2020 has proven to be a challenging year in many ways, not the least of which has been a less than hospitable financial environment. Events ranging from a significant bear market in stocks earlier in the year to a dramatic increase in job layoffs have put many Americans in difficult financial positions. If you find yourself in these circumstances, you may be wondering what it will take to get back on track.

A recent study by Ameriprise Financial shows that with or without a pandemic, financial setbacks are more common than you might think. More than three-quarters of those surveyed experienced at least one major financial setback in their lives and this does not include events since COVID-19 emerged.1

According to the study, more than half of respondents faced setbacks costing them at least $50,000, and for one-third of respondents the losses exceeded $100,000. The impact was experienced across a wide range of households regardless of age or income level. But persistence paid off – a full 90 percent of respondents who experienced a serious setback say they have recovered from it.

What can we learn from their experiences? Here are three key takeaways:

1 Be ready for anything
Financial setbacks can occur for a variety of reasons. Based on survey results, those range from investment market declines to earnings that did not meet expectations, to a job loss. Other events that created negative financial consequences include making a bad financial decision, having to provide support to family members, and divorce or illness. In short, there are any number of obstacles that could put a wrench in your financial plans. Having a contingency plan in place to respond to these types of emergencies can help you weather the immediate financial stress.

2 Patience and persistence are required
While most people who suffered a significant loss managed to overcome it, don’t expect your comeback to happen overnight. A consistent finding among those who participated in the survey is that it takes time to rebound. For about two-thirds of the group, the recovery period lasted from one-to-five years. For others, it took longer, even more than 10 years in some cases.

Their experiences show that overcoming a financial setback typically requires a deliberate approach. For half of survey respondents, that included finding ways to cut back on spending. Tied to that, some (37%) say they changed their practices around saving money. A quarter of respondents decided that adding work hours or delaying retirement was a necessary step. Others found that having emergency reserve funds in place helped deal with their sudden financial shortfall.

3 You may be better prepared as a result
Despite the stress of suddenly facing a financial struggle, there may be a bright side. More than half of survey respondents said they ultimately felt stronger as a result of the experience. And almost all (97%) say they have focused on improving their ability to withstand a repeat event. They decided to boost their emergency savings, many accumulating more than $50,000 in cash reserves, or enough to fill a six-month income gap should they face another setback in the future.

4 Getting back on track
Whether the economic fallout from COVID-19 or some other factor has resulted in a financial setback for you this year, remember that you are not alone. Take the matter seriously but keep a level head. You’ll want to closely examine your financial situation to determine the most appropriate steps to take to get your recovery underway. Talking with a financial advisor may be a good place to start.

1 Financial Comebacks study conducted online on behalf of Ameriprise Financial by Artemis Strategy Group among 3,042 Americans ages 30-70 with $100,000 or more in investable assets. Study conducted Jan. 2-20, 2020.

Ms. Navneet Pahal, CFP^®, APMA^®, CRPC^®
Private Wealth Advisor | Managing Partner
Pahal, Vora & Associates
A private wealth advisory practice of Ameriprise Financial Services, LLC
CA Insurance License #0E39142
Visit website: www.pahalvoraandassociates.com
Email: Navneet.k.pahal@ampf.com
Call: (619) 358-9893 for more information

With the focus on the COVID-19 pandemic, the coming hurricane and wildfire season is likely not on many Americans’ radars right now. However, with many people in a financially precarious position over the last couple of months, it’s more important than ever to be prepared for a natural disaster.

While no one can predict exactly when a disaster like a hurricane, wildfire, tornado or flood will hit, the key is planning for one as if it will strike eventually. Here are steps you can take to prepare for if and when a weather-related event impacts you or your family.

Review your insurance policies

Check your insurance policies to determine how you’re covered by insurance, primarily to make sure there aren’t any gaps in disaster coverage. For instance, many home ownership policies include damage related to fire but don’t cover damage due to floods or earthquakes.

Insurance is one of the most important tools to help you overcome any losses from a natural disaster. If supplemental insurance, such as flood coverage, seems appropriate, explore all your options.

Protect your financial records

If a natural disaster occurs, the documents needed to rebuild your life should either be with you or stored somewhere safely out of harm’s way. Consider keeping items like insurance policies, birth and marriage certificates, passports, wills, trusts and medical information in a waterproof and fireproof safe.

In addition, you may want to keep digital copies of these documents on an external hard drive or thumb drive that can be stored safely or be accessible to you through remote cloud storage.

Boost your emergency savings

Emergency funds are critical in the event of a natural disaster. For instance, if you need to evacuate your home and live in a hotel for a period of time, those expenses can add up quickly. So, having three to six months’ worth of income set aside in an account you can easily access is important. In extreme situations, a disaster can shut down local ATMs and banks, so you may also want to consider keeping some cash on hand.

Any type of natural disaster can take a toll on your financial life in the short and long term. Working with a financial advisor on a financial plan that accounts for these types of events could help ease the burdens you may face when and if the time comes — and it will give you peace of mind in the meantime.

Ms. Navneet Pahal, CFP^®, APMA^®, CRPC^®
Private Wealth Advisor | Managing Partner
Pahal, Vora & Associates
A private wealth advisory practice of Ameriprise Financial Services, LLC
CA Insurance License #0E39142
Visit website: www.pahalvoraandassociates.com
Email: Navneet.k.pahal@ampf.com
Call: (619) 358-9893 for more information

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It’s important to maintain a level head in times of market turbulence. But that is often easier said than done, especially in the heat of market volatility. Even with the best intentions, investors can be challenged by their own bias and emotions when it comes to making investment decisions.

Emotional investing may be amplified during periods of market stress. But by understanding your emotions and biases, you can better avoid common pitfalls and keep yourself on track with your investment goals.

Common investment biases fall into four major categories:

• Overconfidence

• Aversion to Loss

• Anchoring

• Pattern-seeking Behavior

Overconfidence: Overconfidence implies that investors tend to overestimate their ability to generate a return and underestimate the risk associated with a particular investment.For example, imagine you are an investor who has recently had success picking winning shares. You may conclude that the success is due solely to your investment skill. That may be the case, but it’s also possible the results were due to market forces outside of your control. The problem is that in either case, recent success may encourage you to take greater risks. While this could lead to greater profits, it’s just as likely to result in greater losses.

Herding mentality, which is the tendency for investors to follow and copy what other investors are doing, also tends to distort near-term risks in up markets. Thus, investors can mistakenly discount the volatility and chance for loss as they seek to chase higher returns. Investors are best served by following objective information and building in an expectation that stocks do not move in a straight line.

Aversion to loss: Aversion to loss is innate. It is said that one feels the pain of a loss twice as strongly as the joy of a gain. In an attempt to minimize the pain associated with an investment loss, investors may be more prone to take action that can lead to the derailment of their long-term investment success. In market drawdowns, investors can be quick to react, selling stocks, and over-allocating to bonds or cash to avoid further losses and protect their nest eggs. Many investors sold down their stock funds in favor of bond funds and cash during the 2008/2009 financial crisis. Unfortunately, some of these investors missed out on the subsequent rallies that eventually took place and helped propel stocks to new highs.

While it is tempting to move to the sidelines during times of market stress, investors may want to avoid over-allocating to cash and avoid locking in investment losses that they would not otherwise incorporate into their regular portfolio management activity. Importantly, if people maintain a well-diversified investment mix and own high-quality stocks and bonds, you should be able to stomach near-term investment losses and ride out the eventual market cycles that come and go with time.

Anchoring: Anchoring implies that investors tend to rely too heavily on specific information or lean on recent circumstances to make decisions.Our minds can “anchor” to information, and it’s used as a reference point moving forward, regardless of relevancy. For example, investors may hang on to poor investments by waiting for them to break even at the price at which it was purchased. If you’re trying to decide whether to sell or hold a stock, are you basing your decision on what you know about the company and the state of the market, or are you basing your target price on the purchase price or other measures that may be less relevant to the stock’s future course?

To help combat such biases, it’s important that investors accept that market circumstances routinely change and sometimes suddenly. Therefore, your outlook may need to change accordingly. Investors can adjust to new market developments by seeking objective information, leaning on a financial advisor for sound advice, and setting realistic assumptions for potential returns.

Pattern-seeking behavior: Pattern-seeking behavior describes our brain’s desire to seek out ways to compartmentalize the flow of information and find patterns that help us make sense of the world quickly. Since our brain is hardwired to do this, investors can mistakenly believe they see patterns in market trends that prove false. Since the future can be unpredictable at times, and patterns are not always present, investors may want to incorporate the following:

• Establish realistic expectations for your portfolio, both from a return and risk perspective.

• Expect markets to move in unpredictable ways, particularly during periods of market stress.

• While the near-term is unpredictable, generally, stocks move up and to the right over the long-term.

• Society is aging, and growth is slower. That means the patterns of the past may be harder to apply to the future, or possibly, not relevant.

Truly understanding your risk tolerance and your threshold for loss can go a long way in helping you maintain a level head during times of market stress.

If you suspect your personal investing bias and emotions are interfering with your investment decisions, defer to the experts.Ask a financial professional to conduct an objective review of your portfolio, with an eye to performance and your financial goals.Together you can look for opportunities to grow your investments through disciplined investing strategies.

Ms. Navneet Pahal, CFP^®, APMA^®, CRPC^®
Private Wealth Advisor | Managing Partner
Pahal, Vora & Associates
A private wealth advisory practice of Ameriprise Financial Services, LLC
CA Insurance License #0E39142
Visit website: www.pahalvoraandassociates.com
Email: Navneet.k.pahal@ampf.com
Call: (619) 358-9893 for more information

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By Navneet Pahal

You can, but it isn’t your best option. Your 401(k) plan should be dedicated primarily to your retirement.

There are two primary drawbacks to using your 401(k) for college funding. First, if you withdraw funds from your 401(k) before you are 59½, you will owe a 10% premature distribution penalty on the withdrawal. This penalty is in addition to income taxes you will owe on the withdrawal. Second, frequent dips into your 401(k) reduce the amount of money you ultimately have available to reap the benefits of compounding and tax deferral. This, in turn, reduces the overall funds for your retirement.

If you really need to use your 401(k) funds to pay for college, a better option might be to borrow from your plan if your plan allows loans. Plan loans are not taxed or penalized, as long as you repay the funds within a specified time period. But make sure you compare the cost of borrowing co

llege funds from your plan with other finance options. Although interest rates on plan loans may be favorable, the amount you can borrow is limited, and you generally must repay the loan within five years. In addition, some plans require you to repay the loan immediately if you leave your job. Your retirement earnings will also suffer as a result of removing funds from a tax-deferred investment.

If you want to save for college in a retirement vehicle, consider using a traditional IRA or Roth IRA instead. With IRAs, you will not owe a 10% premature distribution penalty on withdrawals you make before age 59½ if the money is used to pay your child’s qualified college expenses.

Ms. Navneet Pahal, CFP^®, APMA^®, CRPC^®
Private Wealth Advisor | Managing Partner
Pahal, Vora & Associates
A private wealth advisory practice of Ameriprise Financial Services, LLC
CA Insurance License #0E39142
Visit website: www.pahalvoraandassociates.com
Email: Navneet.k.pahal@ampf.com
Call: (619) 358-9893 for more information

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