6 Financial Steps You Should Consider NOW

Would you like to know why I've gotten zero freaked-out calls or emails from my clients because of the coronavirus, political upheaval or [insert your own freak-out factor]?  It's because we've already tested even worse scenarios (like the 2001-2003 recession) in their written retirement financial plans and they know they will be OK. 

However, that doesn't mean there aren't new opportunities and cautions:

1. If we have not developed your written retirement financial plan then get yourself on my schedule immediately.  I've opened my calendar up as much as possible for the next three weeks.  Call me at my mobile at 503-698-1110 or simply schedule yourself here:  https://calendly.com/g---5

Key Takeaway:  No matter what is happening in the world and in your life, there are risks to avoid and opportunities to acquire.  These risks and opportunities should be tested and executed carefully, as part of an overall plan, not by running out and buying four thousand rolls of toilet paper.

2. To make up for losses in the market-based portion of your portfolio, don't settle for inflation losses in your cash.  You should be getting at least 2.0% on your two-year money.  I've seen savings accounts paying as little as 0.07%.  Yes, seven hundreths of a percent. Increasing earnings and other benefits on your safe money will help offset these short-term fluctuations in the market and make dramatic long-term differences in your future cash flow. 

3. Does it make sense to refinance debt?  Probably.  Interest rates have tumbled with the market & I doubt they will increase this year.  Refinancing may be a great way to reduce your budget and preserve your savings. 

4. Is funding for your lifetime budget locked in?  If not, wouldn't that be worth finishing up?  Then you can ignore market hysteria.  Cash flow solves all other financial problems.

5. Do you need to put off that expected retirement date this or next year?  I won't sugar coat it; maybe you do.  But how do you figure out when you can retire?

6. Finally, taxes will probably shrink your money more this year than will the market.  What tax planning have you done?  Did you know the tax issue will become even more concerning in 2026 when the Tax Cuts and Jobs Act expires?  I don’t see any of my peers doing tax planning.  Maybe this is the perfect time to do Roth conversions or in-kind conversions of poor performing stocks.  When the market recovers, all the gains can be tax-free.  This video is pending my review of the three “stimulus” packages.  Lots of little- and not so little -goodies for everyone.

Warm wishes during these trying times,
and get yourself on my calendar!: 
https://calendly.com/g---5
Gary
 

Your Constructive Comments are Welcome!

Sometimes The Best Action is Inaction

This is one of those interesting post titles that is both true and a myth, depending on who is reading it.  Hence the danger of mass financial advice directed at the "average person".
 
As a fan of Vanguard and it's founder, John Bogle, I want to share their recent timely article on market volatility.  And I also must add my caveat about rules of thumb and averages.  Here's the link to their three "Rules", which I'll summarize and supplement below:
https://personal.vanguard.com/us/insights/article/market-volatility-082015

Rule #1- Recognize that volatility and periodic corrections are common in equity markets.  You'd have to be Rip VanWinkle to not be aware of this rule.  Most of us are painfully recognizant of the roller coaster ride.  And I would add bond markets too because as we saw in 2009 they are no longer the safe hedge against equity risk.  Hell, any market these days, whether it's real estate or precious metals, is volatile because of the craziness with which investors are chasing returns.

Rule #2- Tune out the noise and remove emotion from investing.  I'm on board with this.  The two most common- and destructive -investor motivators are (1)Fear and (2)Greed.  A realistic, well conceived Cash Flow Plan should be primary.  As an adviser who constantly seeks to understand what has happened and will happen in the markets, I'm weary of all the retroactive blather from my colleagues claiming to explain the past while failing to predict the future.  So yes, tune out the noise.
But I also believe emotions must be taken into account.  Life is more than a math problem.  It is more than just getting as much as you can.  It is more than a fancy pie chart.  A good adviser will use a process to ferret out and give shape to clients' true feelings about their situation and the future and then build a plan accordingly.  The goal should be to feel safer and happier!

Rule #3- Make volatility work for you.  This rule appears to be directed at younger investors who have time to dollar cost average into the market.  At least it had better be, because for the retiree drawing down assets, volatility is a retirement killer due to sequence of returns risk.  To apply this rule to retirees it should be stated as "Keep volatility from destroying you".  Here's the difference and how to avoid getting stung by volatility in both cases:

• Dollar cost averaging for Accumulators- By investing the same fixed amount every month, volatility becomes your buddy.  When, for example, a fund costs $100/share this month and you are investing $500/mo. you'll buy 5 shares this month.  But if the fund price drops to $50 next month, hurray!  You buy 10 of the now cheaper shares.  If the price then rises to $250 three months from now, you only buy 2 shares.  So dollar cost averaging neutralizes the two destructive investor emotions, fear and greed, by making you act counter to your intuition:  when shares increase you buy fewer, when they decrease you buy more.  Dollar cost averaging alone can increase your returns 30% or more over the long term.  But, there is . . .
• Sequence of Returns risk for Decumulators- On the other hand, if you are decumulating you need to adopt the opposite tactic.  Instead of a fixed dollar amount you should withdraw only a fixed percentage of your total assets.  That way when the market is down your withdrawals will be less, when it's up you can take out more or- better yet -leave more in the market for further growth.  Why this is important:  Imagine a 57% decline in your retirement account in the same year that you've also taken out 5% to meet your budget.  To recover, you would need a 263% rate of return the following year!  Which is impossible.  This is why losses in the early years of retirement must be avoided, unless you have excess assets you can leave untouched for at least 10 years.  Unnlike Vanguard's "inaction plan", in this case it is absolutely not "okay to ignore volatility".

Your Constructive Comments are Welcome!

Trees Grow to Outer Space

Well, trees don't grow to outer space.  Isn't that strange?  Why not?  Well, if you've ever tried sucking a soda up a 50 foot straw you'll see why; there is too much mass to escape the inexorable pull of gravity.  The only way giant Sequoias reach record heights is if they break off or get struck by lightening, thereby allowing water to pool in the cavity.  We find nothing odd about the fact that trees only grow to limited heights.
Conversely, we expect all things human to barrel forward and upward forever.  A good example is the economy.  In particular, one measure of it:  The stock market.  Although not a physical thing like a tree the markets are, nevertheless, subject to forces beyond our control, and "rules" beyond our perception.
Jeremy Grantham, founder of GMO funds (Grantham Mayo van Otterloo, nothing to do with genes) describes a case in point.  I quote:

What the past 25 years has done in the form of an overly inflated P/E ratio requires a 57% decline to revert or “normalize” the market’s key ratio and revert to the historic average that was present prior to Greenspan.

Grantham points out that 80% of executive comp. is stock options vs. 20% 30 years ago.  What awful incentives.  It's easier and less risky "for management to use corporate cash for stock buybacks".  They get the greatest reward for creating nothing!  Why spend money on R&D, plant and equipment when you can boost your own stock- and your own pay -by buying it up with stockholder cash?  I believe this profligate behavior will soon come back to bite us all.