Q. How do I protect my assets?
A. Planning and investing is like any journey. You don’t get there by going in a straight line (like a buy and hold strategy for investments). Sometimes you have to swerve to avoid potholes along your path. Sometimes you have to take a detour (sell and rebalance) to get to your destination safely. Sometimes you have to go to zero mph (read go to cash) at a red light, but you know that’s the safe way to ultimately get to where you want to be vs. blasting through the red light and risk a very negative outcome. And sometimes you get stuck in a lengthy traffic jam because of something you had nothing to do with like an accident or construction. But the goal is to keep your “eye on the prize.” A comfortable retirement (or whatever goal) is the ultimate destination.
Q. If we are in another “Great Depression”, what do you think about it?
A. Even in the great Depression, many millionaires were made. In every downturn, there are places to make money, therefore, it’s good to be gaining the macro view of the overall economy to know how to get through a storm. When the time comes, we may very well be poised for some of the best investment opportunities of a lifetime. Investors who heed the warnings and advice will be ahead of the curve in learning and applying the new investment paradigm of active management (not buy and hold). Real estate will again be affordable for most of our children. Our nation has the opportunity to return to a much more healthy position, if we learn the lessons. If you have cash, now is the time for some great buys. Those who have money are able to purchase goods at bargain prices. Since the timing for when the best price of any given product will vary, consult Shea WealthCare before making any major purchases. – REMEMBER – WE WANT YOU TO CONTACT US WITH YOUR “HERE’S WHAT WE’RE THINKING ABOUT DOING” QUESTIONS, NOT YOUR “GUESS WHAT WE JUST DID!” COMMENTS!
Q. How do you prepare to be on the right side of this historic opportunity?
A. 1. Pay down personal and business debts and/or refinance to lock in historically low interest rates.
2. Sell unproductive real estate and business holdings that you don’t expect to want or need three or four years from now to help reduce debt and/or raise some cash.
3. Be patient, wait and preserve capital by either “hunkering down” in cash or short term cash based investments, or
4. Use a non-emotional, technical trend investment strategy that allows you to participate in up trends while knowing we will quickly raise cash when trends turn negative.
Q. I’m a business owner and really concerned about what I should do.
A. I see businesses that are well managed, with hard working owners, no debt, proactive thinkers, doing ok to great by taking market share from competitors. I reinforce how good they are, from a business and balance sheet perspective. Those business owners who existed over the past 20 years who waited for business to walk in the door, didn’t reinvest back into their businesses, took out too much in wages, and are deeply in debt are being washed out. A good cleansing winter is here for them. Be patient!! This is an opportunity of a life time to increase market share. Pricing power will come back once your competitors get washed out. It is tough making less money. When every year for the last 15 years everyone, basically, made more money and now it has been less. The fact is that they have no debt, great cash reserves, will be paying lower income taxes, and that they are still in business. Invest in yourself, maximize cash flow, be safe and liquid. Be ready for spring. I am ready and 95% of my clients are ready too. I have discussed with my clients that the silver lining to negative or a realist approach is that we will be ready for the buying opportunities of a life time in 3 to 5 years or so. The worst that could happen is that you still have your money and no debt. Not a bad place to be when the odds are in favor of a major economic collapse.
Q. What should my investment approach be?
A. I have been suggesting to people that no one knows the future, but with all the detail suggesting a negative outcome it seems prudent to leave the traditional asset allocation model aside. We should take a more defensive and proactive approach, Our risk is the market may go up 10% or so without us, but the downside could be three or four times that. We will be reevaluating as we go. We can always make a new decision to reenter, but only at the great prices we are expecting. This is reasonable advice in this unusual economic environment.
Q. Who wants to hear the most likely direction of the equity markets is down?
A. Markets have to go down to provide opportunities to rise again. We want to identify those downturns, minimize the negative impact and take advantage of them with a more conservative approach. Here’s a math one – if you lose 50% you need to get 100% on the remaining balance to break even. If you lose 15% you only need 18% to recover. We never WANT to lose money but if markets do get bad, we can win by not losing. You CAN recover if you don’t have to take unreasonable risk. Knowledge is power. We provide information to help you keep markets in perspective and help you know you can control your own destiny.
Q. How and what do I do to avoid losses in a down market?
A. Every loss on an investment has another person making a profit on the other side of the transaction. We need to be aware of this and take advantage of the opportunities that a down market provides us. It isn’t how much you make, rather how much you keep – knowing that we have difficult times ahead, it is easier to weather the storm. We are looking for sectors that will do well with the aging baby boomers – not all of them are clear at this moment but like the early days of computers, as things move along, we will know which direction to go (using the S curve as an example). We discuss the difference between traditional buy and hold being subject to the whims of the market and Greenspan’s “irrational exuberance” – taking a more tactical approach of sector rotation makes sense: be in the market when it is moving up, get out of its way when it is moving down. Think about the first time you went swimming in the ocean. We all learned about rip tides – do you swim against the tide? No, you get out of its way. That is what we do when we examine the market. Get out of the way when it isn’t moving in the direction that works for us.
Q.Should I Annuitize my annuity contract?
A. That depends! Annuitization is an irrevocable decision. That means you can never choose another option, thereby you lose control of your money.You gain guaranteed lifetime income that you can’t outlive (stops at your death). If you have dependent beneficiaries, you may elect to choose a period certain option with a reduced benefit (if you die before the end of the period, your beneficiary would receive the same benefit, but only until the end of the period (usual options are 10 or 20 years certain). If you die after the end of the period, nothing would be available for your beneficiary.
The downside is you cannot access for emergencies, and run the risk that the income is not going to be enough in later retirement years due to rising inflation and taxes.
That is why, if you choose to annuitize, a good rule of thumb is to have no more than 20% of your portfolio in the contract. Always carefully research and obtain all the facts about the contract you are considering annuitizing, then review the pros and cons, and only then make your decision.
You should always review your values, goals and objectives with your financial advisor, who will then be in a better position to suggest appropriate products and options which may better help you solve your problem, rather than band-aiding it.
Q. I’m afraid we are in another “Great Depression” and I don’t know what to do.
A. Now is the time to convert taxable assets to tax free assets such as Roth accounts with guarantees for tax free income in later years when taxes will most likely be higher. One option being utilizing fixed index annuities. Also, paying taxes on tax deferred accounts now and placing the money in index universal life insurance products with guarantees. Buy tax rates on sale! There will be a time to buy bonds and lock in great yields. If we won’t make money in stocks for this decade, we can make money in debt instruments or maybe in emerging growing economies. I have been encouraging people to focus on lower returns, but real returns that are equivalent in a low inflation environment. Also, I have emphasized that a conservative stance now gives us the chance to put money to work at lower levels in the future. We are in the midst of one of the greatest opportunities of our lifetime. Fear, uncertainty and volatility really do create opportunity for rational thinkers.
Q. How bad is the problem?
A. Your assets (home, investments and business) went up in value because irresponsible borrowers were driving the economy. Take your chips off the table, wait for those same irresponsible people to flush out and then get back in the game.
Q. Who wants to hear that we are in for several more years of this?
A. Once you know this information, you can plot your own course so that you are not stuck reacting to the whims of the economy
Q. I don’t like to hear we are in the winter season
A. The winter season lasts for years, but not forever. The goal is to become more cautious, more risk averse, in the current environment so that you can gain even more when the winter season is over. Just like seasonal weather patterns, economies have seasons too. Winter eventually give way to spring. You know what the harbingers of spring are and how to recognize them. Warmer days are ahead, but you still have to manage the winter season differently. We can’t control seasons, but we can control how we react to them. Winter can be enjoyed even in the midst of cold days and frosty winds. We build snowmen, go skiing and ice fishing. All the while we know that Spring is coming. That is exactly where we are in this economic environment. Use the winter months to prepare for the coming spring. It will be exceptional!
Q. Fear and hopelessness – Is there still a solution?
A. This is going to create an Opportunity of a Lifetime. Be conservative today and more aggressive tomorrow. We want to shore up the foundation, reallocate when the time is right. Invest or Dollar Cost Average in a decreased market picking up stuff that is on sale. To Win by not Losing is important in the winter season we are in.
Q. This economy makes me feel hopeless.
A. This is very, very healthy for our country. This is as normal as breathing. We are now just in the exhale phase. These retractions are normal. You just either want to protect yourself during them or profit from them. Normal “allocation and diversification” doesn’t work well in this environment.
Q. Who wants to hear that their house value won’t be going up any time soon and could actually go down further?
A. After the deleveraging of the easy credit, the U.S. is in a great place to bounce back because we have youthful demographics compared to other developed nations. I see real affordable housing for the next few generations after this finishes, I see quality of life coming back as families and couples decide to spend more time doing simple things as they watch their budgets. I see the cost of many assets coming way down and a chance for great buys. I see people having to become more responsible and paying more attention to many things in life that, when money was so easy, we forgot about.
Q. Fear government, how bad is government? What going to do?
A. Politicians don’t want to reveal what they know and have done. Do a Google seach to the National Debt Clock – in real time. National debt this fiscal year is more than the first 200 years of this country. You have to protect your assets.
Q. Don’t know codes
A. Most people have not read the 70,000 pages of the tax code. The wealthy seek advisors who can help them take advantage of the tax codes. Use this year as an opportunity to rid your silent partner, the IRS, of increasing claims on your retirement accounts by paying them off at today’s known low tax rates. Many investors and advisors investing in the 80s and 90s experienced two decades of strong growth which they have gotten accustomed to as the norm. What we are experiencing now is a different cycle in the economy, with a probability of a slower growth period. It is important that the investment decisions being made are appropriate for this time. When meeting with my clients I try to focus on their family and events in their life that bring them happiness.
Q. I didn’t know it existed – Why hasn’t anyone told me?
A. Either they didn’t know, or just didn’t think enough of you to share the information.