On This Episode
The headlines are loud, the markets are messy, and your gut might be telling you to do something — anything — right now. But what should you actually do when your portfolio takes a hit?
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Disclaimer: 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.
Marc:
The headlines are loud, the markets are messy, and your gut might be telling you to do something, anything. So what should you actually do when market downturns happen? Let’s get into it this week here on Retirement Planning – Redefined.
Welcome onto the podcast. Thanks for hanging out with John, Nick, and myself as we talk investing, finance, and retirement. And, guys, with all the volatility and stuff happening, I thought it’d be a good idea to maybe address some of this stuff. And we’ve got four key questions maybe to ask ourselves when we’re going through some of this volatility and let you guys give some people insights on what you’re seeing and what your thoughts are when it comes to this kind of stuff. So welcome on this week, John. How you doing, buddy?
John:
I’m doing all right.
Marc:
Yeah? A little busy?
John:
Just getting ready to start a kitchen remodel, which is bringing its own gut check, but doing all right.
Marc:
That is true. Very true. And Nick, how are you doing, my friend?
Nick:
Good, good. Staying busy. Obviously a little chaotic right now, but knee-deep in wedding planning. So that’s fun.
Marc:
So let me ask you guys, before we get into this, when we’re seeing this kind of volatility, do you get many calls? I’ve talked with all kinds of advisors and most of them say a couple, a couple panicked people, but for the most part, their clients have a strategy and a plan in place and it makes it a little easier to handle when there’s volatile times like this. Is that kind of the same for you, or what are you seeing out there?
John:
Yeah, I’d agree with that. As we mentioned quite a bit in our last podcast, our last sessions, our practice is generally planning based. So a lot of times people are comfortable with where they are, and we do a good job of reinforcing here’s where you are, here’s your asset allocation, here’s how we structure things for a downturn or some volatility. So I think we do a really good job of making sure people are in the right asset allocation, and not only that, but structuring their assets where when they are using their funds for retirement, we have a plan in place to draw on specific accounts when we are expecting this type of volatility.
Marc:
Makes sense. Yeah. Gotcha. Well, as you mentioned, gut check as that kind of goes. So let’s jump in and do these four items here. And that’s the first one. Nick, I’ll let you start if you want to. So when is the last time you checked your strategy? When’s the last time you checked your plan? I hear people saying, “Oh, the market’s down year-to-date, the S&P’s down 13%.” Well, are you down that or are you only down maybe two or three because you hopefully were properly diversified, right? So when’s the last time you checked in on your plan and do you need that gut check? What’s your thoughts?
Nick:
Yeah, so we try to make sure we’re updating plans. We’ll go over general numbers each year. And then one thing that we focused quite a bit on last year with clients was updating expenses. With having the inflation like we did for a while, the expenses are obviously a huge driver for clients, and so a lot of our clients are updated. And I know John kind of touched on how many are reaching out. And I would say obviously compared to the clients that we have, there are some that do. And I think the good part about the planning, those that had the planning, we’re just reinforcing and reviewing what we’ve discussed in the past.
I had a couple conversations earlier today with similar thoughts and sentiments, and even though most clients know that they have some sort of mix between stocks and bonds, they rarely think about the bond portion not being as volatile. And so that’s something that even where in our minds it might kind of feel basic, these little things, and just kind of talking through and reminding clients about what they actually have, why they’re positioned the way that they’re positioned and why we did the plan. It’s also a reminder for us. We’ve had some clients that maybe six months, 12 months ago, like, “Hey, should we get more aggressive,” et cetera, et cetera. And we kind of emphasized that we’ve had a really good run for a really long time, and at a certain point there’s going to be some sort of pullback. And so I think those clients that both from a being too conservative or being too aggressive standpoint are kind of happy that they have a plan.
Marc:
Gotcha. Okay. And so John, that would probably lead to the second step, which is if you are doing that gut check and you do feel like there’s some things you need to do, where are you at with your risk? As I mentioned a second ago, people see the headlines and it makes them panic. It makes them worry, it makes us easily agitated. “Oh, it’s down 13%.” But if you’re not taking 100% risk, you’re probably not down 13 whole percent, right? So it’s about having that risk tolerance adjusted as well.
John:
Yeah, and like Nick mentioned, I just had a scenario where this actually came up. They’re watching the news and it’s doom and gloom. And I’ll tell you, I put it on for a little bit sometimes and it’s like, all right, if you’re watching this all day, I could see where people are panicking. But when we did their review, the person was down minimal year to date, and they’re like, “Oh, that’s it?” And it’s just like, “Yeah, you’re doing all right.” And then when you reference the plan and you actually show them, “Hey, based on what just happened this last week, you’re still in good shape and here’s a strategy if this volatility continues, this is how we’re going to handle it if you’re withdrawing from the portfolio.”
And then I will say that what Nick said there as well of, people, when things look good, it’s like, “Hey, should I get more aggressive so I can earn more?” And it’s really important just to stay the course because you do have these pullbacks and when you do get more aggressive and let’s say all of a sudden the market pulls back like we’re in the middle of right now and you can’t handle that risk, that’s when you jump ship and then all of a sudden there could be some news that comes out. Literally there could be one bit of news, especially in what we’re dealing with right now and the market could just completely do a 360 and just be positive quite a bit.
Marc:
Yeah. At the time we’re taping this, we saw that to open up today. It went up about 4% in the first half of the day, and then it started to cool back off. So there’s still a lot of things flowing back and forth, Nick, and that again leads back to strategy, right? So that’s the third piece of this conversation. Do you have a strategy and are there some things that we should look at, try to find the positives or the silver linings of downturns? What are some things we could maybe, some smart moves we could be looking at?
Nick:
Yeah, just even before we get into that, I wanted to touch on John’s last point, just from the standpoint of part of the conversation that we’ve been having with people is that the volatility in the markets, both good and bad, are so much quicker than they were years ago. There’s a lot of people that are used to prolonged just slow bleed downturns. And where from hour to hour, day to day, you can have a correction and then claw half of it back within a few days. And just kind of shifting out during that period of time can be pretty deadly for a portfolio.
But from the standpoint of what can be done now or what could make sense now with what you alluded to, dependent upon, it is a good time to kind of do that check on overall risk, potentially integrating in some rebalancing of the portfolio. We try to have clients have some cash on the sidelines no matter what. And it could be a decent time to average in some of that money if they’re looking to reinvest.
For those that are still working, I think the emphasis that we put on is buying at a discount when you’re averaging in every month and that sort of thing. And then even from the perspective of, and it’s something that we are reviewing, tax loss harvesting in taxable investment accounts can be something that makes sense. I will say that unless there’s, so many people’s positions are up or vary in the green that it can be a little hard even still with this pullback to get some losses and offset some gains and that sort of thing. But we can also take advantage of some of the losses to offset future gains as well. So those are all things that we’re reviewing.
Marc:
Yeah. And a lot of people are taught, have been wanting to do Roth conversions, for example, right? Well, I mean, kind of silver lining when your accounts are down a little bit in a 401. Maybe you’re doing some conversions over to Roth and you’re paying lower taxes because the balances are down. And then when the market comes back, because it tends to do, as long as your plan calls for it, then you’re gaining that money back tax-free. So different kinds of silver linings. You have to work with a professional, you have to work with an advisor to find your way through some of these tougher times. And so that brings us to the final point, which is unhelpful behaviors, right? So what are some things, guys, we need to stop doing right now if we’re getting stressed out? John, you kind of hit it perfectly on the head, said you watched it for half an hour or an hour and it’s like, “Yeah, no wonder people are getting down, right?”
John:
Yeah, it’s definitely doom and gloom out there. So I would say whatever station you’re watching the last couple of weeks, it’s definitely everything’s negative.
Marc:
And that’s their job. We have to be realistic about that. That’s all they’re going… They’re not going to talk about the positives very often, right? They’re looking for the eyeballs from the panic, right?
John:
Yeah, hundred percent. I think negative news typically rates better. So that’s why you continually see the negative news drip on everybody. But back to one thing you mentioned there, Marc, about the Roth conversions. I just want to point out that is a great strategy when the market dips down, if you’re currently implementing a Roth conversion strategy. It is typically a good time to do it when we’re having a pullback.
Trying to time it perfectly is obviously going to be difficult to do, but you just try to do your best with that. But when you are converting, just want to make it clear to anyone listening, you typically want to, when you’re converting for the strategy of a lower balance and paying lower taxes on the specific shares, you want to do a Roth conversion, that’s you keep your shares. So you’re doing kind of a transfer of shares over to the Roth versus cashing out and sending the cash over and then rebuying it. So just be careful. If you’re working with an advisor, just understand, hey, if we’re doing a Roth conversion, are you cashing it out? Are you transferring over the shares? Because we feel it’s best to transfer over the shares so that we don’t have to rebuy them.
Marc:
Yeah. No, definitely. I just was thinking that that was another little piece, so thank you for kind of taking it a little deeper, if that’s part of your current strategy. So yeah, turning off the news is certainly a helpful behavior. What else, Nick, you got anything else that you’d like to chime in on that topic?
Nick:
Yeah, as somebody that has sometimes a tendency to doom scroll a little bit and try to suck in as much information and try to be able to understand different points of view and all that kind of stuff, it is important to take a break. Something as simple as getting outside, going for a walk, having a conversation. One of the things we try to emphasize with our clients is that if you’re getting to that point where severe high level anxiety, maybe concerned about starting to make poor decisions or overreact to anything, is just reach out. Usually the feedback that we get when we just have a conversation with somebody is that able to give perspective. And realistically, what happened yesterday in the markets, which we had a fake post about a change to the tariffs and the market swung like 7 or 8% in five minutes and all this other stuff, really kind of emphasizes the fact that volatility is different than it used to be and overreacting can be something that really hurts you and your overall position.
Marc:
That’s a great point, right? I mean, we’re certainly, the doom scrolling, the second by second feedback, you have to have a strategy, right? And our own worst enemy is ourself. We tend to jump out and do things and then we lock in those losses. So again, before you take any action on something you hear from even our conversation or any other thing that you hear that they’re financially based, you should always run that past a financial professional as it relates to your specific unique situation, as the guys pointed out numerous times today in the show.
So if you need some help with that, stop by on the website or give them a call and set up a time to chat, pfgprivatewealth.com, that’s pfgprivatewealth.com, or call 813-286-7776. Guys, thanks for hanging out and breaking it down a little bit. Hopefully people keep their heads and we’ll see how this plays out. It could be short-lived, it could be a little longer term. So get a strategy. At the end of the day, that’s what’s important. So the guys can help you with retirement planning redefined. We’ll see you next time here on the podcast.
