Is Your Financial House Built to Last? Taking Stock of Your Portfolio

Bull markets are often accompanied by overconfidence and poor decision-making. As Benjamin Graham said, “The longer the bull market lasts the more severely investors will be affected with amnesia; after five years or so, many people no longer believe that bear markets are possible.”

Before getting caught up in the hype, consider the following thought experiments and strategies to stay prepared for any market environment.

1. Stress Test Your Retirement Plan

A booming market might make your portfolio look healthy, but have you actually tested whether it can handle a downturn? Many investors assume they’re set for life, only to get hit hard when the market inevitably pulls back by 20-25%.

A good stress test asks:

• If the market drops significantly, can I still afford my current spending?
• If I retire earlier than expected, do I have enough liquidity?
• What happens if I don’t get the returns I’m expecting?

Overconfidence can lead to risky decisions, like retiring too soon or spending beyond what your plan can truly support. A stress test can help bring expectations back to reality.

2. Align Investments with Your Financial Timeline

Many investors make a critical mistake: they invest short-term money in long-term assets. If you need to pull money in the next one to three years, it shouldn’t be tied up in stocks that could lose value overnight.

Instead, create a laddered approach:

• Short-term needs (1-3 years) → Cash, CDs, money markets, short-term Treasuries
• Mid-term needs (3-7 years) → Bonds, fixed income
• Long-term needs (7+ years) → Equities, growth investments

With this approach, even if the market crashes tomorrow, your short-term spending is covered, giving your long-term investments time to recover. 

3. Know Your True Monthly Spending

Most people have no idea how much they actually spend. In financial planning, incorrect spending assumptions lead to poor retirement outcomes.

Lifestyle creep is, by definition, difficult to foresee. Keep an eye out for common spending traps:

• That “one-time” home renovation that somehow happens every year.
• A big vacation that suddenly becomes an annual tradition.
• Kids’ weddings, grandkids’ college tuition, or other surprise costs.

The best way to get real about spending?

• Consolidate financial accounts to get a clear snapshot of expenses.
• Run projections based on actual spending, not just rough estimates.
• Use one credit card for tracking to avoid miscellaneous costs.

If you don’t know what you’re spending, you’re probably spending too much.

4. Have an Estate Plan That Actually Works

One of the biggest mistakes high-net-worth individuals make is failing to properly title assets.

• If your investment accounts aren’t in a trust, they could go through probate, making your finances an open book after your passing.
• If your IRAs and 401(k)s don’t have correct beneficiaries, assets may not go where you intended.
• If your life insurance policy hasn’t been updated in years, it may no longer cover your family’s needs.

A well-structured estate plan is about control and protection for you and the generations after.

Don’t Get Caught in the Hype

The market has been strong, but history tells us it won’t stay that way forever. Now is the time to:

Run a stress test

Align investments with spending

Optimize for taxes

Track real spending

Lock in estate protections