“Are we going to be OK?”
I know some folks are asking themselves and their fiduciary advisors that question after a turbulent month for the markets. We’ve discussed both current and historical reasons for October’s volatility – which again, I have to stress, was perfectly normal and no cause for panic. But I understand that technical and theoretical analysis are cold comfort right now if you’re retired and depending on your investments to support you for the rest of your life.
So on today’s show, we’re going to move from the high-level view of the economy down to the trenches here at Keen Wealth. These are the strategies we use for both our working and retired clients during volatile times.
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1. Have a comprehensive financial plan.
Some folks wonder why they should pay fees to a fiduciary advisor rather than manage investments themselves or use an automated online platform. I think the value of the Keen Wealth approach becomes especially evident during market volatility. The plans that my fiduciary advisors build for clients account for every single aspect of their long-term financial pictures: health care costs, taxes, residence, annual withdrawal rate, monthly budget, lifestyle goals, and how much consistent income they will need in retirement. You’re just not going to get such a comprehensive view of your finances unless you’re working with a trustworthy pro. Because we’re accounting for everything, we have a better understanding of how market fluctuations could affect your life. We’re not only trying to drive up your ROI, we’re trying to make sure you have the comfortable retirement you’ve been working for.
2. Getting the timing exactly “wrong” produced a positive return.
When there’s a normal correction in the markets, like the one we just saw in October, the panic on TV and the dropping numbers in the headlines can cause people to lose focus and make poor decisions. They think that if the markets are down, then it’s a bad time to invest.
Well, let’s go back to January of 2008. This was close to the market highs before the financial crisis and just before Lehman Bros. declared bankruptcy. There was political uncertainty as a new president was about to be sworn in and a $787 billion stimulus bill was being discussed in Congress. The H1N1 virus was spreading across the globe.
Does this sound like a “good time” to invest? Probably not.
But according to our data, if you just invested in the S&P 500 in January of 2008, your average ROI right now has been just under 9% annualized.
When the markets started to recover in March of 2009, the Dow Jones Industrial Average was around 6,600. Here in early November 2018, even after a volatile October, it’s in the neighborhood of 25,000.
Of course, our clients at Keen Wealth already know this. I’m privileged to be working with so many folks who have been investing for decades. They’ve seen it all, weathered the worst, and gained real wisdom about how market volatility works and how their retirement plans can deliver consistent income. I hope the next generation of investors is learning to do the same.
3. Fill a five-year bucket, at least.
Now a focus on long-term holdings doesn’t mean that we completely ignore short-term fluctuations. But market history tells us that when the markets do retreat from a bull peak into a bear trough, it takes, on average, 3 years for the markets to get back to that peak. For added security, our financial plans typically set aside at least five years of a client’s consistent income needs in a “bucket” of relatively stable, diversified bonds: government bonds, corporate bonds, short-term bonds, and long-term bonds.
The actual makeup of this part of the portfolio and the size of the bucket depends on things like the client’s retirement goals and how much consistent income he or she could need to cover monthly expenses. Discussing our clients’ unique circumstances so that we can make a plan they’re comfortable with is an important early step in our process.
4. Don’t coast by on autopilot.
Since recovery from the Great Recession started in 2009, the US markets have enjoyed a lengthy bull market. As a result, many investors have had their investments on autopilot. And there are positives and negatives to approaching your finances that way.
On the positive side, following your plan shows that you are committed to a long-term view of your finances. You understand the need to weather volatility. You’re not letting the talking heads or social media scare you out of making your regular contributions to savings and retirement accounts every time there’s a correction. Your investments and savings have most likely had positive returns.
However, we never want our clients to forget that the financial plans we build at Keen Wealth are designed to evolve with their lives as well as adjust to market trends when necessary. Positive markets don’t mean that there aren’t some proactive moves we could discuss. Have there been any changes in your life in the last year that your advisor should know about? Do we need to resize your consistent income bucket? Do you have any new interests or goals that we could start accounting for and preparing to realize in retirement? Do you have any questions about your investments that you’ve been putting off asking just because your portfolio looks strong?
The more engaged you are in your financial plan, whether the market is up or down, the better your results are going to be. And the easiest way to get back in the driver’s seat is to call up Keen Wealth and schedule a year-end checkup with one of my fiduciary advisors.
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Got a question or comment? Email it to me and we’ll get back to you or call our office at (913) 624-1841.
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
Keen Wealth Advisors is a Registered Investment Adviser. Nothing within this commentary constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Keen Wealth Advisors manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed here. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.