Now is the time where predictions are being made on television and radio on whether or not we will see a “bull market” or a “bear market” in 2019. What exactly does that mean, especially for those in retirement? Tune in this week as Victor explains, in depth, bull and bear markets and how to deal with each of them as a retiree.
Make It Last with Victor Medina is hosted by Victor J. Medina, an estate planning and Certified Elder Law Attorney (CELA®) and Certified Financial Planner™ professional (CFP). Through his law firm and independent registered investment advisory company, Victor provides 360º Wealth Protection Strategies for individuals in or nearing retirement.
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Announcer: Welcome to “Make It Last.” Helping you keep your legal ducks in a row and your nest egg secure. With your host, Victor Medina, an estate planning and elder law attorney, and certified financial planner.
Victor J. Medina: Welcome back to Make It Last. I’m your host, Victor Medina. I’m so glad you can join us this Wednesday morning as we surf the waves of retirement together. I’m excited to bring to you today’s show.
We’re largely going to be talking about what the future holds with respect of either being a bull or bear market in 2019. With the end that we’ve had to 2018, what does the future hold? We’re going to talk all about that today.
Before we do, I want to remind everybody who’s listening on the radio that we actually simulcast this as a podcast. If you’re not around to join us on Wednesday morning at 11:00, we have the opportunity for you to listen to this show.
All you have to do is either find your grandchild and ask them how to load a podcast, or go to iTunes or anywhere you have a podcast catcher. You can Google it. Look for Make It Last with Victor Medina.
You load that up. Not only would you get every episode that we broadcast, but you will also get all the prior episodes as well. In fact, if you’d like, you can go onto Spotify, which is a free streaming music service. You can go on there and you can search for Make It Last.
We actually have all 80‑something episodes all there. You can go back to your heart’s content. Prior to the last few weeks or so, every episode’s about 30 minutes, so you can digest them in small pockets.
These shows, we’ll go closer to about an hour and in three segments. You can listen to your heart’s content. Anyway, if you like this show, not only should you subscribe to it, but you should ask a friend to do that as well. Just go on, hit the subscribe button, and that will actually help us climb up the leaderboards in Apple.
I think we’re probably ‑‑ I don’t know ‑‑ near the bottom. [laughs] There’s a lot of podcasts out there. There’s actually going to be a really great segment on Sunday morning, on CBS Sunday Morning, on just the growth of podcasts. If you’re interested in that topic, definitely take a listen to that as well.
Listen, today I wanted to talk to you about what’s going on in the markets. Most people are wondering the same thing these days when it comes down to investing, which is what’s going on with the market. After a phenomenally consistent and a robust stock market for each of 2017, even so much 2016, 2018 proved to be quite, quite different.
While we are still technically under the way that they look at these things in the longest bull market run in American stock market history, many investors, especially retirees, have begun to question just how low the market could inevitably go. You know as well as I do that making stock market predictions is impossible to do.
It is impossible to predict what stock markets are going to do with any time period. Basically, the best that we know is that over time it goes up, but that time period can be measured different ways. A lot of people talk about the lost decade where things didn’t grow within those 10 years.
Overall, if you start to expand it after that, and started to look at that. If those 10 years are your retirement years, that’s going to be important.
We’re going to actually today present a case for both the bulls and the bears that are out there. We’ll focus more keenly, on just what it is, if anything that you can do about it moving forward.
Setting the stage, what an end to 2018. The market downturn ramped up, with some ferocity in the fourth quarter. All told, it was one of the worst fourth quarters that we’ve had in recent history. Here we stand, in the moments of the early of the new year, everyone just trying to figure out what is the stock market going to do going forward.
It’s not just tomorrow or next week, but through the remainder of the year. People talk about a January bump, and they look at it in February slumps, so they’ve got a lot of really catch phrases around that.
Will our current bull market, the one that has been going since March 8th, 2009, end in 2019, or will we recover from the extreme volatility we’ve experienced at the end of 2018 to see the market march on even further?
We’re going to discuss both sides. I’m going to try to help you decipher what, if anything, you can do about it. Let’s get one thing straight right from the get‑go, I cannot predict the markets, no one can. In fact, trying to do so is extremely, extremely difficult.
All we can do is take the data that’s available and then formulate our own unique opinion about where this market and this economy is heading.
With that said, the goal for today is not to convince you one way or another that this market run will continue, or that it’s destined to end. I’m not here making predictions about what’s going to be going on in the future.
Rather, what I would want to help you understand is the data, that the media is going to continue to throw at you. Then once you’ve explained where things stand, I’ll help you focus on the things you can control when it comes to your money and what you’ve saved for retirement.
|f you’re interested in actually delving into this a little bit more, about your specific situation, because obviously I’m talking at you from the radio, I don’t know what’s going on with you. One of the things you can do is, of course, reach out to us and schedule a complimentary consultation.
You sit down and review your retirement road map. We’ll walk you through each one of those steps. What does it look like for legacy? What does it look for investments? What does it look for income? What does it looked for your estate plan? What does it look for healthcare? All of those things.
We’ll put together a plan for you, that will help you navigate this. All you have to do is call the office at 609‑818‑0068.
If you call our office and schedule a complimentary consultation, we’ll walk you through your retirement roadmap and get you on the right path.
It’s never easy dealing with market volatility. Everyone loves it when the market is up, even though that’s considered volatility. They hate it when it’s down. Losing money isn’t fun even if it’s a paper loss. Many people take a step back and say, “Well, that’s a paper loss because I haven’t sold anything. I’m not really with less money because I haven’t gotten in any position.”
The idea is that the effect of watching the account values go down, it has an emotional connection to what you feel at any given moment.
I’ve got to confess in the years that it took to build the vibrant business that I have now, my emotional state was driven by my cash flow.
If things were going well, I was a happy guy. If things weren’t going well financially, I was not a happy guy because so much of the concept of security is wrapped up in financial security. It’s how we think about what the future will hold.
We’re worried because everything costs money. You can’t get here anything for free whatsoever. As I said, when the markets get volatile, it can be easy to let your emotions get the best of you.
Even though the textbooks say when the markets are down, you should buy. When the markets go up, you should consider other options, maybe, selling or getting out of something. Of course, that’s an oversimplification, but it makes sense.
Why is that people so often do the opposite? Why do they sell when markets go down, and why do they buy when markets go up?
I really have two goals for today. One is to help you understand what the media is going to talking about every day because market volatility has dominated the airways. You put on CNBC and there’s always somebody there’s always somebody yelling at you.
They’re yelling at you about either how what’s going on doesn’t matter or how what’s going on means everything in the world. We’re going to talk about that.
The other part is how should you be focusing on positioning your money specifically in retirement because this is a retirement show. What makes sense for you? I’ll talk generally about those topics.
Again, if you want something specific for your situation, what you should do is consider calling us at 609‑818‑0068 and basically schedule a complimentary consultation to go through your retirement road map.
However, if you just want to come in and learn more about general topics, we’re hosting a seminar, a workshop, on February 7th. That’s Thursday at 1:00 PM. Then we’re having it again on Tuesday, February 12th, at 6:00 PM.
Either that midafternoon or an early evening when light refreshments are going to be served absolutely free. No obligation whatsoever. It’s going to be in our workshop space.
We’re just going to go through those things. You might find the need to do something about it, but you’ll get a great education. In any event, you should call and register for that as well.
The way that you do that is you call, again, 609‑818‑0068, or you can go to a website that we’ve established. You can go over to a website that we’ve created to help you register for that.
That’s at bit.ly/MedinaLaw. That’s bit.ly/MedinaLaw with the caps on M and L. If you go over there, there’s a whole registration page so that we make sure that you can go ahead and have your seat.
There’s a limited amount of seating that we’ve got for the event. In any event, that’s your opportunity to learn more about it.
Let’s go through this and really dive in. We want to understand terms that are used when the market gets what we call volatile.
Whenever markets get volatile or academic data weekends or whenever we have a few days in a row where the market sheds some of its value, you know what we mean. [laughs] We know what you tend to do.
It’s easy to jump on the TV or jump on a web browser, “How are the markets do…?” It’s one of those Google searches that auto completes for you.
Within minutes, you can be listening to or reading someone, especially anyone’s view and analysis of what the market is doing.
I want to take a pause here, right? Because I want you to understand that the majority of these outlets that are out there have one business mode whatsoever that it’s not there to inform you. It’s not there to give you information.
It’s there to sell advertising. It happens to do it in a very entertaining way. This is why the people that are on the shows tend to be of certain characters that you will see.
They’ll be shouting, and they’ll be loud. “This is something that means something.” Those are all parts of what keeps you hooked to watch the show because it doesn’t matter what they tell you.
They don’t have to be right. They don’t have to be wrong. Most of the time, they’re wrong anyway. All they have to do is entertain you and keep eyeballs on the TV. If they do that, they can sell advertising.
That advertising is how they make their money. Yes, they get a little bit from subscriptions on the cable thing, but it’s fractions over what they’re selling when it gets to commercial breaks.
That’s why they throw you a hook right before they go to commercial breaks like what I do here. Listen when we come back. Why? Because we want you to keep on listening. They want you to do the same thing.
These people will share what the market is doing. Just as importantly, because this is something that you want to hear, they’re going to tell you what the market’s going to do in the future, which is really, really interesting, too.
We all wish we had a crystal ball. Wouldn’t it be nice if we could accurately predict market trends? It would save people a lot of anxiety on a day‑to‑day basis.
Even if you weren’t super greedy, trying to take advantage of everything that was out there. You’re just going to be reasonable. It would just take away the anxiety if we knew what was coming around. Markets can be fairly easy to deal with when things are going consistent and well.
When the markets get volatile, when we hear about drops, when we hear about loss of value, when we hear there’s a sell‑off, then this is this sector, and everything else, emotions can run rampant. This is when bad decisions are made.
You have to be careful when you indulge in the information that’s out there. It’s like drinking from a fire hose. Misinterpreting something that you don’t quite understand can cause you to make a decision that you shouldn’t.
That would only further complicate what’s already in a difficult time to be invested. If you’re in retirement, this is a difficult time to be invested. Not just only difficult because it’s a volatile market and volatility means something, but because the strategy’s completely different.
When you were accumulating wealth, it was very, very simple, just save. Save and invest, and never look at it. That was the simplest thing to do. Because then the market volatility didn’t matter, because you weren’t looking to live off of that money.
Now, it’s different. Where you are today is different. For that reason, you need to make sure that what you’re doing matches up with your goals for retirement. You have to be very careful about not making a misstep along the way.
Here’s a couple things that I think is important. Because you hear these terms a lot, they actually have technical definitions about them. We’re going to talk to you about some words that you will hear any time the market is not going steady and smooth.
This comes from an article on “MarketWatch” and a journalist named Alessandra Malito. I’m taking it from there. Here we go. “There is something called a pullback.” Pullback is when the share price declines between 5 and 9.9 percent from the share price’s peak.
If it goes down somewhere between 5 and almost 10 percent from the peak value, that’s a pullback. According to Guggenheim Investments, there have been 78 market pullbacks since the end of 1945. That’s a pullback.
Then we’ve got a correction. Correction is a loss of 10 percent or more from a recent high. Again, according to Guggenheim, since 1945, there have only been 27 corrections.
Then, we get to the concept of a bear market. A bear market is a movement for about a 20 percent decline from a recent high. While the S&P 500 and the Dow declined by 20 percent would be considered a bear market movement, it doesn’t mean that we’re in a recession.
Again, you can have individual sectors, like financial, or energy, or technology, or that are in a bear market where other sectors are not. It’s not universal across the entire market.
Now, I just talked about a bear market, that’s 20 percent decline. Just so you know, a bull market is when the markets are moving 20 percent or more from a previous low. They’re up 20 percent. That’s why we’re still technically in a full bull market from 2009 going forward.
We said that even though there’s a bear market movement when it goes down by 20 percent, it doesn’t mean that there is a recession. A recession is really more of a broad term referring to the country’s overall economic position and performance. It measures a lot of different things, most notably the Gross Domestic Product, or GDP.
The definition of a recession is when there are two consecutive fiscal quarters or more of negative GDP growth. This will all jumble together. If you have a bear market movement, 20 percent low in multiple sectors, it’s going to affect the gross domestic product in large part, because these are all US companies.
Victor: If that continues for two consecutive quarters or more, boom, we’ve got a recession. Let’s make the case for the bears just so that we can get that out of the way.
With the decline that we experienced in the fourth quarter of 2018, the question then becomes, “Are we poised to enter a bear market sometime soon?” Well, I talked to you a little bit about teasing things. The answer to that, when we come back from this quick break.
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If you’re one of the millions of Americans asking these questions, let financial expert, Victor Medina, help you make sense of it all.
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Victor: Welcome back to Make It Last. I love to tease in that little break there. We’re going to talk to you about with the decline of the fourth quarter of 2018, are we poised to enter a bear market?
We’re talking today completely about the difference between a bear market and a bull market, and what’s coming up for 2019. What I’m trying to do is get your mind free of the media that’s out there and talk to you a little bit about some strategies that will help you position what you’re doing in the future.
Look, we closed 2018 essentially on a significant decline off of that. I remember that I sent out a quick newsletter on Christmas Eve to my clients saying, “Go enjoy Christmas. We’ll figure this out afterwards. We don’t know yet what it means.”
The other half of what I shared in that newsletter was that that for the majority of our clients who are in retirement that have taken our advice, we have them in a position where this market downturn won’t affect them.
They’re not going to have a different Christmas, because of it. We planned it. We plan around the fact that this might happen. That’s the value of coming at this with particular strategies that you can come at it. Then, the market volatility doesn’t impact your retirement, your planning, your legacy.
That’s the whole value of having a road map because you’ll understand. Look if I come over here, I turn left. If this happens over here, I turn right. Since we can’t predict the future, all we can do is position ourselves well for that.
I sent out that newsletter. Still, the news media kept going on with the topics. I get it. It’s a reasonable question. It’s specifically important if you’re not a client of ours, and you don’t have a plan like that. You’re looking at retirement, either on a fixed income or a fixed set of assets. This is what you’ve got.
Can you chance the downturn to your portfolio that a possible bear market and a recession could bring? Is that something that you can weather? Let’s examine how we got here.
First, we’ve been in the current bull market since March of 2009, making it officially the longest bull market in any recorded history. That statistic alone can be alarming for some people because what they’re thinking next is, “If this is the longest bull market in history, there’s only one thing that it can do, end.” That’s what they’re doing.
Almost all of the damage that was done in 2018, where the Dow Jones closed about 5.5 percent in 2018 and the S&P 500 lost all of its gains. All of that damage was done in the fourth quarter. As we were going into the fourth quarter, the Dow and the S&P 500 were in a positive territory for the year.
The Dow dropped 13.4 percent from its previous high, putting us firmly ‑‑ did you take notes ‑‑ in the correction zone. That’s over 10 percent but less than 20, but not yet in a bear market.
Let’s look at the concerns that have most bear market supporters worried. If you’re a bear market person that’s coming in, these are the things that are concerning you.
You’ve got international trade issues with China, and our “tweeter‑in‑chief” doing what he does to affect trade issues. Trade hostilities with old NAFTA. Brexit, because we know that the established economy of the UK and other European countries does affect what’s going on with the value of your stocks and portfolios.
The Federal Reserve, their interest rate policy. Are they going to increase it? Do we have an inverted yield curve? Slower earnings, slower GDP, slower yet more expensive housing market, and essentially government shutdown. Gridlock in Congress, we don’t have an operating US government right now.
Any number of these items and issues can and likely will be impactful to further economic expansion. Trade with China and the Federal Reserve policy has dominated the media. That’s a trend that’s going to continue for 2019.
In fact, if that’s the stuff that you put your stock in, you’re going to be thinking that a bear market is inevitable. That’s what you should plan for.
Latching too firmly onto any particular conclusion about what’s coming up can in and of itself be a problem, and it is a problem. We can’t predict the future. Market timing does not work. You shouldn’t be doing it.
If you are placing bets with Monopoly money, you might put your bet on a bear market if you believe that these things are going to be what determines where the markets are going.
Now, I’m going to make the case for the other side, the bulls. For all the pessimism that exists out there, there is still plenty of optimism that this market correction that we’re experiencing is what they call a fundamental basis or substance. That is to say, there’s no good reason for why it’s happening.
The bull market supporter is going to say to the bear market naysayer that this is fear selling. That this is algorithmic and computer‑based buying and selling. That it’s not really about anything that’s fundamental off of there.
Even in the weakness in the economic date is minute and should not be considered nearly enough to represent the kind of drop that we’ve experienced in the past when there’s been a bear market and/or a recession. As opposed to a recessionary movement, we’re simply seeing slower growth compared to what was expected.
That is to say, the expectations from the analysts were too high. They were guessing that we were going to go through the stratosphere. Look it, that’s not happening. It doesn’t mean we’re in a recession. It just means that it’s not growing as quickly.
We look at unemployment. It’s still at all‑time lows. While the GDP is slower to grow, it’s still growing. Corporate profits are high. There’s repatriation of dollars to the US. In fact, the newest tax laws have a lot of corporate tax cuts. Anybody who’s a bull market thinker is going to argue that this market movement we have seen is just overdue.
Valuations were too inflated, too high. The economic data about what’s going on now and predicted to go in the future is strong, growing, and still enough to provide what they call “further growth.” As to the bull market that is still alive and well.
These issues that we’re dealing with are not new. They’ve been around for some time. What that means is that if you believe that markets are efficient, that is to say, that it takes all of the information and accurately represent it in the price of the stocks, the prices of anything that you have out there. Look, it’s already been priced into the market already.
Nothing that we have is brand new, needing to be incorporated into the values that’s in there. Notwithstanding all of the stuff that we’ve lined out there, all of the negativity, the economy still is growing.
I just argued both sides, credibly I think, by the way. Credibly, because I can. I went to law school, I can argue five sides. The idea here is there’s a lot of data and you might be thinking, what side should you be on? What do you believe?
Do you have a crystal ball for what the future holds? The answer is no because my crystal ball is broken. I think your crystal ball’s broken as well.
I want to encourage you to think about it a little bit differently. When it comes to planning for retirement, or if you’re already retired, you really owe it to yourself to start thinking differently. I said it to you before.
When you got through accumulation, the thinking was very simple. Just save, invest, leave it alone. Don’t do anything. Over a while, there’ll be a lot of money there, and there was.
Once you get into retirement, the thinking needs to change. That thinking was never really tested for withdrawals, for living off of money, for longevity concerns if you lived longer than what…you had a certain amount to save, you thought you might retire at 65.
There was a period that you were going to save stuff away, but you’re guessing about how much longer it’s going to need, we all are.
One of the things that I do is I coach clients to be truly successful with investing when you’re retired. You need to worry more about your life and less about your money. In order to worry less about your money, you need to have a plan. That plan needs to address just how much risk you can afford to take on.
If it does so properly, and the markets are in flux and they’re volatile and, “Oh my goodness. Christmas Eve, everything’s going down. What are we going to do?” Jumping all over the place. None of that should really affect your long‑term ability to stay retired and stay happy.
What do you do? How do you do that? Your plan needs to address, at least, the three following things. It needs to do that comprehensively. Not at a surface level, not on a back of a napkin. Really understanding this deeply, and it needs to address, at least, these three things.
The first one is your income needs. The second one is your true risk tolerance. The third one is inflation and change over time. Let’s go through each one of those.
First, why should your income needs be important? It turns out, at least, through most of the research, that true happiness in retirement revolves around cash flow and the ability to spend without worrying that you’re going to have to run out of money someday or that you will run out of money someday. That is wrapped up in this concept of security.
That’s why the cash flow comes together. If you wake up every morning and know that there’s enough money to get through the month, you will be happier. I know it sounds simplistic, but that’s really one of the keys there.
If you’re waking up every morning and worried about if there’s going to be more month than there is money to that month, and if you have to dip into it more, how will it affect how you’re going to be at 85 or when you’re much older?
If that’s what’s dominating your thoughts in the morning, you can’t be happy. I always use my parents as an example because they’re one of the lucky ones. They were both school teachers. When they retired, they got healthy pensions. Those pensions will last the rest of their life.
When one of them dies, they’ve arranged it so that there’s almost as much money as when both of them were alive.
The value of that to them is that at the beginning of every month, there’s a pile of money that’s deposited in there. They know that that will never ever, ever, ever, ever, ever end. Ask them how they are in retirement, they’re happy. They didn’t even feel retirement. I manage the savings that they have for them. I’m their son. They should give me that money to manage, minimum.
I manage that money for them and I asked them, “Does it bother you what’s going on with the markets?” The answer is no, it doesn’t bother them in the slightest. They haven’t even looked at it. I love to tell the story about when I first put the money together for my parents that I was going to manage.
This is when I first got my licenses. I said, “This is something that I’m doing. You trust me and you should let me do it.” Of course, they’re my parents so even if they didn’t trust me they would still give [laughs] me the money to manage, but they did.
My dad called me, he said, “Look, I don’t think that I have a lot. Your mom and I, we were school teachers. We saved a little bit. I don’t know but I think I’ve got something. I have a login somewhere. Let me go look for it.”
They went in and he said, “Good news, I found $50,000.” This is the first $50,000 that I was ever going to invest. Really important to me. It’s my parents’ money.
I said, “No problem, great. Thank you. I’ll send you the paperwork. We’ll transfer that over.” Hung up the phone, about 15 minutes later he calls me back and he says, “Good news.” I said, “What’s that?” He said, “I found another $50,000.” I said, “That’s fantastic. Where was it the last time?” “I don’t know, I kind of forgot about it.”
He did this six more times until there was $300,000 that was there, each in about $50,000 increments. I said, “Look, I’m going to stay up all night. You keep searching. You want to call me back every 20 minutes? We’ll keep finding money.”
The idea is that he had forgotten about it. These were savings that were not material to his retirement. What was material to his retirement with my mom was the fact that they had worked as school teachers for 35 years.
They were going to get 70 percent of their best three years before they retired. That was their retirement. They remained happy when they retired. They remain happy today.
I’ll get a little academic in the last section to talk about the cost of inflation and how that’s going to erode their purchasing power. I’m not going to quite pop their balloon, but understand that for right now they’re in that early stage of retirement, first 10 years. They’re happy. They’re happy with their retirement. Why? Because their income needs are being met.
If you’re not in a situation where you can rely on pulling money out or having money deposited in a pension, you need to look at your cash flow being established by the savings that you have. It’s natural to start your planning by deciphering how much income you’re going to need.
Planners use things like withdrawal rates. It’s to measure the market risks someone might need to take to make their retirement work. For instance, if you needed to pull $45,000 a year from your portfolio to spend and live comfortably and that withdrawal represents 7, 7.5 percent of an annual distribution for your portfolio.
Then you’re going to have to have a more aggressive mix with your investments to try to make your money last. It’s just the way the math works.
That’s precisely why you need to know what your true risk tolerance really is. We think about the phrase of risk tolerance within the confines of how much could you bear, your emotional state. I also like to think about it as how much does your plan require in order for you to be successful?
Even if you would only take three percent risk, whatever three percent risk represents, if the goal for retirement requires you to have seven percent or more, it doesn’t matter. You take your three percent risk, and you run out of money. It didn’t really matter that your tolerance was met for what you saw that was going on in the markets.
At the end of the day, you didn’t make it because your plan wasn’t crafted around that. The true risk tolerance is on the basis of what your plan needs. Let’s put some numbers on it. As I said before, if you needed to take out 7, 7.5 percent annually from your portfolio, you’re going to need a more aggressive pathway.
If you’re a conservative investor along that, it’s not going to work out. If you were conservative, and your withdrawal was only 3.5 percent in order to make your income needs, you’re probably in pretty good shape.
You need to measure how your income needs and the risk that you take with your investments gets to that third area which is how is it going to change based on things like inflation, costs of living adjustments, and other things that might affect your spending power like healthcare needs, or if you were going to downsize, or it…?
All of those things are going to go on there. Forget about trying to determine whether the market’s going to go on like the bulls, or go on an extended downturn like the bears. You’re going to say you need to focus only on how much money you need to protect to provide the cash flow that you need.
Then you focus on the risk tolerance for those dollars that you’re OK gambling with out there. That’s the path of investment that you can use to make up. It makes a lot easier getting through there.
There are all kinds of techniques to get there. You can create guaranteed income using a form of an annuity to get you an income to meet your cash flow needs that will never ever, ever, ever go away during your lifetime. That’s a methodology of getting you to a happier position through that.
I want to help you develop a plan that can help you eliminate some of the guesswork, because just buying an annuity isn’t the answer. It’s part of other things that are part of a plan, what investments that are made up in there, all part of it.
I want to help you develop a plan that eliminates some of the guesswork that the current market environment has imposed on us with the news it keeps talking about it, and that’s all that goes on.
If you want to do that and you want help with that, we can help you. You can call us for a complimentary review so we can sit down with you to review your current investments, make sure you’re on the right track, and essentially put together a roadmap for you, a roadmap for retirement. You can call us at 609‑818‑0068. Again, that number’s 609‑818‑0068.
If you’re interested in just attending an upcoming seminar, we have one of those for you. Those are going to be held in our workshop here in our office in Pennington. What you can do is you can call us, again, at 609‑818‑0068, or you can go to B‑I‑T dot L‑Y slash capital M, Medina, M‑E‑D‑I‑N‑A, capital L, Law, L‑A‑W.
Go to Medina Law and essentially register for our upcoming seminar there. It’s going to be Thursday, February 7th. Sorry, forgot the date a second. Thursday, February 7th at 1:00 PM. Then again on Tuesday, on February 12th, that’s 6:00 PM. Light refreshments served.
We’re only limited to about 40 people there. We’ve got registrations coming in already, so I do urge you to make a registration. You’re welcome to bring a guest along with you, and learn a little bit more about what’s going on.
Victor: We’re going to focus a little bit more on legal planning, but we will touch on some of the retirement things as well.
All right, listen. When we come back from the break, I’m going to talk to you about more things that are going on in the market and have a little fun with it. 10 things that we absolutely know will be going on with the market. Stick with us. We’ll be right back after this quick break.
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Victor: Welcome back to Make It Last. I’ve been talking about what 2019 holds. Is it going to be a bear market? Is it going to be a bull market?
I’ve got 10 things that I’m fairly certain will happen in 2019. I’m lifting this from a post that was by a guy I respect a lot named Ben Carlson. He runs a website called “A Wealth of Common Sense.” I think these are hilarious. All right, here you go.
The first thing that I will guarantee will happen in 2019 is that your results in 2018 will impact how you feel about the markets in 2019.
This recency bias essentially affects us all. Many investors will be gun‑shy following poor performance in 2018. Others will become overconfident if they came away unscathed.
It doesn’t matter what happened. Whatever it was will shape your idea about what’s going on in the future. It’s one of the reasons why you essentially need an advisor to assist you, to make sure that you don’t have your emotions lead you around.
Next thing. Something will happen that doesn’t make sense at all. There’s sure to be something that catches investors off‑guard in 2019.
Something’s going to defy expectations, whether it’s geopolitical, whether it’s irrational market movements, whether it’s corporate takeovers, whether it’s a merger. There’s huge winners. There’s huge losers. There’s crazy news, performance news.
In my experience, there’s going to be something that surprises us to some degree. The trick is ‑‑ watch this one now, I’m getting a little zen ‑‑ to not be surprised that you’re surprised because these things can happen randomly all the time.
What do you need? You need a plan. You need a plan in order to get through retirement, in order to weather what’s going on, so that the surprise doesn’t knock you off of your perch, sitting high and happy in retirement.
Since the stocks fell in 2018, it’s going to feel more comforting to do something than to do nothing in 2019. I want to put a caveat on this one because although Ben talks about it within the context of an investment strategy, I do want to put an asterisk here and say that if you’re in or nearing retirement, you should be doing something different in 2019.
Iit’s not because of what happened in 2018. It’s because your retirement plan requires something different than what the plan was before.
Once that plan is set up, then for those people that are in the market or for whatever percentage is in the market, then yes, I agree. It’s going to feel more comfortable to do something than to do nothing, but the answer is still that you should do nothing if it’s not part of what is your plan.
Investors feel comfortable when there’s the illusion of control. By acting on something, by deciding to do something, they’re essentially retaining control in an environment where they have no control. There’s no control. They can’t predict where the market’s going to.
Because they decided to sell, or buy, or reposition, or whatever else, it feels like they’re grabbing the wheel on and steering even though they’re not. I do want to say that if you’re entering or approaching retirement, and you don’t have a plan for retirement…
I just met with a client. Part of what we were doing is taking an inheritance that was established by the death of a spouse and fitting it into an existing plan. That existing plan for this client had some guaranteed income for a period of time. We wanted some safe money because we understood that after the period of time, there was going to be a need for income in the future.
We went with an investment strategy recommendation that fit as part of the plan with a different set of life circumstances. We adjusted the plan based on what was going on there. Was there premature passing of the spouse? After that, we had to take what was there and left, and fit it into part of the plan. That was what was important.
There’s going to be a need to put a plan together if you’re approaching or you’re in retirement because a plan will be important. If you didn’t have one before, then this will be like doing something.
It’s not because of what happened in 2018. It’s because what happened in the last 30 years is you got yourself towards retirement, and now you need to fit yourself in with a plan going forward.
Look, next thing that’s going to happen that I can almost guarantee is there will be people other than you getting richer than you or claiming to be getting richer. Fear and greed can force investors into making mistakes with their money, but envy, probably even more destructive than that.
Seeing your peers, friends, perfect strangers making money faster than you can cause just some strange emotional reactions. This is true in down markets where somebody’s going to put the right hedge against it.
I knew that there was just an article that came out that said that there was a put that was put on the S&P that if it went down only ‑‑ I can’t remember ‑‑ 14 percent, that they’re going to make $145 million. If it went 22 percent, they were going to lose $520 million.
You look at something like that and you’re like, “Oh, my goodness. There’s smarter people out there making more money. What am I missing out on?”
It’s going to happen. You got to push that to the side. That’s not important. What’s really important is, does your strategy help you achieve your goals?
Forget about the person down the street. This isn’t a race to try to figure out who’s got the most toys at the end, especially when the risk of making a mistake is not losing the toy race. It’s running out of money in retirement, Having something catastrophic happen that will cause you to essentially lose your chance to enjoy your retirement and stay happy.
I want you to ignore the stranger down the street, the neighbor. Don’t engage in the talk that goes on about what’s going on in there. That’s not the goal at all. Do make sure that you’ve got a plan.
Next thing. Your asset and/or product allocation will have a bigger impact on your performance than what specific stocks you might have. Stock picking is more exciting. You feel like you’re making a bet on something. When it comes out, that’s great.
The people that are making a bet on Apple forever and ever and ever, and what did we see? Just the report that said that they’re going to have fewer iPhones sold means that it lost a whole bunch of money.
Look, even if you picked the best stocks in the worst sector, it won’t matter in terms of your overall performance. Asset allocation and product allocation as part of an overall plan isn’t sexy, but it will almost always be the most significant part of how you attain success in retirement.
The idea that you might, for instance, have time segmented your investments so that you had investments that were available early. Then you had investments that were available to you, safe, but available, to you, meant to mint the midterm in retirement. Then investments that were there for the long‑term.
The fact that you went smart about how you allocated all of that is going to have a bigger impact to your retirement and your success in retirement than what specifically is in the midterm bucket, or what specifically is in the long‑term bucket.
Even if you rocked that, even if you absolutely nailed that down, if you didn’t time segment, the fact that you didn’t have that, even if you picked the one thing but you hadn’t time segmented, all of that would essentially lead to not great success in the future for your retirement.
Next one. The best investment that you’re going to make if you’re still nearing retirement is going to be an increase in your savings rate.
We’re talking about things that you can control. You have no control over market returns. You have no control over economic growth, tax policy, trade policy, or even the actions of other investors. You had no control about that, but you do control how much you save and what your spending rate to that is.
They are closely linked. As you increase your savings rate, you learn how to live on less. Not only are you saving more, but the need to draw that in the future as part of a regular thing, that’s going to go down. The two things are married together. Two things come together.
If you increase your savings rate, that is going to have a better investment decision as you approach retirement than any particular stock that you happen to pick.
The next thing is, expect plenty of “I told you so’s.” [laughs] It doesn’t matter what the market does but they’re going to tell you, “I told you so.”
The S&P 500 had its first calendar year down after nine straight years of gains. You got to understand. The people on TV have been predicting a huge drop every year since the gains began.
If you watch TV, stop watching TV. If you watch TV on the financial news, many of them will try to remind you of this fact, and then the assumption that they perfectly timed this downturn.
You can avoid investors, pundits, people on TV who tout their market timing calls after the fact. The truth of the matter is that most of them exaggerate their track record to date and/or completely miss and whiff the next time around.
It doesn’t matter that they were right in predicting it. They were lucky. They got it right by chance. Truthfully, the chances are very high that they’re going to get it wrong in the future. They just are. It’s just the way that it works.
Market timing doesn’t work. You look at anybody who’s a market timer and you realize that, in fact, they have gotten it wrong more often than they’ve gotten it right. It’s just that people like to put the stuff on TV when they’ve gotten it right because it makes them look smart.
Related to the idea that people around you are going to be getting richer than you, faster than you, one thing that I can almost guarantee will happen in the next year is that there’s going to be a stock, a mutual fund, an ETF, a strategy, a sector of the market, an asset class that skyrockets and that you wish you owned more of.
Every year, there’s something that everyone wishes that they had put their entire portfolio into. It’s fun to dream that you got a lotto ticket, but you’re only going to know that in hindsight to what would have been.
When people come in and visit me, and they’re like, “Look, do you know what you should invest in, or what’s going in there?” I said, “Absolutely. I know what you should have invested last year.” The truth of the matter is that what I had my people invested in was not what they should have been invested in in terms of what was going to outperform.
I could have told you what you should have done for the last year. In fact, if you would like a time period of the last 10 years, I could have told you what exactly would have made the most money. Here’s the problem. That’s as far as I can go.
I can give you absolutely no guaranteed advice about what you should be in going in the future. Anything that I do guess in is likely to be wrong.
I can do this. I can put together a strategy that is designed to withstand as much of the volatilities that you can withstand as part of your overall plan. I can give you a strategy in retirement that will help you make sure that your money lasts as long as you do. That I can do, but I can’t predict what’s going to be the best. I’ll be wrong if I try.
By the way, here’s the important part. So will everyone else. Look, if you’re working with somebody that tells you, “Oh, look. This sector is going on and I anticipate blah, blah, blah, blah, blah, blah, blah,” run. Run because they do nothing other than selling snake oil. They have no idea.
Somebody asked me, “If you knew there was going to be a market downturn, what would you do different with your investment strategy?” Here’s my answer. Nothing. Because even if I knew there was going to be a market downturn, I can’t tell you when, the timing. I can’t tell you when it would end, the other half of that side of the equation.
Getting in and out in cash and all that kind of stuff, it just doesn’t make sense.
Next one. I guarantee that this will happen, especially for the layperson. You will not be able to distinguish between luck and skill in anyone else’s investment returns.
Here’s the thing. People will be right for the wrong reasons and wrong for the right reasons, but markets don’t care about these things on shorter time frames.
Over the next year, a great process can produce sub‑par results, while a terrible or having no process can produce phenomenal results. Bad decisions get rewarded all the time, but luck doesn’t last forever in the markets. Eventually, a good decision‑making process will win out, but over a one‑year time frame, anything can happen.
If you’re entering or facing retirement and you don’t have a strategy, you might do extremely well for one year. You might even do better than my strategy or plan for that one year, but it will pale in comparison to how the strategy will hold up over the course of your retirement.
Most people’s retirement is 25 years or longer, could be. We stay healthy longer. The need for a sharp retirement plan when we can no longer add money to the pot for what we’re dealing with, that has become crucial. That has become so important, so, so, so important.
Truthfully, it will not matter what you do in one year as part of a crappy plan. What will matter entirely, it will be so significant. It will matter entirely what you do over the course of your entire strategy for retirement.
If you compare what you’re doing to somebody else’s, and let’s say that that somebody probably is…
Let’s make you one of our clients. You’re one of our clients. You compare your results in this one year against somebody else’s year. If somebody does better than you, you won’t be able to distinguish that for skill from luck. You won’t be able to tell what the difference is because of the one‑year time frame, it doesn’t matter.
If you measure their success in their planning and our success in our planning over the course of the retirement, now we will have a basis of comparison. What you’ll see is that skill beats luck every single time, and that’s what’s important.
Finally, and this is really important as part of the strategy or the plan that we put together, diversification is going to make you feel silly.
Any long‑term investment strategy, including a retirement road map, where there’s portions that are time segmented and there’s product selection, it’s going to make you feel foolish over the short‑term in some way.
Either you overpopulate it. You put too much into the conservative bucket for what you were doing, or you didn’t put enough. Some way, it’s going to make you feel silly, especially over the short‑term. This is especially true when we’re talking about market extremes because the market extremes will test the limit of your patience and discipline as to part of the strategy.
One of the biggest benefits of working with an advisor, with somebody who’s a retirement strategist, is that you get to divorce yourself from having to use your own willpower, patience, and discipline to do anything.
Even my best clients understand that value, even in cases where they behaviorally fail. What I mean by that is I’ll have some of my best clients who, when I send out that newsletter on Christmas Eve, some of them responded back, “Hey, we were never worried, but thanks for reaching out to us.”
Some of them said, “You know, I was going to do something or ask you if we should do something with the strategy, but you put your mind at ease.” For those people that are asking about what should we do and should we change, I think it’s just their patience and their discipline is getting tested.
It’s really, really good that they have us here to stand in the way of making a bad decision. Diversification is for patient people. In retirement, we get nervous. We get nervous about the future holds.
It requires repeatedly ignoring market environments. It’s going to make you feel silly for spreading your bets and managing your risk with different product allocation. That’s just the case of the way that it works.
The value of an advisor and the value of working with a strategist is that that person stands in the way between you and making a bad decision.
It’s not just about setting the strategy once and forgetting about it. It’s not just about creating a roadmap. It’s also about getting a guide along the way so that you find and you know how to make adjustments or turns, or what means something and what doesn’t.
That’s the value of having a plan and sticking to the plan, especially when that plan is rooted in such great advice and strategy for what you need for retirement.
Anyway, I hope you enjoyed today’s show. I want to remind you we do have a workshop coming up. This one’s basically on estate planning, especially how to make sure you don’t lose assets to the rising costs of healthcare and long‑term care. It’s about getting your ducks in a row.
If you’d like to attend that you can call us at 609‑818‑0068, or you can visit B‑I‑T‑L‑Y/MedinaLaw where M and L are capitalized. Capital M for Medina, M‑E‑D‑I‑N‑A. Capital L, L‑A‑W. MedinaLaw. You go there and you register, or you can call our office if the website isn’t working for whatever reason.
You can go and attend our seminars. They are going to be held in our workshop, in our educational resource center, here at our office. They’re going to be held Thursday, February 7th, at 1:00 PM and Tuesday, February 12th, at 6:00 PM.
They’re absolutely free. Light refreshments served. No obligation. Just our way of educating the public. I urge you to attend that if you want to learn more about how to get your ducks in a row.
With all of that said, we will catch you next week on Make It Last, where we keep you down surfing the waves of retirement, learning more about it.
All you have to do is catch us on Wednesday morning at 11 o’clock on WCTC 1450 AM, or you can subscribe to the podcast. Go to iTunes, go to Android, go to makeitlastradio.com, go to Spotify.
Look for Make it Last with Victor Medina. You will find this show, and it will auto populate in your phone. You will be able to see all the 80 shows in the past. You can listen to your heart’s content.
Victor: All you have to do is go and subscribe. We hope you will join us there. Anyway, we will catch you next week on Make It Last. We’re going to help you keep your legal ducks in a row and your financial nest egg secure. See you next week.
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