RR S4 E23 ADDRESSING MARKET VOLATILITY AS A RETIREE [00:00:01]
BRIAN: Welcome to Safer Retirement Radio where you get the transparency you deserve. With over 35 years of experience in finance and investing, we help you stay up to date on market news and retirement strategies. I’m Brian James Decker, owner and founder of Decker Retirement Planning, and host of Safer Retirement Radio. With me is my co-host, and one of the advisors here at Decker Retirement Planning, Clayton Bradshaw.
RR S4 E23 ADDRESSING MARKET VOLATILITY AS A RETIREE [00:00:23]
CLAYTON: Welcome back. We’re glad to be back for another episode of the podcast. Thanks for joining us today. In a little bit we’re going to be talking about something free we’re going to be giving away to help asses some market risks so I hope you stay tuned for that. But we are going to be talking about… I think this is one of the bigger topics that’s on a lot of folks’ minds, especially those that are trying to retire or stay retired. We’ve been dealing this year with a lot of volatility. Market volatility. The ups and the downs. The big swings. We’ve seen a couple of the fastest, shortest, time period drops in the history of our market this year.
RR S4 E23 ADDRESSING MARKET VOLATILITY AS A RETIREE [00:01:01]
CLAYTON: And it’s been interesting to watch and so we’re going to talk about how as a retiree you can address that market volatility. This year we know that politics has played a big part into it, but in other years it’s different things, and it’s a constant that volatility always seems to exist in the market whether it’s a little or a lot. So we’re going to be talking about some strategies that you can employ, and also touch a little bit on what you should be asking your advisor about how to limit your volatility as well as kind of the way they should be talking to you.
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CLAYTON: And again, I want to let everybody know always feel free to reach out to us. You can go to our website. It’s www.deckerretirementplanning.com. Again, that’s deckerretirementplanning.com. We’ve got a lot of great resources on there. You can schedule with us. You can get ahold of us, but we kind of like that to be our hub of great information. So feel free to reach out and visit that site. We’ve got a lot of great content. We’re always adding to that content as well so check back often to see what other articles and whatever handouts and deliverables we’ve got on there for you because there’s a lot of great resources.
RR S4 E23 ADDRESSING MARKET VOLATILITY AS A RETIREE [00:02:14]
CLAYTON: So Brian, why don’t you start us off here. Let’s talk about kind of what we’ve seen this year has triggered some of this big volatility. And I know I mentioned politics, which we’re not going to get political, but that’s just a matter of fact that with the election that’s been kind of a big reason. And so what other things have you seen this year, and other issues are we running into that has caused some volatility for us this last year?
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BRIAN: Uncertainty. So markets hate uncertainty, and when there’s a new thing like COVID in from February 19th to March 27th, that five week period the markets dropped 30 percent like that because of the uncertainty of a new virus coming in locking down markets and economies. It’s been awhile since we’ve had something like that, and weren’t sure how we were going to deal with that.
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BRIAN: So that uncertainty caused a very quick market drop. Market uncertainty will happen again if we have this election thrown to the Supreme Court. One candidate is going to be viewed by the stock market as more favorable than the other. One candidate is going to be viewed as more business-friendly than the other.
CLAYTON: And that seems to be kind of the pattern historically with any election when there’s two candidates going up against each other, right?
BRIAN: Correct.
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CLAYTON: So we’re not trying to peg one or the other as being more or less business-friendly. This is just always the situation.
BRIAN: It’s always the case. So the Stock Market will take a look at policy. So if there’s a policy that will cause the earnings to go higher than that candidate, that platform with those policies, will be seen as the more business-friendly candidate. If there’s a presidential candidate who’s putting out policy that would but the breaks on economic growth by doing things or saying things that are viewed as business-unfriendly, and I won’t even go there as far as what those are…
RR S4 E23 ADDRESSING MARKET VOLATILITY AS A RETIREE [00:04:27]
CLAYTON: Sure.
BRIAN: …then the markets will start to roll over and go down if it looks like that person is going to be voted in. However, uncertainty where nobody knows, that kind of uncertainty is going to cause market volatility. So with mail-in balloting there’s a high probability that we’re not going to know on November third who the president is.
RR S4 E23 [00:05:03]
BRIAN: In fact there’s a very high probability that we won’t know by November 30th. There’s a very high probability that the Supreme Court decides who the next candidate is, and that could take a couple of months. So with that kind of uncertainty of who’s in charge of the biggest economy in the world the markets probably will fluctuate, and we want to talk about right now how you can protect yourself. So let’s take the easy segment’s demographics and just divide that up.
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CLAYTON: Well, real quick, and then to kind of rank it. So you’ve got, like we mentioned, there’s going to be a business-friendly candidate, a candidate that’s not as business-friendly, and then in terms of the Stock Market and keeping the Stock Market afloat the business-friendly one’s going to be the one that the Stock Market wants to be in there. But the worst scenario is that uncertainty of a week, or a month, or a couple of months of not knowing who it’s going to be, and having it go to the Supreme Court potentially. So all of that uncertainty is going to be the worst-case scenario for everyone involved because the markets hate uncertainty.
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BRIAN: Right. So if we break this down demographically let’s say that the markets go down 30, 40, or 50 percent here in the next two months. I don’t think that they will, but let’s say that they did. Someone that’s under 50 years old, in my opinion, are unaffected because they have their job. They have their paychecks coming in every two weeks.
RR S4 E23 ADDRESSING MARKET VOLATILITY AS A RETIREE [00:06:48]
BRIAN: Markets drop, and every two weeks they’re dollar-cost averaging into their 401k. 10 years for the 50-year-old, or 15 years, is enough time for that to recover, and for them to benefit. So demographically under 50 probably not going to be affected too much. Do you agree?
CLAYTON: Yeah, other than just seeing your statement and just being frustrated if it’s gone down by 30 to 50 percent.
BRIAN: Yeah…
CLAYTON: But…
BRIAN: Your 401k becomes a 201k.
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CLAYTON: Right. Like that was the joke from 08, right? When that happened to a lot of folks. So that being said, when you look at the potential for that it’s going to be somebody under 50 would look at it and be frustrated, but know that you’ve got time. You’ve got time for it to bounce back, and you can take advantage by throwing money in there so just hold on for the ride if you’re younger.
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BRIAN: Right, and that’s good advice. That’s important advice. If you’re 50 and under stay the course. I think we would advise you to be using the indexes on your 401k to keep costs down. As a matter of fact, I reviewed this for another client. Their 401k had choices where the cost of their equity’s choices were one percent or higher in fees, and none of them kept up with the S&P Index for five years, seven years, or 10 years, and the fees for the Vanguard S&P were like five basis points.
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BRIAN: So we hope that you are wise, and you choose the indexes, and you diversify among the indexes. So go with the S&P for a large cap. Maybe also add in the Emerging Market Index, the EEM, add the IIFA for Europe, and diversify among the indexes internationally. And then add the other indexes for bond funds, the AGG for the 10-year, and, gosh, I would be pretty aggressive if I was in my 20’s or 30’s. I wouldn’t have much bond exposure. And even if in my 50’s, what good do bonds do when their 10-year yield is below one percent?
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CLAYTON: Right.
BRIAN: You might just want to use cash to be your diversifier because if interest rates go up because now the United States is viewed as not being able to pay off 27 or, now it should it should be by year end, 30 trillion in debt, interest rates… now this is kind of an interesting conversation. There’s three different interest rates. There’s the overnight rate that the fed sets. They’re going to keep that low on purpose because they don’t want to pay high rates on their debt.
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CLAYTON: Right.
BRIAN: The second rate is… okay I won’t even go there on the second. There’s two rates. One is the fixed rate that the fed sets.
CLAYTON: Yep.
BRIAN: The other is the open market rate that floats. The open market rate is going to determine what kind of confidence that the rest of the world has that the United States is going to be able to pay off their debt. And watch what happens because the canary in the coal mine for any country is the yield on their debt.
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BRIAN: So the US treasury rate on the 10-year, if that ticks up from .7 where it is now to three percent and five percent, do you know what the AGG losses are on that going from .7 to three or five percent in a 10-year?
CLAYTON: It’s probably, what, 20 to 40 percent?
BRIAN: Yeah. I think it’s over 50 percent, actually.
CLAYTON: Oh so it’s even that much more.
BRIAN: Yeah.
CLAYTON: So that’s a lot. So…
BRIAN: Right. So you need to know what your risk is which is the point of…
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CLAYTON: And this is interest rate risk that we’re talking about?
BRIAN: Right.
CLAYTON: Rising interest rates cause you to lose value on your bond funds.
BRIAN: Right. And something major would have had to have happened if we start to unravel on that. Now, just like in 2008 we were the least worst which means that our currency, the US dollar, and our bond, the United States Treasury Bond, the 10-year, those were the least worst. And so those were go-to vehicles. Gold, the US dollar, and the US Treasury were the go-to lifeboats in times of political and economic uncertainty.
RR S4 E23 ADDRESSING MARKET VOLATILITY AS A RETIREE [00:11:35]
BRIAN: It’s important we bring those up because those three, if someone is over 50 and want to diversify, that’s one way they can diversify. Have maybe as much as a third of their portfolio in gold. The ticker symbol is dollar sign USD. You can buy the ETF for the US dollar, and the treasury bond, which is dollar sign TDN, I think. And that’s the 10-year treasury note. Those three will go up if we have a situation where the market panics and starts down.
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CLAYTON: Right. Yeah.
BRIAN: We’re going to talk about others though. There’s other ways that you can diversify and help from taking a big loss. But demographically the 50 and under group I think we covered that. Anything else you want to talk about for the 50 and under?
CLAYTON: No. I think that’s probably it. So just to sum up it’s more about just…
BRIAN: Staying the course.
CLAYTON: Staying the course. Keeping diversification within your 401k portfolio, and if you bought the S&P, if that’s your mutual fund that you’re holding, you’ve got 500 companies that you’re diversified between. So…
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BRIAN: Right. And your costs are less.
CLAYTON: And your costs are less as well.
BRIAN: Your performance is more.
CLAYTON: Right. So for someone who’s trying to accumulate that strategy works out well. And for anyone who wants to know where their… I guess this would be a good time to bring it up. But for anybody who wants to know if they’re in the right spot on their 401k or on their IRA investments, and they’ve got kind of their little stock funds that they’re working with give us a call and let us know. We can help talk you through what you’re comfortable with as far as risk. And this gets into the give-away that we were going to do so I’ll talk about it now. I was going to talk about it a little bit.
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CLAYTON: But it’s a risk analysis tool that we use where we can go, and we can quantify what your risk score is. And so we can take where you’re invested, and we can quantify it, and then we can have the conversation on if you’re comfortable with that or not and talk about potential changes that you’d need to make. So that’s a free report we’ll give you. Just give us a call. With a free 15-minute phone call we can go through that, and we can get that built out for you so that you have a better understanding of where you’re at as far as your risk, and what you can do if it’s something that you’re uncomfortable with.
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CLAYTON: Or if you want to increase it. You want more risk or you want less risk. So we can talk about that because everyone’s a little bit different with their situation. How close they are to retirement, what they’re trying to do, and we can talk you through the specifics on that. So, again, give us a call. Our number 833-707-3030 is the number to call for that. Again, 833-707-3030 is the best number to call to get ahold of us. Or you can visit us on our website at deckerretirementplanning.com. We look forward to talking to you next week.
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CLAYTON: Investing involves risk, including the potential loss of principal. Any references to protection, safety, or lifetime income generally refer to fixed insurance products, never securities or investments. Insurance guarantees are backed by the financial strength and claims paying abilities of the issuing carrier. This radio show is intended for informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual situation. Decker Retirement Planning is not permitted to offer, and no statement made during this show shall constitute, tax or legal advice. Our firm is not affiliated with, or endorsed by, the US government or any governmental agency.
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CLAYTON The information and opinions contained here, and provided by, third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Decker Retirement Planning.
