Most of us have seen significant declines in our investment and retirement portfolios – volatility we have not seen since 2008. We are all feeling anxious, scared and paralyzed about what this pandemic will do to our lifestyle and our retirement. In our first episode, we will discuss 5 ideas you should consider looking at RIGHT NOW. These episodes are meant to short, timely and actionable.
You May Read the Transcript Below:
Hello, everyone, the corona virus quarantine, social distancing, whatever it may be, the last month has really changed how every single one of us live our lives, how we communicate with others, how we interact, how we do our job. Everything has just really been turned up on end. And we didn’t even really have any time to process or think about it. So what we’ve decided to do at Pine Grove Financial Group is launch something new, something that probably should have done a while ago. But it’s critically important that we communicate with all of you during these particular times. And so we’re launching our very first podcast that we’re going to call Retiring Minnesota Nice. We always hear the term Minnesota nice, so why not use it into a catchy phrase for our podcast. This isn’t meant to be hour long interviews or going into deep deep details of one particular topic or strategy. It’s really meant to be something you can consume and make 10 or 15 minutes when you’re doing a little exercise, maybe going out for a walk, or hopefully driving to the store when we’re able to do that more frequently.
So, with that being said, My goal is to have these be really timely and effective in the moment. So for all of us in, in or nearing retirement right now, we’ve just been slapped in the face, the markets have essentially corrected anywhere from 20 to 35%. Depending on what particular index or benchmark you look at. Even safe investments like bonds or fixed income have been hit through this crisis. It’s really nothing we’ve ever seen before the financial system was working fine. But then when all of a sudden you tell everybody to stay home, don’t spend money, the economy comes to a screeching halt. And when you have a pandemic like the Cova 19, coronavirus, whatever you want to label it as it now has become a world pandemic. So supply chains are disrupted. Really everything is is Different now. So what do we do from here? What I’m going to do is I’m going to give you a handful of different ideas or strategies to discuss. Now I want to be clear that everything we talked about is never one size fits all. What may work well for you may not work as well for the next person. So this is why, excuse me, financial advice is personalized, and we can’t just apply it to everyone. So let’s dig in. The first thing that we can do is consider rebalancing at the date of this recording is March 25. We’ve just experienced about a 35% correction in the s&p 500. And then yesterday, we say rip roaring recovery of about 10%. And so we’re still down well over 20% for the year, but we’ve definitely seen a big change. So what I mean by rebalance is that every one of your 401k IRAs your portfolio has some balance between stocks and bonds. And even to get more specific, you have more specific pieces to the pie like larger Cap, mid cap, small cap International, the list goes on.
We’ll take this for an example. Let’s imagine you are a 50% stock bond investor and you have $500,000 in your account. Well, at the beginning of the year, you had 250,000 in each of those accounts. Now as we’ve fast forward here towards the end of the first quarter, that balance Think of it like a, like a balanced way is now all of a sudden significantly increased your, your allocation more to bonds and less to stocks. That way, the end could maybe now be 60, excuse me, 4060 or 3565, whatever it is. So we need to now take some of those bonds, shave that off and reapply that back into equities to get us back into tolerance. The challenging part is that this is really difficult to do in these market downturns because we all feel paralysis. We all feel scared. We’re not really sure what holds next, but academic research shows that Balancing is tried and proven over and over again to be an effective way for you to manage the risk of your portfolio. We’re starting to see now, some of the most respected people in investing are now saying the market is at those periods where valuations and metrics are very, very attractive and very, very inexpensive compared to just three months ago. So every crash, every really pandemic recession market event, it’s all caused for different reasons, right, we have the virus today we have the the financial crisis of 2007 and 2008. We had the tech bubble in 1999. But one thing is, is is sure is that when we get through that rough period, we get through that recession. More often than not, the recoveries look much more similar than one would think. So I encourage you all to rebalance. Number two, if you’re someone that owns stocks, and in Outside of a retirement account, in a non qualified account, you should look to realize those losses to offset against future gains. There is a way to take a lemon and sort of turn it into lemonade as you can, let’s say you owned a company like three m, for example, it’s went down pretty significantly, went from probably $170, a share to 130, you could sell those shares and realize that loss and at the same time, you could buy a very similar company, like similar to 3am, like let’s say a Honeywell as an example. And that now allows you to still have exposure to that particular sector or that area, but it now allows you to have a built up tax loss that you can offset against future gains. So I’d encourage you to look at that. Number three, think about IRA to Roth conversions. You’re essentially taking money out of your IRA, converting it to Roth, you’re paying the tax now, but the benefit is you have tax free growth forever. So the best thing about Roth IRAs is that tax free growth. Well, we’re now in a period where you can essentially take your money out of your IRA at roughly a 30% discount, and now apply it to that Roth. So you’re converting more shares than what you would have at the beginning of the year. That gives you a lot more leverage and momentum as you move forward in the coming year. So I’d really encourage everyone to look at this. Traditionally, what we’ve done is we’ve done this based on tax brackets, because we don’t want to convert too much that your income, taxable income really explodes. But when we’re looking at these types of corrections in the market, we can throw that type of strategy out the door. Then the next one here is really important is to really know where you stand in the big picture of things which really looks at your, your overall financial plan, right, we’ve all been slapped in the face. We’ve all lost money over the last month. The reality here is that our situation has changed as far as our our assets and our net worth but our goals for retirement may have not been to at all, I don’t know everybody’s a little bit different. We use something that we call the retirement freedom score, which is a probabilities analysis that allows us to look at your specific situation, look at your assets and determine how good of situation how good a position Are you in to live life on your return on your terms. What are your retirement goals? And what is the likelihood of you achieving that? Well, guess what, when all of a sudden we’ve seen someone’s portfolio be reduced by 20%, there’s a chance that that may have changed the probability of that outcome. So there’s no better way for us to help you focus on the long term by going through this retirement health, stress testing process and understanding what your retirement freedom score is. This is critically critically important. We’ve been doing a ton of appointments and calls virtually obviously over the last couple of weeks. And what we found is people are much more calm, they’re much more longer term focused and they’re not panicking with the daily volatility, knowing that it doesn’t have as big of influence on The health of the long term health of their retirement and their their goals as they may think. So whether it’s with us or someone else, I’d really encourage you to get out and look closer at the big picture and see where you stand today. The other thing I can say about this, this isn’t a fun thing to say. But man, markets are down. This is about as bad as it gets, there’s no better time to look at where you stand in the big picture of things, then today, things will get better things will improve. But boy, it can’t really get much worse than today. So it’s a good time to really look at these things and position yourself for success for the years coming forward. Now, the last one I’m going to give you as we wrap up for our very first episode is a little hesitant to say it but look at vacations. I think it’s fair to say that the world should slowly return back to normal and maybe three to four months. Obviously this virus is going to impact us for for, you know, a year or two to come and things will be different, but man, there’s a lot of places that you could still get to once things start to improve And we’re all going to need a vacation after this, we’re all gonna want to get outside. And it’s very likely that that the entire hospitality entertainment, vacation industry is going to be looking to offer great deals to get people back in the door and get them spending money again. So give that a look. I know that’s something that I’ll be looking at with my family. So again, we’re going to start posting or publishing these videos and podcasts on a regular basis. They’re meant to be short. They’re meant to be impactful. They’re meant to be relevant. Most importantly, we’re here to help and guide you as we go through this crisis together. We’re all in it together, better days ahead, and hopefully we can all get you to all living Minnesota. Nice. Take care