Top 4 Questions Lawyers Are Asking
We all know the last several months have been perhaps the most unsettling times any of us can remember. As a result, I have had countless conversations with clients to help them navigate these stormy seas. I thought I would share some key questions I’m hearing from our lawyer clients and the advice I have given them to continue making good decisions amid an ocean of uncertainty.
1. Should I change my portfolio mix?
It depends. As Simon Sinek said in his famous TED talk – “start with why.” Whether you should change your stock-bond mix depends on why you are considering the change. We do not believe that anyone can successfully time the market. So, if you’re considering selling stocks with a short-term, market timing mindset to try and get out at a high and get back in at a low, we would argue that’s not a winning approach. However, if this downturn has made you reassess your risk tolerance, goals, and long-term expectations then that’s a conversation worth having to see if an adjustment makes sense. The key is to review your retirement plan and see how different stock-bond ratios impact the long-term probability of success for your retirement plan and make a well-informed decision on the right mix going forward.
2. How can I hedge my stock risk in my portfolio?
As the old saying goes, there’s no free lunch. There are ways to purchase “portfolio insurance” to protect against a drop in the stock market. For example, you could buy put options which give you the option to sell stocks at a pre-determined price level. The difficulty is that during very volatile periods for stocks that “insurance” becomes, in our view, prohibitively expensive. Our view is that the best, most cost-effective way to hedge stock risk is to own more high-quality bonds. While stocks have gotten battered during this downturn, high-quality bonds have done their job of providing stability and being the ballast in a portfolio.
3. What’s the right amount of cash to keep on hand?
A good rule of thumb for a “rainy day fund” is to have 3-6 months of spending in cash reserves. This gives you a lot of financial flexibility in case of an emergency or in case your compensation is negatively impacted. Most lawyers I’ve spoken to recently have seen their work slow down and have expressed some concern about their ability to collect payment from clients whose businesses are struggling. During very uncertain times like these, I would suggest expanding that cash cushion to perhaps even a year’s worth of spending. I recognize that is much easier said than done but having that cushion will enable you to endure the volatility and not make poor decisions with your long-term portfolio.
4. Can I still retire when I was planning to?
This answer is so specific to each client’s situation. For the most part, clients have been pleasantly surprised to see that their retirement plan has remained well intact despite the market turbulence. Everyone’s situation is different, so it really depends on how confident you are in the assumptions being used to build your plan. I would highly recommend you take a fresh look at the spending and savings assumptions you’re using in your retirement projections. Do those numbers still seem realistic, not just in the short-term, but especially over the next 3 years? Your retirement plan projections are only as good as the assumptions going into the model, so make sure you revisit those assumptions and are comfortable that you are still on track with those data points.
Hopefully, this short list of key questions I’m hearing was helpful to you as you assess your own financial situation. If you’d like to talk about any of these further, please feel free to get in touch and we would be happy to explore how we can help you navigate these uncertain times.
Justin works closely with clients to design wealth management plans that take into account the full spectrum of their career and personal concerns with a specialization in advising law firm partners. Justin earned his MBA from Northwestern University’s J.L. Kellogg School of Business.