A Discussion of Investors’ Biggest Concerns
Scott started his presentation by sharing that “music sometimes is a precursor of change in the world and the economy”.
Scott played a song (at the 00:23 mark) that was the number one song all through 1972. If you look at the lyrics and you feel the music it's valid, it's a fairy tale. It's about unicorns, golden roads, and everything that glitters. It's happy. And the following year, the economy went into one of the worst recessions in American history. Similarly in 1982 Journey came out with the song “Don't stop believing” and that was right when the market turned back up.
Scott acknowledges the wonderful rally over the last few weeks but believes that we are in a bear market, in a recession.
Wall Street Crashes
- 1987 - Dow loses 508 pts -22.6% in one day! Wiping out $500 Billion. It took 2 years to recover.
- 2000-2002 - Dotcom Crash (where Wall Street's idea of diversification was instead of two technology funds, you had six) - NASDAQ loses 77% value by 2002. It took NASDAQ 15 years to recover!
- 2008 - the Subprime Mortgage Crisis. S&P 500 loses 57%! It took 17 months to recover!
- 2022 - ?? S&P is still down 9%. NASDAQ is still down 16%
Top Concerns From The Poll
The poll ran for two weeks with over 2000 responses
- Do I have the right strategy?
- Will I run out of money in retirement?
- I won't be able to retire.
- How can I create a lifetime income?
Do I have the right strategy?
The first question you have to ask yourself is “what is you long-term goal?”. To some people, it's to call it a day at a certain age, buy the house in Cape Cod or down in Florida, play golf, play with the grandchildren, go to the bluebird special.
The second question, “how have you determined your risk tolerance?”. Scott shared an example of a different way to analyze your risk.
If you're down 15%, what do you do?
- You do nothing because you’re long-term.
- You hide your head in the sand.
- You’re nervous and you call your advisor.
Money is emotional, if you hear, you're down $150,000, that's going to have a much different meaning. So you have got to have a real handle on your risk.
The third question is “is your investment allocation aligned with economic policy?”. And lastly, “when do you plan on starting chapter two?”.
Will I run out of money in retirement?
Life Expectancy Projections
- You need to be aware that we're living longer.
Annual Spend
- Your expenses are not going to go down anytime and your taxes don't go down either.
Sequence of Returns
- A fancy term that basically says, how did the market do the first five years you retired?
If the market had a good three to five years after you retired, you should have enough growth to make up what you took out and still grow. What happens if it was 2008 and the first year you retired, your portfolio got slammed? Well now, instead of taking 3%, maybe it's now 6 or 7%, but you didn't earn anything. And what if it happens two years in a row?
You need to understand that that is really critical. And if your advisor's not addressing it, you need to address it with them.
Automate Cash Savings
- You have to have automatic cash savings.
I won’t be able to retire
- Most people don't have a pension.
- Social security will be there, but not enough.
- You might have a shortfall in your savings and 401k
How can I create a lifetime income?
- Fixed Income Portfolios
- Social Security
- Annuities
- Life Insurance
Policy Moves Markets
- From 12/31/2020 - 12/31/2021 - S&P 500 gained 26.89%
- From 12/31/2021 - 08/05/2022 - S&P 500 lost 13.03%
What changed? Energy Policy and Interest Rate Policy
If you know anything about capitalism, those are the two most important ingredients, the cost of money and the cost of energy.
- Price of gasoline on 12/31/2020 - $2.18/gallon
- Price of gasoline on 08/05/2022 - $4.35/gallon
- Yield on 10-year US Tsy Note on 12/31/2020 - 0.925%
- Yield on 10-year US Tsy Note on 08/05/2022 - 2.778%
“If you don't know what your risk number is, and you don't know what the risk number of your portfolio is, you could have a gap that could come back to bite you hard.”
What You Should Do Now?
- Find out your risk number
- Find out your portfolio’s risk number
- Close the gap.
- Ask yourself. Am I still invested the same as I was before policy changed?
- Make sure you're aligned with policy!
- Check your emotions at the door!
- Give yourself the benefit of a second opinion
- And email Scott to find out your risk number!
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