Broker Check

Who Are You Gonna Believe?

June 01, 2022

Do you remember Groucho, and his line: "Who you gonna believe, me or your own eyes?"

In spite of what certain elected and unelected officials are telling you about how everything is under control, your eyes (and bank account and grocery bill and energy costs, etc.) are telling you the truth. Government over-spending, Fed inaction last year followed by drastic action this year, poor fiscal and energy policies, natural demand increases after the shut-down, and now the somewhat predictable aggression toward Ukraine by a financially strengthened Russian autocrat, are wreaking havoc on your budget and portfolio.

Here is what we are doing, and suggest you do, to cope while we wait for the recovery and the return to responsible stewardship.

1. Put this into historical perspective

Market pullbacks since WWII, as measured by declines in the S&P 500 Index show that most of the declines are between 5-10 percent with about a one-month average recovery time. Pullbacks of 10-20 percent are not unusual in normal market cycles and have historically had a four-month average recovery time. For 20-40 percent pullbacks the recovery time has been about 14 months. As of this writing, the S&P is getting close to negative 14 percent.

2. Evaluate your own situation

  • Retired or nearing retirement. If you haven’t yet done your financial/retirement plan, then do that now! In any case, have us evaluate your plan, and we will likely direct you to reduce your risk if it is not appropriate for you. There are several tools we use to reduce rate, equity, and longevity risk. Make the call, get this evaluated very soon.
  • Five to ten years until retirement. You can take more risk than those nearer to retirement, but you should get your plan done or reviewed to see how much risk you need to take, and convey to your planner the risk level with which you are comfortable. Generally, based on the historical recovery times given above, you do have time to recover from a market downturn.
  • More than ten years until retirement. Your risk level is generally higher than those closer to retirement, however, now is the time to plan for things that you will likely encounter when you join the retirement crowd. Some of these issues are of course growth of your investments for your future retirement, but you also need to be aware that you may need life and disability insurance to protect your family, income on which you can rely in retirement, and any other issue that may be particular to your circumstances.

3. Some basic moves we have been making

  • Bond funds may be a locked in loser. I know that there are bond fund managers who will disagree, but with rising rates, I don’t see these doing anything but moving down, unless they are floating rate funds.
  • Risk reduction tools available. These are many and varied, so you should consult us to see what will work for you.

We have been reaching out to many clients, and welcome the opportunity to discuss your individual situation and financial goals. Contact us today.