumulated in these illiquid assets.

Potential cautions

Of course, there are some potential cautions for anyone considering a gift to a donor-advised fund:

• Irrevocable donations: The donor to the fund cannot withdraw their money for any reason once it’s gifted.
• No legal requirement to make grants: There is no legal requirement to grant the money donated to the fund. This has been viewed as a criticism of donor-advised funds as grants may not be made at the time they are most needed.
• Underlying costs/fees: Be aware of the administrative fees associated with the management of the donations as well as the investment options within the fund. Fees and investment options vary by provider.
• Grant-making restrictions: Grants can be made only to certain eligible 501(c)(3) organizations that the IRS recognizes as public charities. These organizations cannot provide goods and services to the donor, such as tickets to a gala.

Potential tax advantages

Contributing to a donor-advised fund may bring tax advantages, such as:

• You may receive a tax deduction, the use of which is subject to your Adjusted Gross Income (AGI) limitations.
• There is no capital gains tax for highly appreciated assets when sold inside the donor-advised fund. The invested assets have the potential to grow tax-free, which could increase the eventual grant that you can make from the fund at a later date.
• Real estate gifts are valued at their current value, which may provide a bigger tax break if the property has appreciated, unlike similar donations to a private foundation that limit the deduction to the cost basis in the property.

If you’re considering using a donor-advised fund but are uncertain about whether it could be right for you, talk with your tax advisor and your TrueJourney financial advisor to help you decide.