Golden Opportunities

Is the idea of investing in a bear market un”bear”able? Here with advice on why it may not make sense just to go into hibernation in a difficult marketplace is Concord Advisor’s Jonathan Herbruck.

Question: Jonathan, there has been so much turmoil in the market lately. What kind of advise can you give our viewers during a difficult Market?

Answer: First, let me just say that it is simply not possible to generalize what your viewers should do with their portfolio. One move may be right for one person, but not for another, so I urge folks to talk to their financial professional. If they are not getting the attention or they feel like their questions are not being answered, it may be time for a change.
Economic data is being closely watched now, as economists throughout the world are trying to predict whether or not the United States will experience a recession or is already in recession. While the term recession is used quite frequently, the correct definition of a recession is two straight quarters of negative growth in GDP. In the last 20 years of solid economic growth, America has had only two true recessions. Both recessions have proven to be comparably small in size and scope.
Frequently, clients may be overconfident in advisors’ abilities to avoid losses. Everyone is looking for the magic fix. Be very careful of products that offer an interest rate tied to the Market Performance. If you are hearing you can go up but not down, you may find you’re self trapped with high surrender charge and in a product you did not understand when you jumped into it, out of fear.

Question: So, what are the right questions to be asking?

Answer:

• Where am I going to pull my income from over the next 12 months? Will I be able to reduce my spending to accommodate a lower income?
• Being retired is a full time job – Are you able to be flexible on cash flow requirements or you are setting yourself up for financial suicide?
• Do I feel the decline will last longer than 12 months? If so, then you may want to put more into cash for safekeeping.

Question: if you expect the market to be going down the next year or so, why not move it all into cash?

Answer: No one knows exactly when it may go back up, and you may miss out on the returns going up. And often the biggest returns may be within the first 10 or 20 days of the turn around.

This all goes back to following an Investment Policy Statement to keep your investing diversified and what to do when the market does decline.

Question: We have spoken about your Investment Policy Statement before. Explain again what it does.

Answer: The Investment Policy Statement is drafted based on your risk tolerance to say, we will be investing your money according to this asset allocation guideline, which is well diversified. We do not make ad hoc revisions based on the fluctuations of the market. We can stress test your portfolio against the current market and if the client is still uneasy, then it may be time for a re-balance of asset allocation.
We stick to this plan because we don’t want to miss out on any upswings, and because we can’t predict which asset class is going to do the best, so let’s put a little in each and this may give ourselves a nice steady growth.

Question: Does this also hold true for those in retirement and on a strict budget?

Answer: We like to go a little deeper with retirees by doing what we call an income ladder. Here is the example of one we did for a client, and I have rounded the numbers to make it easier to understand.

This income ladder shows several buckets for the retiree’s money. The first bucket is cash because that is what we expect to spend the next 2 years.
We also set aside some emergency money and something to offset inflation if needed later on.
In year 3 we start pulling from bucket number 2, which has had 2 years to grow. There are different methods for making this last 10 years.
After this bucket runs out, we pull from the last bucket, which is a variable annuity. Variable annuities allow you to invest in the market while an insurance company promises you some guarantees. A lot of people have heard of several annuity companies promising at least a 7% compounding rate which by calculation means your money will double in 10 years and 2 months.
This maybe your worst-case scenario because if your investments do better, then you can take income from the higher amount.

Are you prepared to handle this tough market? To learn more, or to receive a free fact sheet, call Concord Advisors at the number that’s next. My thanks to Jonathan Herbruck.