Ron Carson, Contributor
Feb. 17, 2021
Like many businesses, 2020 forced us to quickly shift gears to adapt to a rapidly changing environment. What we learned is that those who embrace change will go furthest—a lesson that not only applies to businesses but to individuals, as well. However, breaking away from conventional wisdom to embrace the unknown can be hard. That’s where adaptability quotient (AQ) comes in.
What is AQ?
AQ refers to the ability of a business or an individual to adapt and thrive in a fast-changing environment. While AQ has long been a core value of ours, never has it been more important than over the past year. Our ability to adapt quickly with the changing environment enabled us to make tremendous infrastructure gains. As a result, I believe our firm is very well-positioned for the future. In turn, that enables us to help ensure our clients are also well-positioned for the futures they desire.
You can always count on change
As wealth advisors, one thing we always emphasize with clients is that unforeseen events will take place during their lifetimes. That’s something we can all count on. However, what we don’t know is when these events may occur, what form they will take, and how they may impact you in a positive or negative way. While certain changes may be perceived as negative, at least in the short-term, such as a sudden drop in the markets or an unanticipated expense, others, such as a job promotion or financial windfall, can create significant opportunities along the path to accomplishing your goals.
When faced with the need to change course, having definitive goals in place can help tremendously. That’s because goal setting helps you prioritize what is most important to you and your family. It provides a framework you can build upon as you move through the different stages of your life. Over time, and as circumstances warrant, some of your goals will change or be eliminated altogether, others will be tweaked, and you may add new goals as your situation and priorities change.
For example, prior to the pandemic, many people prioritized the ease of their commute to work when choosing where to live. A shorter commute meant more time spent with family and friends, and less time wasted getting to and from work each day. In most large urban areas, the tradeoff for a shorter commute is higher-priced housing along with steeper real estate taxes. However, as the pandemic drove many workers from office buildings to working from home, many found their priorities shifting.
According to the National Association of Realtors (NAR), 8.9 million Americans have relocated since the beginning of the pandemic. This was an increase of nearly 94,000 people changing the address of their residence compared to 8.84 million in 2019 during the same period (March through October). As teleworking hit all-time highs, and many large employers announced their intent to allow workers to telecommute on a permanent basis, many families sought out larger houses with bigger yards for their kids to play in and office space for them to work. Others sought more affordable homes in less population-dense areas away from large, and often more expensive, city centers, such as New York, Seattle or San Francisco.
Positioning for the future
In addition to establishing goals, ensuring you are well-positioned for the future you desire also requires stress testing your plan under a broad range of potential scenarios, such as major economic disruptions, lifestyle changes, shifting priorities, inflation, changing tax laws, and more. Stress testing also helps to determine how well your strategy may adapt to and thrive under changing circumstances, such as a residential move, career change, or early retirement.
Stress testing is especially important for investors in or nearing retirement. During the various stages of retirement, your assets may be more or less vulnerable to certain risk factors. For example, it’s essential in the early stages of retirement to protect your assets from excessive market volatility and aggressive spending so you don’t erode the value of assets needed to generate income throughout your retirement. Later in retirement, your assets are typically more vulnerable to the impact of inflation, increased healthcare costs, and longevity, requiring greater emphasis to be placed on these risk factors.
Your adaptability quotient is also dependent, in part, on regular communication with your advisors. You want to make sure that, as things change, the proper discussions take place to help you adjust to changing life events or examine alternative paths. Having ongoing reviews, open lines of communication and face to face meetings allow you and your advisor to make sure that when change happens, you can make the adjustments that are right for you, along the path to your goals.
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