I always love Halloween - fun costumes, free candy, and of course watching your favorite scary movie.
It's a fun time of the year for things to get a little spooky, but when it comes to your investments fear is usually the last thing you want to experience.
If you're focused on you financial planning there's a lot of areas that can cause worry, some can be obvious, others not so much. Here are 3 areas you might have overlooked that could cause you future concern.
Declining Company Stock
This one seems obvious but I find it gets brushed over quickly by most people. Obviously if you have any work benefits tied to company stock those are at risk of taking a hit should the stock price decline.
Stock options, restricted stock units, and even your 401(k) match could all be at risk. There are numerous things that could cause an unexpected decline: expiring patents, failed drug approvals, increased regulation, or anything that might stagnant earnings and cause decline in shareholder value. Maybe the problem is short lived, but maybe it's not.
The scary part is that because a large amount of Pharma employees is awarded large portions of their benefits in a form that is tied to company stock this means that in a worst-case scenario employees could lose a substantial amount of their net worth.
So what does this mean and what should you do about it? First track your overall portfolio holdings and understand the amount of your net worth that is tied to one particular company. Understand what that worst case scenario might look like for you if that stock suddenly took a large loss.
Now that you understand the level of risk you're exposed to diversify where you can, save in places that aren't correlated with your company stock in the same way, and balance your risk tolerance with the amount of time you have until retirement. 30+ years until retirement? You can afford a bit more risk. 5 years? Maybe not so much.
Sequence of Returns
Speaking of retirement planning let's talk about something rarely talked about - the Sequence of Returns when you initially retire.
Essentially what is the type of environment that you are retiring into? Is it a booming expansion where the economy is doing great and the stock market is soaring? Or is it a recession where companies are struggling and the stock market is declining?
What happens in those first few years of retirement can have a huge impact on retirement moving forward. Retiring in a recessionary period creates a situation where you're burning the candle from both ends, both withdrawing investments for income while simultaneously losing value due to poor performance.
The end result can be a portfolio with a substantial decline within the first few years of retirement - an extremely frightening scenario for anyone, but a risk that can be increased if your net worth lies heavily within one company's stock, or one industry - which could be the case for many Pharma employees.
A good plan here is to have a plan for how to protect these assets once you retire. How you will diversify? Where will your monthly paycheck come from? If the market goes through a rough patch will you be affected?
These are the questions you want to think about before you actually walk away from work - otherwise you may end up going back should something unexpected happen.
Rising Taxes
Many Pharma employees are high income earners. If you're one of them, you probably pay a decent amount in taxes already.
But what would you do if I told you taxes might go up one day?
Now I don't have a crystal ball but what I do know is the US is, as of writing this, over $27 trillion dollars in debt. And according to the Congressional Budget Office 2020's deficit is estimated to be over $3 trillion dollars...in a single year.
It's not hard to think that this trend will have to be reversed at some point. The question is if taxes do go up how will that affect you? Well if you've been putting all of your savings into a pre-tax 401(k), you probably won't be to happy in retirement.
That means you've essentially delayed your tax liability on all of that money to a point in time where taxes are higher. Sounds like a huge headache for someone who worked hard to save a good nest egg. If this worries you consider looking at areas to diversify your investment savings from a tax standpoint.
And if you'd like to help doing that...
Schedule a call with me.
It's quick, easy, and can make all the difference in your future.
