Tuesday, August 9, 2022

Your Financial Plan vs Your Portfolio During Unsettling Economic Times

welcome to the retirement income show i'm mark elliott alongside the ceo and founder of oak harvest financial group troy sharp troy is also a certified financial planner professional you can always go to the website to find out more great website a lot of information.

About the teams at oak harvest the different areas oakharvestfg.com it's okarvisfinancialgroup.com of course the office is located at 920 memorial city way right off i-10 and bunker hill you can always stop in to see the team set an appointment come in they'll be happy to talk with you.

They're here to help they just don't know if they can until they hear from you the number is 800-822-64-34-800-822-6434 and don't forget troy has almost 200 videos now up on youtube search for troy sharp oak harvest on youtube you can subscribe you'll get the bell whenever there's a new one coming out there's new.

Ones all the time great opportunity for you to learn about some of the areas maybe you have some concerns about when it comes to retirement the financial world the investment world all kinds of topics covered on the youtube channel just search troy sharp o carvers hey troy how are you doing well mark doing doing very good.

How are you i'm doing well and we're going to start the show we're going to get into really kind of the retirement 360 process if you will all the different areas that troy and the team covers today but we're going to current events you're gonna you're gonna solve ukraine russia and what do you think the first three or four minutes of.

The show oh i don't know about that but my goal is to to really help tie it back to what does it mean for you when you look at what's going on obviously we see a lot of concern we see a lot of questions we see a lot of people wanting to know hey troy what does this mean for my retirement what does this.

Mean for my portfolio so we held our third annual market summit so this is where we get the investment team together this year we also had um jessica who's one of the co-founders here myself and jess and we had the investment team we had jared kenny who's the vice president and head of advisors.

Who jared and his brother twin brother ryan just had a birthday by the way yes yes they did this past week and happy birthday to them uh we got them suburban and they were pretty happy about that so um and we played golf we played up at carlton woods this past weekend so that was uh uh jared kick some butt but you know that's all right i had a really bad.

Day it was the day before i played and it was one of those days where everything kind of goes pretty well it was putting good was striking the irons good was driving the ball you know pretty well and then uh the next day i just couldn't couldn't get the club face shut down and everything was.

It was pretty bad so that's about all i'll say about that um but no so we had the uh investment summit and we actually live streamed this one on youtube so it was pretty cool we had like a thousand people watching um kind of throughout the night we had.

An average of about three or four hundred viewers consistently and then we had 36 clients in the room as well and you can go to youtube right now if you search you know oak harvest market summit you'll be able to watch this we touched on a little bit on ukraine russia which i'm going to touch on a little bit now we touched on inflation.

Which obviously is front and center for a lot of people in their retirement currently the federal reserve what they're doing the difference between tightening the balance sheet and actually increasing rates so they're going to be increasing short-term rates which.

We talked about how that could impact your retirement and most importantly what we do with the summit is we bring it back to your financial plan we bring it back to what's important to you because whether russia is invading ukraine the stock market.

You know has uncertainty about interest rates going up the big questions are how does this impact you you know do you have enough how do you pay less tax if something happens to you will your family be okay so all of these current events you know happening now that'll happen in the future the most important thing is.

You understand how it relates to your financial plan because stocks bonds cds cash real estate annuities these are financial tools that when used in conjunction with one another create an expected return for a given level of risk but that return and risk needs to be coordinated with how.

Much income you need with an overall tax strategy of course with a healthcare plan if you're retiring prior to 65 what are you going to do about health insurance premiums very easily could be a thousand dollars per month per spouse depending on your age and health and state.

And then also the estate plan side of things so what are you what are you doing there do you have your basic documents we'll talk a little bit about estate planning on today's show but we really want to tie all these things back to what does it mean for you and what does it mean for your.

Retirement so the market summit was great if you haven't watched the market summit you can go to the youtube channel just go to youtube search okarvis financial group market summit if you go to the homepage there you'll be able to find it click on it um when very well you know much better than i uh.

You know could have anticipated so really happy about how that turned out and as i said lots of informative information and most importantly it ties back to you and your retirement and how things impact you so with that said we're gonna on today's show have a little recap of some of the highlights.

And also for those who didn't tune in and don't have the opportunity to go to the youtube channel what it means for you and your retirement today so found this really really cool piece from chief market strategist at lpl ryan dietrich and what he did is he went back and.

Looked at uh major financial shocks on the geopolitical stage so wars invasions etc and how does that impact the market short and long term and there's a lot of data coming out about this at this time given what's going on in the world.

But i'm just going to read an excerpt from what he said so we looked at 22 major non-financial shocks so from pearl harbor onward we're talking about the assassination of jfk major financial shocks or major shocks to the world but non-financial and he says while no two events were the.

Same the stock market had a way of shaking them off rather quickly these events on average led to a one-day loss of about 1.1 percent total drawdowns from geopolitical events before hitting bottom and climbing back averaged 4.8 percent so this means from where the market was we had the geopolitical shock the average drawdown.

Was about 4.8 percent and 1.1 the very next day after that event happening but here's what was really interesting and what i think a lot of people need to know is on average it took 19.7 days to complete the drop and 43 days 43.2 days to bounce back even the u.s entry into world war ii.

Following the pearl harbor attack took the market only a year and a half to recover the worst war in human history and u.s equities needed 143 days to bottom and were higher 307 days later so what does this mean for you what does this mean for your retirement one when you look at the stock market.

And your investments in stocks or funds and equities as a tool to accomplish the growth you need inside a retirement plan they're just one aspect so here we call the oak harvest retirement 360 plan it's really a five piece tool it's a five piece process but it creates five different parts of your retirement plan all working together in one so the first.

One is really identify your your ability your portfolio's ability to take on risk but then also your emotional willingness to take on risk so we look at risk as two components in retirement it's capacity and willingness so the capacity side of things in simple terms is if you have a million dollars and you need to pull out ten thousand.

Per year that's a one percent portfolio distribution rate that means your portfolio has a high capacity for risk because if the market goes down and you're only pulling out one percent your lifestyle your security isn't impacted contrast that with someone who maybe needs five or six percent annual.

Portfolio distributions that portfolio has a much lower capacity for risk because when you start to look at the sequence of returns risk okay that is multiple or consecutive years of losses combined with those higher distributions you start to get into this this this spiral this negative spiral where.

Compound interest is actually working against you and it can deteriorate a portfolio's value rather quickly and either one sends you back to work or two puts you on the fast track to running out of money so that's the capacity component we have to identify that in the financial planning process but.

Then we also need to identify your willingness to take risk and this is where most people focus on whenever they they think about risk and and portfolio allocation and investment strategies most people don't look at the first part the capacity portion because that can dictate at least from an academic standpoint how.

Much risk you should be taking versus how much risk you're willing to take but at the end of the day we're emotional beings and if we're simply not willing to see our accounts fluctuate in value you shouldn't have more at risk than you can afford to see fluctuate so my point here tying it back to ukraine in russia is that when we have.

These major non-financial shocks we we shouldn't be going to cash we shouldn't be selling our positions and getting out of the market because when you miss the best days in the market you significantly lower your return expectations over time here's another chart from uh jp morgan so i'm gonna uh.

Look at from january 2nd 2001 to december 31st 2020. now i have another one from fidelity and i have another one from a company called dfa out of austin they all basically tell the same story they're simply looking at different time periods in the market so this one looks at the returns of the s p 500.

From january 2nd 2001 to december 31st 2020. so if you were fully invested during that entire time frame you average 7.47 per year if you missed the best 10 days over that 20-year period your annual average.

Returns dropped to 3.35 if you missed the best 20 days out of that 20-year period your returns dropped to 0.69 per year and then these numbers actually shocked me because this is the um the lowest i've seen these numbers i'll go through the fidelity study as well but if you missed the best 30 days your.

Annual returns since 2001 dropped to negative 1.49 percent per year the best 40 days if you miss those negative 3.44 per year the missed the best 50 negative 5.21 and if you miss the best 60 days 10 000.

Invested in 2001 january 2nd 01 your 10 000 at the end of 2020 was worth 2441 or a negative 6.81 percent per year seven of the best 10 days looking at this study occurred within two weeks of the 10 worst days so we see putin invade ukraine.

We start to panic we start to say oh my goodness the market's going to collapse what am i going to do we panic you you get out of the market absolute worst mistake because the best days are followed typically if we look at the past 20.

Years seven of the best 10 days in the market were within two weeks of the worst day the 10 worst days in the market so we start to see how timing the market can impact that retirement plan because we don't want to miss the best days in the market and of course we want to have an.

Appropriate allocation to investments to stocks to things that fluctuate in value and have risk that we're not in a position to where we feel like oh my goodness if i don't get out of the market i'm not going to have enough i'm going to run out of money my family's not going to be okay that means you didn't look at the risk.

Capacity issue correctly and also analyze the willingness to take risk and most likely you allocated too much to equities because of that so that's why when we look at the oak harvest retirement 360 process looking at risk management and investment allocation is the first step before we move into income planning and tax.

Planning and we'll touch on those once we come back after this break but to reach out to us if you have a question if you want to have a conversation about your retirement give us a call 1-800-822-6434 visit the website oak oakharvestfinancialgroup.com and i encourage you go to the youtube.

Channel we we have hundreds of videos out there to help you stay more connected to your money and you'll become more educated you'll understand tax planning strategies income planning strategies chris parris our chief investment officer does a weekly stock market update but also does a news.

Or noise podcast which we put on youtube where he helps you understand hey these current events what's happening out there in the marketplace the headline risk that we see is that news that you should be concerned about or is it just noise that you should kind of set to the side and not try and try not to have any.

Type of emotional reaction to that's youtube okarvis financial group tons of videos out there we're trying to help you become a better investor so visit the channel and if you want to have a conversation just give us a call at 1-800-822-6434 so here's a quote from the oracle of omaha warren buffett he says this the.

Stock market is a device to transfer money from the inpatient to the patient that's kind of what troy was just talking about we're just getting started it's kind of today if you look at it as the 2022 guide to retirement courtesy of troy sharp of o-carvers financial we're just getting started the retirement income show back right up to this.

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