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What Monsters are Lurking in Your Portfolio?
Oct 26, 2020
It’s the scariest time of the year. Halloween is here. It’s time for trick-or-treaters, haunted houses, spooky home decorations, and more.
This may be the scariest time of the year, but it only lasts a month. The truth is there could be gaps in your investment strategy that could come back to haunt you for years or even decades. Below are a few common retirement planning mistakes that can have frightening long-term consequences. If any of these sound familiar, it may be time to meet with a financial professional.
Wrong Risk Tolerance
Asset allocation is an important part of any retirement strategy. Your allocation influences your risk exposure and your potential return. Generally, risk and return go hand-in-hand. Assets that offer greater potential return usually also have higher levels of risk. You can use asset allocation to find the right mix of assets for your goals and risk tolerance.
Having the wrong allocation can be problematic. For example, many people have less tolerance for risk as they approach retirement. As you get closer to retirement, you have less time to recover from a loss and thus less tolerance for risk. However, if you don’t adjust your allocation, you could have more risk exposure than is appropriate. A downturn could substantially impact your nest egg.
How can you make sure your allocation aligns with your risk tolerance? A consultation with a financial professional is a good first step. They can analyze your risk tolerance and your portfolio and then suggest action that can eliminate gaps and minimize risk.
No Risk Protection Tools
Asset allocation is one way to reduce risk, but it’s not the only way. You could also use tools that offer growth potential with limited downside exposure. For example, certain types of annuities offer potential growth with downside protection. You can participate in returns linked to the market without experiencing volatility and risk. Annuities aren’t right for everyone, however. Be sure to talk to a financial professional about whether they make sense for your strategy.
Impulsive Decisions
It’s natural to feel stress and anxiety when the market turns downward. Take the first quarter of 2020 for example. When the COVID pandemic began in late February, the S&P 500 declined by 33.93% in a month. You may have felt tempted to sell your investments and move to “safer” assets. However, had you done so, you may have missed out on the market’s bounce back. Since March 23, the S&P 500 has climbed 49.35%.1
The problem with impulsive decisions to move to safety is that they can often suppress your returns over time. From 1995 through 2015, the S&P 500 averaged a return of 9.85% per year. Over that same period, the average equity investor averaged a return of only 5.19%.2
Why the discrepancy in returns? Investors often make decisions based on emotion rather than a long-term strategy. While those decisions may feel right in the moment, they could lead to lost opportunity as the investor misses out on a market recovery. A financial professional can help you focus on the long-term and avoid decisions that may do more harm than good.
Infrequent Reviews
When’s the last time you reviewed your investment strategy with a financial professional? If it’s been a while, now may be the time to do so. A lot can change in a few months or even a year. Your goals and needs may change. Your tolerance for risk could change. Your contributions to your retirement accounts may change. This is especially true during the COVID pandemic, when economic news seems to vary on a monthly basis.
Let’s schedule a review today and find the monsters hiding in your investment strategy. Contact us today at Midwest Retirement Advisors. We welcome the opportunity to consult with you and help you implement the right strategy for your needs and goals. Let’s connect today and start the conversation.
1https://www.google.com/search?q=INDEXSP:.INX&tbm=fin&stick=H4sIAAAAAAAAAONgecRowi3w8sc9YSntSWtOXmNU5eIKzsgvd80rySypFBLnYoOyeKW4uTj1c_UNDM0qi4t5FrHyePq5uEYEB1jpefpFAAAU6wGESAAAAA#scso=_QQBhX8b3K5K-tQbo56XwCw7:0
2https://www.thebalance.com/why-average-investors-earn-below-average-market-returns-2388519
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20420 - 2020/9/18
News
In true 2020 fashion, the presidential election has been a rollercoaster ride. On Saturday, November 7, four days after election day, most media outlets projected Joe Biden as the next President of the United States.1 However, the call for Joe Biden didn’t come without suspense, as the country waited for days for ballots to be counted in Pennsylvania, Arizona, Georgia, and Nevada.1 As of Monday, November 9, President Trump and many members of the GOP claimed that the election had been marred by fraudulent activity, and they vowed to pursue legal options to resolve those alleged issues.2 Barring any legal rulings that change the outcome, it appears that Joe Biden will be sworn in as the 46th president on January 20, 2021. What does a Biden presidency mean for the economy, the financial markets, and for your nest egg? Taxes What does a Biden win mean for the economy? It’s difficult to say. One certainty is that a Biden administration would pursue a wide range of tax increases. Biden’s tax plan includes income tax increases for those making more than $400,000 along with increases in payroll taxes, corporate taxes, and capital gains. The Tax Foundation estimates that the Biden tax plan would reduce GDP by 1.62% over the long-term.3 COVID and Stimulus However, there are some who think a Biden presidency could positively impact the markets and the economy. David Wessel, director of the Hutchins Center at the Brookings Institute, said that the coronavirus pandemic and any possible stimulus are the biggest near-term economic issues.4 He added that the paths each candidate may take on those issues are substantially different. Biden is expected to push for a large stimulus package for both individuals and businesses. “In fact, that’s the scenario the stock market seems to be expecting and welcoming, even though Joe Biden is talking about raising taxes on investors,” Wessel said in an interview with NPR.4 Energy Prices Some also speculate that a Biden presidency may lead to higher energy prices. A recent study from GasBuddy reported that “a Joe Biden presidency would favor more environmental controls with respect to drilling and emissions, increasing fuel mileage standards, alternative vehicle power like electricity, expanded tax credits benefiting fuel efficient vehicle owners, and evolving from fossil fuels.”5 Patrick DeHaan, head of petroleum analysis at GasBuddy, added, “Biden would end drilling, curbing U.S. oil production and end fracking, which could potentially send oil prices and thus gas prices higher.”5 Is Biden or Trump better for the economy? Since it’s election season, there’s always speculation about which candidate will be better for the economy and the financial markets. However, the truth isn’t so clear. According to Michael Townsend, vice president of legislative and regulatory affairs at Charles Schwab, “Markets are not historically affected by which party wins the White House and/or control of Congress, and that seems to be the case again this year.”6 This year has been one of uncertainty, and that will likely continue in 2021, regardless of whether Joe Biden is president or not. Let’s connect today to analyze your strategy and take action to protect you from market and tax risk. Contact us to start the conversation. 1https://www.cnn.com/2020/11/07/politics/joe-biden-wins-us-presidential-election/index.html 2https://www.theguardian.com/us-news/2020/nov/08/donald-trump-concede-legal-challenge-republicans-joe-biden-golf 3https://taxfoundation.org/joe-biden-tax-plan-2020/ 4https://www.npr.org/2020/11/03/930722317/how-the-presidential-election-winner-could-effect-the-economy 5https://www.marketwatch.com/story/why-a-biden-presidency-may-lead-to-higher-gasoline-prices-11603992805 6https://www.azcentral.com/story/money/business/economy/2020/11/03/how-biden-trump-election-win-affect-stock-market/6127375002/ Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency. 20570 - 2020/19
This year has been a rollercoaster ride. COVID has dominated the headlines and impacted every aspect of our lives. It has shut down businesses, schools, and workplaces. It’s changed the way we interact and socialize. And of course, it has deeply impacted the economy and the financial markets. It can be hard in 2020 to find the good news, but there actually are a few economic developments for which we can be grateful. There’s also quite a bit of uncertainty ahead of us. As we approach the end of 2020, now may be a good time to reflect on what has transpired over the past 11 months, and what steps you may need to take to prepare for what comes next. Below are three positive developments that you may want to consider as you prepare for 2021: The Markets Rebound COVID ended the longest bull market and longest economic expansion in history. The previous bull market started in 2009 and lasted for nearly a decade before crashing in just a few short weeks over February and January of this year.1 Between February 19 and March 23, the S&P 500 fell 33.93%. Since that point, though, the markets have surged. From March 23 through October 29, the S&P 500 is up 47.94% and is nearly back to its pre-COVID levels.2 As mentioned, though, there is still uncertainty ahead. The COVID pandemic is far from over. There’s also uncertainty about how the results of the election will impact the markets, the economy, and the country’s COVID response. While the market's rebound is a fortunate turn of events, there’s no guarantee that it will continue. Now is a good time to evaluate your strategy and lock-in any gains before another potential downturn occurs. A financial professional can help you explore options. GDP Surge In the second quarter, GDP fell by 31.4%, the largest quarterly drop in history. In the third quarter, it rebounded by 33.1%, the largest quarterly gain in history. That number easily beat the previous record of 16.7% in the third quarter of 1950.3 Much of the rebound was driven by the service industry and the reopening of much of the economy. Of course, the continuing rise in COVID cases may threaten the economic rebound. Twenty-nine states hit record levels for daily new cases in October. Forty states had an increase of 10% just in the last week of October.4 CARES Act Financial Flexibility The COVID pandemic and its economic fallout have created financial challenges for millions of Americans. While the government is still debating a second round of stimulus, the first round, known as the CARES Act, continues to provide financial flexibility for those facing difficulties. As part of the CARES Act, you can withdraw up to $100,000 from your 401(k) or IRA without facing early distribution penalties. The taxes on the distribution can even be spread out over a three-year period.5 Granted, withdrawing money from your 401(k) or IRA isn’t the best strategy for your retirement. However, it is an added measure of flexibility that didn’t exist prior to this year and it could be a blessing if you’re struggling due to the COVID pandemic. The end of 2020 is approaching. It’s been a rollercoaster ride, but there have been some positive developments, especially in the second half of the year. Let’s talk about how to protect what you have and limit your exposure to future risk and uncertainty. Contact us today at Hampton Financial Services and let’s start the conversation. 1https://www.cnn.com/2020/03/11/investing/bear-market-stocks-recession/index.html 2https://www.google.com/finance/quote/.INX:INDEXSP 3https://www.cnbc.com/2020/10/29/us-gdp-report-third-quarter-2020.html 4https://www.cnn.com/2020/10/28/health/us-coronavirus-wednesday/index.html 5https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-answers Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
Investment advisory services offered by duly registered individuals on behalf of CreativeOne Wealth, LLC a Registered Investment Adviser.
CreativeOne Wealth, LLC and Midwest Retirement Advisors are unaffiliated entities.