Ep 17: Planning Through Volatile Markets

On This Episode

We talked last time on some of the financial impacts the Coronavirus had caused, but now we will discuss how to plan to get through tough times and market downturns. John and Nick will talk about a few suggestions they have when they see situations like this and how to withstand a volatile market.

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PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents.

Here is a transcript of today’s episode:


Speaker 1: Hey everybody, welcome in to this edition of Retirement Planning Redefined with John and Nick from PFG Private Wealth. And boy, guys, welcome into yet another week of bizarro world. What’s going on? How are you?


Mark: Hey everybody, welcome into this week’s edition of Retirement Planning Redefined with John and Nick of PFG Private Wealth. Here today again to talk some more about the, well the coronavirus, like we can’t not talk about it. It’s the only thing going on in the world it seems like. And we’re going to talk about retirement planning for this volatile market.


Mark: So guys, welcome in. How are you this week? I’ll start with Nick. How’s it going bud?


Nick: Oh pretty good. Just trying to be a voice of reason for people during this crazy time.


Mark: Are you doing your part, staying safe, staying home, all that good stuff?


Nick: Yep, I [crosstalk 00:00:32].


John: So let me jump in here. Nick’s been doing his social distancing for the last three years so he’s pretty good.


Mark: Good stuff. How about you John?


Nick: For at least three weeks, at least three weeks.


Mark: At least three weeks? Yeah.


Mark: How you doing John?


John: I’m good, I’m good. I’m more upbeat today. I feel rejuvenated. I’m ready to roll.


Mark: Well that’s good. And that’s tough, that’s a challenge we’re all going to face because a lot of us have been doing this for about three weeks already and we’re looking at another month going through April at the time we’re taping this. We’ve still got a few weeks to go, so we’ll see how it plays out. But there’s news every day, it’s changing all the time. So we’ll see how this plays out. But we thought it’d be worthwhile to at least go through some conversation about retirement planning through or during this volatile market. So let’s just kind of jump in and talk about the overall importance of a strategy. Nick, I mean we talked about it long before this downturn happened and more than ever I think that it benefits to work with an advisor because it’s a little bit easier some would say when markets are up and things are good and everything’s going swimmingly well, than it is during downturns. And if you don’t have that roadmap, it certainly can make things more cloudy.


Nick: Yeah, it’s been interesting. John and I both started in the industry in about ’06, ’07, so right at the kind of onset of the recession. And after we kind of got through that period of time, people were still afraid of it and what happened in that period of time for three, four, five, six, seven years. And since the markets have been going up for so long, planning has become more prevalent and people have understood that it’s an important thing to do. It seems like some have done it almost because, okay, well this is what we’re supposed to do, so we’re going to do it.


Nick: And now the feedback that we’ve gotten from clients is that it’s really kind of clicked to them how important the planning is and how much peace of mind kind of re reviewing it and understanding parts that maybe they didn’t quite get when we first set up the plan or in the first couple of reviews, realizing the importance of the plan as we move through times like this after having kind of a smooth sailing decade really. So we can’t emphasize enough the importance of clarity and even just helping to avoid rash and unsmart decisions we can kind of put it that way. So the confidence level that we’ve seen for people that have a plan versus those that don’t, from the standpoint of we’ve been introduced to new clients and we’ve gotten referrals kind of through this period of time and it’s definitely a drastic difference.


Mark: Yeah, definitely.


Mark: Well John, let’s talk about some of the things that the plan determines. Let’s go through a few things to consider in there.


John: Yeah. We like to say the plan determines what type of investments you should be going into and what strategy within those investments. And that’s where Nick and I really try to focus on, “Hey, let’s get an understanding of what your needs and goals are. What are you trying to accomplish?” And once we determine that, secondary always comes the investments and one of the things that with the investments go, we try to curtail or develop a comprehensive strategy for each individual person because everyone’s different, everyone’s risk tolerance is different. But the plan really dictates how much risk you should be taking.


John: So we’ve had scenarios where basically we’re doing a plan and the person when we first meet they’re pretty aggressive and then when we do the plan it’s, “Hey your plan works very strong at four to 5% rate of return, so why are we taking all of this unnecessary risk?” So really when you do something like that, you could be putting more scenarios where failing happens in the plan because there was a pullback. So we really have the plan dictate how much risk you should be taking, which with our clients, if we see it working around four or 5%. Not that we just aim for that, but we kind of scale back on the risk we’re taking. Which I’ll tell you right now, some clients are appreciative of that strategy, of just saying, “Hey let me gear what I’m trying to aim for a rate of return based on my plan.”


John: Other things that we really look at is someone’s risk tolerance, which I think in the last month or so people’s risk tolerance kind of shifted a little bit because they saw some real volatility because we’ve been almost in that 10 year bull market with not a lot of pullback. So we really try to figure out, “Hey, what’s someone’s risk tolerance and how much can they mentally afford to lose?” There are some scenarios where we might stress test the plan and that’s a case by case depending on the individual. But it’s important that you kind of take a look and just stress test it to figure out exactly how will my plan work with any type of market pullback? And then we’re going to touch on this later in the next session next week, but importance of kind of building the right asset allocation in your overall investment portfolio.


Mark: Well Nick, a lot of people had the question, especially with the heavy downturns, it came so fast, obviously in response to the virus and so on and so forth. You have people saying things like, “Why don’t you just close the market?” Right? They want you to shut it down or whatever. And we thought, well we closed it a little bit during 9/11 but that was a little bit of a different scenario. But you’re effecting liquidity by doing that and that’s another key component to an overall plan is understanding liquidity as part of the strategy.


Nick: Yeah. So the speed at which this happened, one article that I read had pointed out that this bear market happened in half the amount of days as the one during the great depression, which was kind of an eye opening sort of thing to think about where it really only took us about 21 days to get here. And so the speed at which that happened, literally when you think about it, in between the time that people get their monthly statements, they’ve lost a significant amount of money. So to tie into the planning, and this is something that we’ve tried to reemphasize with clients as something that we take into consideration, but I think it’s also helped maybe shed a little bit of light on us spending a little bit more time talking about it with clients as we’re putting together the plan is having a liquidation order and a liquidation strategy.


Nick: And so what we mean by that is, people tend to look at their money as one pot of money and they don’t necessarily think about it as, some people refer to it as the bucket strategy and a lot of times that makes the easiest way to understand, where we have short term, mid term, long term money and in understanding that even if you are two years from retirement or in your first couple of years in retirement, et cetera, we still have a long time horizon. And we don’t just shut things down from the standpoint of the overall investment strategy and shifting the cash and those sorts of things.


Nick: So we try to review and make sure when we have clients that are taking monthly withdrawals, we usually look to set up six to 12 months of expenses, dependent upon the client, dependent upon what they’re comfortable with from a risk standpoint. Set up six to 12 months in their account of cash so that they know they have that income. The emphasis that we’ve made with clients on keeping a cash reserve where some feedback that we’ve gotten over the last few years, “Hey, interest rates are so low. This money’s just sitting there. I hate not having it do anything for me,” et cetera.


Nick: And we’ve kind of tried to hold the line and tell them, “Hey, we understand but that money will come in handy.” And really the peace of mind that people have when we go through it and we kind of walk them through. It’s like, “Hey, look at between the money that you have in cash in your bank account and the money that we have sitting in cash to be sending you your withdrawals, we have a year to two years worth of income without you having to sell any of your other holdings, which gives your money time to bounce back and not realize these losses that we’ve seen,” really starts to help people understand the importance of having that liquidation order and liquidation strategy.


Nick: And then also, from the standpoint of having the big broad based game plan, having a premise or an idea of when we’re going to start social security, but then understanding that, “Hey, when things change like they are right now,” saying, “Hey, let’s look at the numbers. Instead of us waiting another year and a half to start social security, let’s go ahead and get it fired up now. Let’s have that income start to come in that way you have a little bit more peace of mind, you have additional income coming in, we have to take less out of your investments.” And as difficult as it is for people to think in the way of, “Hey, now’s a good buying opportunity from the standpoint of your investments. Let’s let that money work for you and try to get as much bounce back as we can over this period of time.” So that liquidation order and how it fits into the broad based game plan has become really evident and important to a lot of people.


Mark: Well, and speaking of importance too, one of the things that we’re doing is we’re all hunkering down in place and staying safe, staying home, all these things that we keep hearing now, but we can’t just hunker down on our plan through this time period and just say, “Well I’ll get to it after things start to get better.” Right John? You want to revisit, you still want to have these conversations even during volatile periods.


John: Yeah, and one thing we’ve tried to do during these last few weeks is really reach out to clients, especially the ones that are retired or are knocking on the door of retirement and revisit their plan and just let them know that, “Hey, even with this pullback, this is kind of where you still stand.” And for the majority of them, they’re still in a good situation. Again, partly because we had some strategies in place for a downturn in the market saying, “Okay, well now that the market’s down, we have these other buckets, whether it’s cash or whatever it might be, where it’s not tied to the market and you can access it and let your investments recover.”


John: So I’ll say in our reviews, when we show people their plan still works, it actually really provides a lot of peace of mind and it helps them make better decisions not to cash out where it’s basically like, “Okay, you know what? Even though it’s dipped, the S&P’s dipped 20, 30% over this time frame, my goals are still going to be achieved so let’s go ahead and stay the course.” So that’s where it’s really nice just to have the plan in place. It’s something you can always take a look at and say, “Hey, I know that the market’s doing this, but how am I doing? And how is this going to affect my overall goals?” And when you evaluate it and say, “Hey, you’re still okay,” I think people feel a bit better about what they’re doing.


Mark: Yeah, I agree. And I think it goes a long way towards anything we’re doing whether you’re getting inundated with news every day on the virus and it’s driving you nuts and you need a reprieve or you’re getting inundated with market volatility or whatever. Sometimes having some clarity, having a calming voice, having someone to kind of talk you through some of these pieces certainly goes a long way. So it applies to your health, it also applies to your wealth. So reach out to the guys if you’ve got questions or concerns. That’s going to do it for this week on the podcast. We talked a little bit about, again, how to plan through this volatile market. We’re going to talk some more strategy on the next session. So make sure you subscribe to us on Apple, Google, Spotify, iHeart, whatever platform you choose.


Mark: You can find them by simply typing in Retirement Planning Redefined, if you’re using one of those apps and you enjoy a particular one versus another, just type that in the search box and you’ll find it. Retirement Planning Redefined. Or go to their website, pfgprivatewealth.com, that’s pfgprivatewealth.com and you’ll see the podcast page there. You can subscribe that way and get all the episodes as they come out, check out past episodes. And of course, as always, before you take any action, if you have questions or concerns, please check with a qualified professional like John and Nick before you do so, and you can reach them at 813-286-7776 at PFG Private Wealth. 813-286-7776. Guys, thanks for your time this week, I appreciate you, for John, for Nick. I’m Mark and we’ll see you next time on Retirement Planning Redefined.


Nick: Thanks Mark.


John: Thanks.