3 Steps to Take During this Volatile Market in Retirement
What should be your strategy over the next six to 12 months while the stock market continues to teeter back and forth with no good news on the horizon? I’m going to give you three steps you should be taking, and the last is the most important.
Hello again, Dave Duley here with over 40 years of experience in the financial markets and a full-service fiduciary firm located in Alpharetta, Georgia. Over a year ago, in 2022, for the first time in 20 years, we moved to a 60 percent cash position across the board in our clients’ accounts. Our crystal ball was not working any better back then than it is today, but you or your advisor had to be somewhat blind to what was coming or just not paying attention to what is still on the way.
Today, interest rates will continue to rise, prices will continue to increase, and major companies are now just starting to announce layoffs and tighten their belts on spending. It usually takes 24 to 36 months for these economic factors to begin to really impact the average consumer. What most people ignore is the lagging effect of these major changes. The idea or concept to just stay the course works great for some people who are in their 20s or 30s. But if you’re already in retirement or within 15 years of retirement, that’s just flat-out bad advice.
Your first step should be to have at least 40 to 60 percent in cash positions today. And when I say cash, I don’t mean just sitting in a regular checking account, but rather a money market paying at least five percent interest while we wait for opportunities in the market. Most people who have visited us over the last two months were down 20 to 30 percent over the course of last year. Most of those are still sitting in mutual funds or index funds, which always underperform during these high-interest rate environments with rising inflation.
If your advisor is pushing you to stay where you were a year ago, then you need to run. If the positions you have are positions you’ve had for a long time, and your major concern is capital gain taxes if you sell those positions, then step number two is your advisor should have protection or a hedge on those positions. This is an easy strategy that gives you peace of mind that you’re not going to give back all your gains from over the last five years. Most advisors won’t take this step, and the question is why? Because it takes work. The reason they don’t like to move to cash earning a fair interest is because they’re afraid you’re going to complain about getting charged a fee for sitting in cash. But that’s part of having an actively managed account – taking action and not being passive as an advisor. Sometimes fair interest rate returns are a perfect place to be while you wait out the storm. What you cannot afford is to keep doing the same thing and hoping for different results.
The third great opportunity in this type of floundering market is options. A great fiduciary in this market understands that having cash on hand gives us a great opportunity in the months ahead to take in income for the portfolio while dollar-cost averaging into great companies that have been beaten down unnecessarily by selling puts or to sell call options on positions I currently own and take in income. The first move lets me get paid to buy companies at a lower price in the future and get paid while I wait to own those companies. The latter move lets me take in income while my positions are relatively flat now. These strategies are more complicated, and it takes real experts to pull it off, but if you handle it properly, they are safe and give you, the investor, great peace of mind in volatile markets.
Having protective puts in place is a smart move. Just like you have homeowners insurance, car insurance, and health insurance, you should also have insurance for your stock portfolio. If your positions are not protected in your current portfolio, especially in this market, then you should consider working with a full-service firm that has money managers, CPAs, insurance experts, and fiduciaries all in one location. My job is to provide you with food for thought and to encourage you to take action instead of just sitting on the sidelines. I hope you found the content useful. To get more great information, click on subscribe below and you’ll be notified every time I post a new video. You can also visit our website, which is posted below, to see why hundreds of families have placed their trust in us. Better yet, give us a call and one of our advisors will walk you through great ideas to protect your retirement income. Until next time.
