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September 26, 2021 9:00 am
Peter discusses recent market jitters and what drove them. The Infrastructure spending bill, taxes, and the influence of the Chinese markets and EverGrande on our economy.
Although you plan for success planning matters radio and welcome into another division of planning matters radio. I am Sean found her advisor Sean planning. You can find us email@example.com that looks like it's Sean planning.com my last name. The name of the firm and we are a full-service financial investment and retirement planning firm you have any questions about your money how to put your investments to better use, how to control the amount of risk that you are taking the fees that you are paying the taxes that you may be liable for in the future. Only comprehensive planning from beginning to save we provide advice and guidance on Napa.
Once the investments get going, we can help to monitor those investments. We can help to manage those accounts and make sure they are working toward your goal of retirement. Most of our clients are really good savers they have done a good job in building those accounts and they are wondering how to properly structure and utilize them for a confident retirement and that's what we are all looking for that day that time were we can stop trading our time for money stop setting the alarm and showing up to work and enjoy more of our time will it takes a plan. It does take some money to be able to afford to do that and we want to help get our clients there, so we hope to monitor.
We hope to manage. We help to grow those investment accounts and then when the time comes that you step away from the paycheck help to make sure that you got a plan in place that you can feel confident about if you would like to get that plan. We call it the optimized retirement plan. You are welcome to pick up the phone. Give me a call give her Sean planning a call.
You can speak with my wife, Amber.
You can speak with myself he can speak with one of the members of our team.
9193005886919300586 and in fact we love to hear from anyone with questions about their money about their planning about how to make all the pieces fit together. A lot of people do say hey I've got a plan.
I got a 401(k) or I got some IRAs and wow those are fantastic tools do not truly constitute a plan. The plan would detail how and when those dollars will be utilized. How much of it you will actually get to keep and spend how much you will be paying in tax on them and make sure that it is properly and appropriately allocated to achieve those goals.
That's really the blueprint for your financial confidence and if you hired a contractor or homebuilder you would say hey let me check out the blueprints if they said what I've got plans. I got this hammer right here while a hammer is a fantastic tool and probably a necessary tool, but it does not constitute a plan and that's the way it is when we got these dollars in investment accounts. It is a fantastic tool that it does does not constitute a true plan as we put that plan together. We look at your income, your investments, your taxes, your healthcare, your legacy, many subcategories in each one of those major topics. We make sure that all those things are working together, they are in alignment. They are cohesive so that you can have a comprehensive plan that gives you that confidence to be able to walk away from your paycheck or to be able to spend throughout retirement and not worry about running out of money at the end of retirement. That's the goal is that kind of level of financial confidence that allows you to live the lifestyle that you are accustomed to and that you dream about into and throughout retirement and make sure that you don't have to change your quality of life. That's the optimized retirement plan. Again, if you would like to get that put together. We do not charge for that service of the initial conversation or the planning strategy session or even to get that plan in your hands. If you believe that what is shown in that plan would provide you with measurable benefits and we have a connection to where we feel we like seeing each other.
We enjoy the conversations we can talk about moving it to the next step in forming a relationship with you with us and with your money and making sure that we are all working together with our eyes on the end goal of giving you that kind of level of stability and financial confidence moving into and throughout retirement. Again, if you like that optimized retirement plan, pick up the phone.
Give us a call it Rochon planning 919-300-5886.
You can also go online to rich on planning.com Sean planning.com and you can download a copy or request a physical copy of my book.
Understanding your investment options.
I joke with many people and say hey this is the cure for insomnia, but in reality I think this is a very important book. It kinda breaks down each one of the available options for where to put your money.
The tools that are available and says what is the use of this tool when and how should it be considered when should you utilize it. Why would you utilize it kind of risks are you exposing yourself to and what is the end result that you would be looking to achieve. By utilizing this particular option. Whether it's a stock a bond mutual fund and ETF and IRA versa Roth life insurance and annuities bold crypto currencies debt as a financial tool as well.
When do we use it. What we try not to have much as possible. In fact, by all means possible. Let's try to avoid that it is a natural course in the process of financial progress for many. Unfortunately, we overuse it and abuse it too many times, but often times we don't have the money to plop down to buy a house in cash and so that is part of our financial progress when in the order of operations should you pay off that debt. Do you need to be completely debt-free and have no mortgage to enter into retirement.
While it certainly is helpful, but should you cash out a large amount of savings to make that happen right before retirement. I talk that through with a lot of folks that's one of the repeat questions that I've help people really evaluate many times, and again, if you've got questions of your own how to maximize your Social Security you're looking at that tax-deferred balance in your 401(k) or IRA, wondering how can you minimize the taxes on that all of that is part of the optimized retirement plan process would love to hear from you if you got questions if you'd like to talk those things over. 919-300-5886 919-300-5886.
Let's say this week began with the Bangor or maybe a boom with the ever grand debacle now any people say what is ever grand. I don't know anything about that. Well you probably heard about the market, losing more than 2% on Monday and in the natural course of things. The market has been flows.
The market has news of the day that flashes and all of a sudden the market reacts. It is reactionary and sometimes I can worry people, especially when that reaction is to lose a great deal of value in the market and 2% is a significant amount of a lot of people's life savings. But if you're worried about losing 2% in one day and then you think back a year and 1/2 ago almost 2 years ago now to when coronavirus was first spreading to American soil, and the market lost more than 30%. If 2% in one day concerns you, then why would you leave your money and your assets is not just money and assets. It's your life savings. It's a representation of all of your hard work. Why would you leave that in a place where 20 to 30% could be wiped away.
How many years of hard work does that represent for you and those are the kind of questions that we we talk about in that review and that strategy session is are you comfortable with taking that level of risk. Are you in fact taking that level of risk. How are your dollars positioned, have they lost value significantly in previous market downturns. Well, if they have, then you probably are positioned to lose value again. In fact, because of the great market run-up that we've seen over the last decade, many many many people that I talk to are actually far more exposed to risk than they were comfortable with even five or 10 years ago and initially set the account up at in other words, if we only wanted to risk 50% of our money, which is actually a pretty large percentage of our money if we only wanted to have that money on the table in the risk bucket so we set that in place five or 10 years ago and the market has done phenomenally well.
We probably today have significantly more than that 50%.
We need to bring that back into realignment.
Now that's part of regular rebalancing. That's part of the services that we do we manage and monitor our clients accounts is that we rebalance strategically on a regular basis to make sure that we maintain the level of comfort and risk exposure that our clients are comfortable with.
We also do tactical rebalancing from time to time. If we see something indicating that there could be a downturn in the market.
If we see a tidal wave coming were going to change how our clients money is allocated to adjust for that. Now I am no way a market timer and in fact, even the best market timer cannot avoid all downturns.
If you remember 9/11 that was a major event. And when that occurred the markets were actually closed for about two weeks after that event.
There's no way that we could have seen that coming or gotten out of the way or adjusted, and if you are trying to time the market is inherently difficult because you have to be right twice even as COBIT was hitting American soil. If we pull back on our risk level and avoided that major 30% drop in the markets. When do you get back in because down at the bottom there. It felt like we had never seen a shutdown on that level. The world economy was halted almost immediately, is at the moment that you feel comfortable getting back in.
Well, if you're younger investor and many of our clients are. Maybe that is the opportunity of a lifetime to put money into the market. But if you are nearing retirement or already in retirement.
Looking at the scenario as it happened, then ensure, in hindsight, we can look back and say market rebounded fantastically and were higher than we ever were before. But in that moment making that decision of how to get back in and when to get back in and with how much to get back in.
That's inherently difficult and so in order to time the market correctly, you have to be right twice and you have to be able and be confident in pulling the trigger on both of those.
Let's get out now.
Let's get back in now and you also have to stick with the consequences of that decision only armed with the knowledge that you knew at that moment in time again.
Looking back, it's very easy, but these are the type of things that we try to talk through with our clients to make sure that from the onset we have an appropriate amount of risk exposure and only an appropriate amount of risk exposure and within 5 to 10 years of retirement. I don't believe that most of my clients are in a position, nor do they desire to have the risk level where more than about 5 to 10% of their money could be lost could disappear without them having anything to show for it. If we had another major market downturn 2000 through 2002.com type bubble 2007 through 2008 great recession, the housing market bubble a 2020 coronavirus if your positions where you would lose the full amount of that downturn 50% 50% 30%. It takes a lot of recovery just to get back to breakeven. In fact, in the.com bubble and the great recession. It took about 100% to get back to breakeven. After losing 50%. Now I told you that there was a decade where we had to separate 100% returns in the market, you would expect that to be a fantastic decade, except that we also suffered two separate 50% losses and so that entire decade was basically flat.
It was a roller coaster it was in fact just like a roller coaster. The roller coaster starts in one place is way way up is way, way down. Maybe do some empty loops along the way but ends up back right in the very same place so that the writers can get off new riders can get on in an experience that through what happens with your money. It's not so thrilling, especially when it takes 10 years of your hard work just to get back to the same spot. Now if you were working during that period of time and you were making contributions to your retirement accounts.
It still was probably a decade.
Were you made forward financial progress, but for the money that you had saved in the decade prior that the previous account balance that you held in 1999 or 2000 right before that first downturn.
It took about 12 to 13 years for those dollars to produce for you any profit minus dividends, but also excluding fees and so most investors don't expect to go through 10 to 12 years where their money that they have worked hard for. They have managed not to spend and save and put away where that money that they've invested with the hope of growth hasn't produced any returns, but that is the risk that were told that we need to take. In fact, is it, do we really need to take that risk, not question that a lot that that the question that a lot of investors get is what type of investor are you are you conservative are you moderate are you aggressive well if it was all about returns we would all be aggressive investors. It was all about our expectation for growth and the more risk we took the more growth we get we would all be aggressive, but it's not about that is about the losses that you are willing to take is about the amount of money that you are willing to say you could see disappear and not have anything to show for it and you'd be okay with that is what truly indicates your risk tolerance and we have come to a point where risk and return are intertwined. There tied together. You have to take more risk in order to get more return well back testing that theory.
It has actually not proven to hold true. I got some great portfolio models that are low volatility models.
These are specifically designed not to have as much fluctuation not to have as much volatility and back testing these models over the last 30 years. If you include good times and bad times and just compare the low volatility to the S&P 500. They take a lot less of the movement. The ups and downs. The roller coaster ride and they go from point A to point B in about the same amount of time and have actually outperformed the market over 30 years and if you'd like to see those kinda low volatility models and and you still are willing to take up a little bit of risk with your money but you would like to see how taking less risk and having less volatility could still benefit you for growth in the long run. I'd be happy to show you those what I call the smart beta low volatility models. If you'd like to take no risk at all with your money. It does not mean that you have to completely give up on gains. There are a lot of great options out there that do not have the risk of the market where you can still make fantastic forward financial progress and in fact a lot of those have also averaged better returns than the market over a 10 or 20 year period. If you'd like to see them pick up the phone. Give a call 919-300-5886 919-300-5886. In fact, from the. 2000 through 2021 21 year. In the market, many investors would probably say that pay the market has done what it's always done. I've heard the market always averages a 10% rate of return. Maybe there was a a few bad year so maybe it's 8%, but the true return of the S&P 500 over that 21 year period is just under 4 3/4 4.75%. There are safe options that you could have locked in, that would guarantee the growth of your money by a significantly higher rate, especially if you talk about for the purpose of generating future retirement income. Now these solutions aren't a solvable, because where you get one thing you may lose out on another and I talk about that in my book.
Understanding your investment options.
That money can do for things for us.
It can grow it can be safe. It can be liquid or it can provide an income. But money is a terrible multitasker. So, for each dollar you have to pick which one of those is most important and you can pick a secondary goal and say I would like you to also do this, but it's not going to do all four of those things simultaneously. So for example money in the bank is about safety and liquidity. So it's got two goals. They are a primary and a secondary but it's not great for generating a high cash flow or an amount of income and it's not going to grow too much. Interest rates are pretty pitiful on safe liquid money right now so you have to decide which is important to you now money in the market. That's about growth and liquidity. If I have a stock I don't like or mutual fund that I want to get out of. I can typically give a sell order and get out of that stock or mutual fund by the end of the day were 24 hours one business day at the most I can be out of it so it's liquid and the primary reason why we would invest in a stock or mutual fund is for growth, but trying to take an income from a fluctuating source, especially when it goes down you are burning the candle from both ends your removing money from one side and the market has decreased your value. On the other side that leads to running out of money a lot sooner than you expect. Because those dollars aren't they are to recover when the market does rebound it doesn't have the safety has liquidity got the potential for growth but providing the income is inherently difficult. So, again, deciding what's important to you and so in my book. I go over that and with each option I say what it's good at what it's bad at. If he likes a copy of that book you can download it for free.
The digital firstname.lastname@example.org that's what it looks like Rich on planning.com it's Rochon planning.com or if you go to the website and entering your information, we can also get you a physical copy if you would prefer that, but understanding your investment options. I think gives people a great foundation for making a decision on you can realistically review and evaluate your goals what options meet those goals.
So again on Monday of this week we saw a more than 2% decline across the market indices. Now it's rebounded since then, but what caused so there are couple things that I want to talk about here. Number one is this infrastructure bill that is being pushed through $3.5 trillion of spending and by the way, that is really a false number because what they've done is the projects that are included inside of the infrastructure bill they funded them for about three years. The thinking is that by the time they are implemented and the American public gets used, to some of the things that it provides and three years passes and they run out of funding that will cry that we need those things that we deserve those things that they in fact are a necessity now well they don't have the funding passed the three years so in, in actuality it's much more than $3.5 trillion.
How are they going to pay for this.
Included in that bill as tax increases. What are the tax increases look like, well, two of the big ones that have been talked about our tax rates on corporations corporate tax changes and tax on gains and growth on investments in the market capital gains. So part of the reason why we saw that selloff on Monday was that people were trying to realize their gains and get out while gains were on the table at the lower current tax rates.
Here's the flawed logic in the bill also by everything that I've heard by everything that I've read by those that I've talked to that really know what's going on by design, and I don't know whether this is genius or insidious the tax changes that they are proposing are going to be retroactive to the beginning of the year.
So even if you rush out to try to get ahead of this and sell off those gains, you probably if the bill passes are still going to be subject to the new capital gains rates. Why would they do that well one.
Why wouldn't they they're trying to raise as much money as possible but to their doing it specifically to try to avoid. In fact, the very thing that we saw which was a selloff because if if the tax rates are already in place in the retroactive to the beginning of the year there's no incentive to rush out sell your holdings and realize those gains at the now higher new capital gains tax rates. However, if they did what they have done previously and basically pushed the in the inception of the bill and the enactment of that law to January 1 of the following year will now there's this big window of opportunity and that can create a market run and a huge selloff because if I have a gain in my portfolio.
The hundred thousand 200,000 $300,000 and I know that I could go and sell right now and pay lower capital gains tax rates, but if I wait till after January 1 I'm going to pay the new higher capital gains tax rates I'm going to rush out and sell and so would every other investor not just ones with 100,000 200,000 $300,000.
I'm talking about ones with millions tens of millions, hundreds of millions of dollars. The big money out there would rush to sell to the current lower capital gains rates they would try to avoid that. So the bill specifically is designed to try to avoid this again. From everything I've read and understand by making those taxes retroactive to the beginning of the year. Now if you rush out and sell. Too bad, so sad you're already locked in, and subject to the new rates so that's one reason that we saw that because that bill is making progress.
It's looking more and more like it is going to pass and so they are trying to avoid what actually created by the news that this bill is moving forward and tax rates are going to change so people here that the rush out and sell. Not really realizing the full implications that even if they do that even if they have now done that they are still going to be subject to the new laws. The new rates number two we heard about this ever grand which is a Chinese construction company is core I'm going to really simplify this. This is one of the largest building and construction companies and there are a lot of comparisons here being made to the housing market bubble. The great recession here in the US and the collapse of Lehman Brothers because this company apparently has an awful lot of debt and when I say an awful lot of debt like a tremendous amount of debt we hear billion dollars these days, it doesn't sound like a whole lot because we hear it so often we hear trillions and that's an astronomical amount. But this company has $250 billion in various types of debt that is a huge amount when you compare that to America's largest company like Apple they got about $100 billion in debt. They also have the capital that they could pay that off this company does not there about 5% the size of Apple. So Apple that the Corporation the value the market Of Apple is like 20 times that of this company. This company is a construction company that from what I've heard and and read has built a lot of the government construction projects in China issued a lot of debt.
There's a lot of the government money that's tied in with them. Well, not only do they have the debt.
But then, just like the housing bubble in 2007, 2008 here in America there was an extra layer of risk that was added because that's were then made derivatives on the initial debt itself.
So instead of just 250 billion in debt.
When you add up all of the subsequent bets that were made on whether they be able to pay that debt or not it adds up to, like, $1 trillion, which certainly moves the needle on one hand, were talking about spending 3.5 trillion on the other hand, well here's this this $1 trillion problem and solve that it's two completely different things and know $1 trillion knock. If they were to fail if they were to default would have ripple effects not just in China but globally. And there's a lot of American investment that is tied into China and all international companies at this point time. That's what we talk about with the global economy. We depend on them their products their goods their services their investment capital.
They depend on us. Likewise, everything is sort of interconnected so as this huge major company is beginning to look like it could falter and the dominoes may fall you will that have that same kind of ripple effect that the housing bubble and the collapse of the housing bubble in the American market had not so so so long ago 2007, 2008. Well, there's a lot of information out there. This is the and the analogy is wrong with that comparison is not a fair comparison. However, we saw just from the initial jitters of the possibility of a 2% a more than 2% correction in the market.
In just one day again it's recovered since then but is now the time to really look at how much risk you are taking and should you be taking some of that risk off the table and is now the time to be looking at how you can manage your taxes. And again.
Maybe those retroactive tax laws if they pass that maybe one element of the taxation of your total portfolio, but on your 401(k)s and your IRAs is now the time do we right now have an opportunity to pay less in taxes than we might into the future. I believe that absolutely yes we do, and the larger your portfolio the bigger mistake it is to overlook this opportunity as it could be use or lose it.
Just a recent example I talked with a fantastic couple. They were currently retired and in the 12% tax bracket, but where their income is going to go in just a few years because of required minimum distributions. They are going to be in a much higher tax bracket.
They've done a good job in building up tax-deferred dollars and we projected out.
We realize that they would be in the 28% bracket into the future. Guess what, there's two brackets currently available between the 12 and 28% and so should we utilize some of that space to pay a little bit in taxes now 12% or it 22% for 24%. If we know that in just a few short years, those dollars are going to be ending up in the 28% bracket. It looked like an opportunity to me and I believe that they agree and will be doing some proactive tax planning. Those are the types of analysis we can quantify that dollars.
That's part of the optimize retirement plan. So if you are currently saving and tax-deferred accounts.
If you are an owner of a tax-deferred 401(k) IRA with a good tax-deferred balance built up now is your window of opportunity. This is the wake-up call, do some proactive tax planning. If you are worried about the amount of risk that you have in the portfolio and where the market could be heading now is the wake-up call, do some proactive planning and control your risk exposure.
Those are the conversations we can have with you on the optimize retirement planning.
Looking at your income after investments after taxes at your healthcare at your legacy and formulating that optimize retirement plan to address the risks to each one of those if you would like to take advantage of that. No cost no obligation pick up the phone. Give me a call up Sean planning you will speak with me personally. We will talk one-on-one. We will talk confidentially about your situation and we will find out if there are some opportunities for you to do better or make your money behave the way that you would like it to behave.
919-300-5886 the number to call 919-300-5886. Control your risk control your taxes control your fees control your financial future. Those are the three big keys if you would like to address those pick up the phone. Give me a call 919-300-5886 919-300-5886 go to my website rich on planning.com or Sean planning.com download a copy of my book. Understanding your investment options and I really sincerely look forward to speaking with you soon and helping to provide you whatever assistance or guidance you are looking for with your money to make more informed better decisions to improve your outlook and your confidence in your financial Peter Rochon planning matters radio joining. Give me a call 919300586919005 planning matters. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy you are encouraged to think investment tax or legal advice from an independent professional advisor. Any investment and/or investment strategies mentioned involve risk and possible loss of principal by jury. Services offered through virtual capital management is a registered investment advisor. Fiduciary duty extends only to investment advisory advice but does not extend to other activities such as insurance or broker-dealer services advisory clients are charged a quarterly fever as a management voluntary product pay a commission which may result in a conflict of interest regarding compensation