Monitoring Your Life Stages
Reflect
In the previous lesson, we went over the three key parts to the portfolio monitoring process. Each week, we will be focusing on a different element to ensure you have a cyclical process you can use time and time again throughout your investment journey.
- Monitoring your allocation
- Monitoring the progress toward your goals
- Monitoring your personal situation for any changes in your life or family status
In this lesson, you will learn how to effectively monitor your allocation when it comes to life stages. Life stage changes are any big events that would potentially alter your goals and/or tolerance for risk. When a life stage occurs, you need to monitor your portfolio and understand what needs to change as well as how it will impact your next steps. A list of important life stages and how to plan for them include:
Family Changes
- Birth or adoption of a child (new goals and expenses)
- Marriage or divorce (increases or decreases in income and wealth)
- Death (reduction in income if a spouse; influx of wealth from inheritance and/or life insurance)
Actions you should take after family changes:
- Review estate documents
- Revaluate potential beneficiary designations
Employment changes
- New job (higher income; new 401(k) plan)
- Layoff or other unemployment (loss of income, disruptions in savings, reduction in short-term risk tolerance)
- Retirement (decline in income, typically reduction in financial tolerance for risk)
Actions you should take after employment changes:
- Evaluate retirement plans, accounts and duration
- Understand a sudden change in risk tolerance
- Plan for a loss or increase in income which will impact the funding of your goals
Health changes
- Deterioration in health (reduction in tolerance for risk; potential revaluation of goals)
- Cognitive decline (may require a change in preferences with someone else taking over portfolio management duties; see the Identifying Your Investment Management Preferences worksheet from Step I)
Actions you should take after employment changes:
- Potentially reevaluate your goals
- Ensure you have named a beneficiary to oversee your portfolio
- Evaluate a change in risk tolerance
- Determine if you need to fund long-term care or other health expenses
Having a pre-prepared plan helps you get ahead of life stages before they even occur. This can help you easily adjust your portfolio, risk tolerance, goals or preferences when you hit a new life stage. Understand that investing is not a linear process and there will be times when you need to go back to Step 1 to add or remove new goals from your prioritized list. Your risk tolerance will need to change as you need to dip into your savings. The PRISM Process helps you do just that, plan for the unexpected so you can invest for your future with ease.
Participate
The Monitoring Your Life Stages worksheet is a useful checklist to note any life stage changes that may have occurred. We recommend that you go through it annually, or sooner, if a significant life stage event has occurred.
If there has been a change, review your entire PRISM Wealth-Building Plan to incorporate any changes. You can always start back at Step 1 if need be. That is why the PRISM Process is cyclical and can be used to readjust your goals, risk tolerance, preferences, and overall allocation.
BONUS: You can also use the checklist above as a prompt to review your estate planning documents.
For this lesson, we encourage our members to download the Monitoring Your Progress worksheet and interactive Excel spreadsheet, as well as answer the two discussion questions below.
- Have you recently entered a new life stage? If so, when did it occur and what life stage does it fall under?
- If you have experienced a new life stage recently, how do you plan to monitor this process and reevaluate your portfolio?
Now, we want to hear about your findings! Please share your perspectives in the discussion below.
Download the "Monitoring Your Allocation, Progress and Life Stages" Worksheet and Interactive Spreadsheet
Questions about coursework, webinars, worksheets, etc.? Drop your inquiries in the discussion below. We're happy to help!
------------------------------
Jenna Brashear
AAII Community Manager
Chicago, IL
------------------------------