Your 401k and the Stock Market
We look at our 401ks and it's just not good. It's not I you know, if you looking at your 401k and your little bit panicked right now because you're coming up on retirement and you're not you're not okay with how much it's lost, you were probably were a little too aggressively invested in the first place and I wouldn't recommend just Panic selling because that could potentially jeopardize your retirement even further south. You do want to take a look at how you're invested and what you're invested in. There's ways of reducing volatility other than just selling and putting things in the money market, you want to really know how you're investing and what those Investments are or how those Investments can potentially be impacted even going forward now that we're a month into this coronavirus issue. How they can be impacted going forward even for the next month or longer.
How long this goes let's talk about a little bit of opportunity in this market environment for those folks. Is there such a thing as an opportunity right now in can all of those changes if need be be done virtually. I do believe there is opportunity right in the great Warren Buffett has has a quote and I I have it up on my wall and it says be fearful with a greedy and greedy when others are fearful, right? There's a reason he's done well and when people start to get become very more fearful It's usually the the sign that we're closed off the bottom of the market it is and when people become fearful and they Panic sell without really having a reason for it and they put things in the money market. Well, they might miss out on some of the best days in the market cuz often when we have the biggest loss. It's followed the next day by a pretty large gain or a bounce back in the market now that's not guaranteed but that is usually wage. A case and you know just a couple pieces of data is in the in the twenty tens. If you missed the best ten days of the market, you would have only gained 95% off and 95% still good when if you never if you were in for those ten days just adding ten days. It goes from 95% to 190% return. Wow. So if your Panic selling wage, you might actually miss one of the best ten days of the market cuz those are often the bounce backs after a big dip.
Public Sentiment and Your Retirement Portfolio
But what are your clients saying, whatis their sentiment of what's going on right now for those that are listening? Maybe they can you know associate with with with that same feeling.
Yeah, listen over the course of the last month. We had the quickest drop to a job market in history by double took 21 days to go from it was around February 13th, Twenty One days to drop 20% That's the fastest ever. The next fastest was 42 days. So things have happened very quickly right? In reaching out to the clients, and this is all over Health concerns and speaking to clients. I think the sentiment is that things will bounce back. It's just a matter of how long will it take before they bounce back, and and I truly believe that to you just gotta give it time give Investments time and that's why you need to have the right allocations.
But if things go too long with this virus, then it can you know, it's not a financial issue now, but it can become it can impact the financial markets sure. It can put stress on companies cuz the cash flow and balance sheets Etc. I don't think we're there yet. If this does go too long, we could potentially get there but I think people are optimistic right now and they're putting their health number one, as I should, which which is kind of nice.
Yeah health is number one and then the financial aspect is number two, but at the same time you can't forget what's going on with your retirement accounts cause it can kind of linger to your family and in health as well.
So I guess they're just calling perhaps for a little reassurance - your clients. Are you do have a plan now the ones that don't they're probably in a little bit more of a panic and and they want to get this done now and you guys have shown no Options for that because you guys can do all this virtually now we do. Yeah, you know, I had a virtual meeting with a gentleman this past week who didn't want to leave his house and we were going through his account. There was a first meeting so we didn't really need to do a full analyzation yet, but we're going through accounts and he was sentenced he's going to be sending some statements over to me and we're going to proceed with a a second virtual meeting in a couple of weeks after we get a chance to go through things and he was just nervous. He just hit retirement and he took a pretty big hit to his portfolio. It was about a 20% drop since February off and he wasn't comfortable with that. I said, well, you know taking a quick look at your Investments, you're pretty aggressively invested and he goes I'm not an aggressive guy so and he had an advisor who put him in that portfolio. So if you're not comfortable with how much of a loss your current accounts are experiencing you might have been in the wrong portfolio or the wrong type of Investments to start in this case. I don't think his advisor really listened to him and he didn't have an actual plan to go along with his Investments. So now he's in retirement. He's taken a big hit and now he's concerned but he doesn't know how it effects his retirement, but he doesn't have a plan.
With our clients what we're doing is we formulate that plan, but we mirror the investment. So when we have these conversations - these review conversations - we're saying, you know, this does not impact your retirement. This is how it actually affects your overall retirement plan. And I think you know by the end of the conversation a lot of people feel more comfortable going for you know, what's going to happen going forward.
Will Pensions Be Affected By A Market Correction?
Let's talk about pensions because people think I got a pension it's rock solid is that affected now, I'm not affected right now. We won't we won't actually find out how pensions really are affected until the end of the year when they come up with their numbers, but like any other and type of investment pension Pension funds they'd invested in the market in Market type assets. So, you know your future pension could potentially be affected. There is some insurance backing it up, but anyone in the payout phase, you know should feel feel pretty good about what they're getting right now because you know, those pension payouts are not changing based on the volatility of what's going on. Those are a powerful thing.
Is it prudent to maybe do a quick review of your pension it is before you elect the pension off. I always wanted you know, we want to take a look at how how really flush that pension fund is if they're invested in the in the right types of Investments and what percentages of obligations versus with their balance sheet. Looks like you just want to make sure it is flush and it has the ability to pay you out over your lifetime. So that's one of the things we take a look at before you elect whether you take you know, lump sum vs. The payout option on with our clients. And again, you guys can do this virtually. You don't have to go into your office right now. You can do this over the phone and and through technology? Absolutely. That's the beautiful thing about technology nowadays. We can share documents. We can share screens we can really change and we can speak and talk when we're speaking on the phone rather than just, you know speaking we can actually take a look. So we're looking at the same presentation so, you know with very thankful to technology for years.
Absolutely. And the reason we keep saying that folks is is for obvious reasons. If you don't want to leave your house, if you can't leave your house there is still hope and opportunity out there for years. There are solutions out there. Let's talk quickly about before we move on from pensions, but creating a pension like income because people say well if I don't have my pension, what else is there? Yeah. I know there's you know annuities annuities are like a way of creating your own pension on a private private in the private sector and I think those are more valuable than ever and they're really shining now because If you have a fixed annuity or an annuity that gives you a guaranteed income stream, that's not changing right now that income payment doesn't change based on what again another hit to gain Market that is a way of creating your own pension like income and for some people should be considered for part of your retirement portfolio as you're approaching retirement or in retirement to help a moment, maybe Social Security if that's all you're receiving.
Weighing Your Social Security Options
You mentioned Social Security. Let's talk about that for a minute because I'm thinking with these times people may make a decision to take it because they're they're afraid, and who blames them?
You don't want to make the wrong decision with Social Security just because of what's happening in the market right now. And this is going to be a conversation with a current client - he's planning on retiring in June, his wife is still working and we were just talking back and back and forth and he asked if he should take Social Security cause he doesn't want to start dipping into his Investments, but that's not always the right move just because with your Investments might have taken a hit recently. But Social Security, there's still value to it. It does still grow the longer you defer it out to age seventy and because that's a more stable source of income. Maybe now there is a lot of benefit from maybe deferring just beyond the growth of the Social Security, but it allows you to get more creative with your maybe your Investments and Roth conversions, not to get too kind of complicated, but you just want to make sure you're not making a panic decision not just a panic cell with your portfolio but a panic decision to start because it's more stable.
Talk about this because you know things seem Bleak right now. But if I'm hearing you correctly your message Sam's message John's message really hasn't changed. Its reads the same if you prepare now, you're you're more than likely going to fare better having a plan and and today is still a good time to start.
Yeah, if you don't have a plan you don't really know the impact of what is going on with your Investments, right? You need something to measure your Investments. So if you have a plan that you can actually measure and make sure you're stuck on the right track in terms of your Investments. Well, then we know any changes that we have to make or whether it be expenses or a time and you know extending your retirement date, but if you don't have a plan in place, you're just looking at your Investments like you maybe you lost ten maybe like 15, maybe say 20% or more recently, but you don't know how it affects you.
If you have a plan, you know how it affects you.