The Rule of 5P’s: Prior Planning Prevents Poor Performance


The year 2020 has presented some new and unique challenges for all of us. We are now proficient at videoconferencing, walking one-way in grocery aisles and, most importantly, we appreciate our medical professionals and teachers more than ever.

This was also the year when much of the economy came to a halt. After a decade of mostly smooth sailing, many investors were overwhelmed with the constant (and constantly changing) flow of social and economic information. While the highs and lows of the market are unpredictable, thoughtful prior planning can smooth the path.

With that in mind, there were a few tenants of our process that were confirmed this year:

Portfolio construction matters. Portfolios should be built with an eye on risks and rewards. Achieving the right balance depends on each investor’s ability and willingness to take risks. Including a mix of aggressive and conservative investments offers benefits in varied markets. Spend the time to get the mix right mix and re-evaluate as your personal circumstances change.

Asset allocation matters, and so does security selection. Challenging periods will often reveal opportunities. A rising tide lifts all boats. In the same way, a receding tide treats all boats the same. During market turmoil, some good companies will be dragged down by the momentum of fear and uncertainty. When this happens, be ready to act.

Taxes always matter. When markets are down, take the opportunity to sell some securities at a loss and re-invest the proceeds into favored securities. These losses can be used to offset the tax on current or future realized gains. Don’t wait until December to harvest losses – do it whenever there is broad market volatility or individual security weakness. While investment returns matter, after-tax performance should always be the priority.

Continue to evaluate planning opportunities. A traditional IRA or 401k provides an upfront tax benefit, while a Roth IRA allows you to pay taxes upfront to avoid the taxes in the future. A traditional IRA can be converted to a Roth by paying taxes on the converted amount. The assets can then grow tax-free, and any future withdrawals are also tax-free. This is a decision about taxes (are rates going up or down?) and timeframe (number of years before money is needed). Would you rather own 100% of your Roth IRA at retirement or own a portion of a traditional IRA, with the rest being ear-marked for the IRS?

Estate plans need periodic reviews. Since health scares are unpredictable, it’s important to feel confident with the individuals who are authorized to make health and financial decisions for you. If you are unsure how these would be handled, it is time to review healthcare directives, wills, power of attorney designations, trusts and beneficiary designations.

When was the last time you reviewed your financial plan? Did recent events highlight any areas of weakness?

Our lives will always be impacted by events out of our control. Focus on what you can control through thoughtful planning.


TomburleighTom Burleigh, CFP®
Wealth Manager
CMH Wealth Management, LLC

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CMH Wealth Management, LLC is an independent wealth management firm providing investment management and wealth planning services to a select group of clients. The firm is dedicated to providing trusted advice for the protection and growth of client assets. CMH Wealth Management is a Registered Investment Advisor.

Categories: Finance