Before the COVID-19 coronavirus became a global pandemic, markets were in an unrelenting uptrend.
However, soon after world governments began introducing stay-at-home orders, forcing the closure of non-essential businesses and unemployment of millions, financial markets experienced a historic liquidation.
As part of a reflection on the events that transpired, David Boike, founder at Retirement Resources, spoke with Benzinga regarding recent volatility and the importance of building diversified retirement portfolios.
About Retirement Resources
After working at a large financial services company, Boike determined there was a better way to help clients reach their financial goals. He founded Boike Financial Services in 1982 and later rebranded the firm to Retirement Resources.
“We’re retirement planners helping [people] transition their 401Ks, IRAs, and investments into sustainable income throughout retirement.”
In a nutshell, Retirement Resources is a licensed fiduciary that helps clients best achieve their financial goals.
“Most people in this industry go to a Merrill Lynch, a Raymond James, a Fidelity, and they’re dealing with representatives of that company,” Boike said. “They get biased opinions because it’s whatever the company has on their shelf.”
“After we find out their goals and objectives, we go out to the Fidelitys and the various other companies in the world and find the appropriate solutions.”
Safe, Low-Risk Investments A Priority
Retirement Resources prepares clients for a sustainable retirement by building portfolios that generate enough income to supplement Social Security and pension benefits.
“It’s about preservation. Turning retirement funds into a paycheck that grows each year to offset taxes and inflation.”
Amid the coronavirus, retirees were faced with new uncertainty regarding retirement. Many investors, due to their inability to work, may have to pause contributions, withdraw funds, consider early retirement, or face unfavorable Social Security cost-of-living adjustments.
“It’s a little bit more of science since this virus hit,” the founder said. “You can no longer toss your money in this bucket called the stock market and think it’s always going to go up. It just doesn’t work that way.”
With Boike’s strategy, prior to the onset of the coronavirus, clients had money laddered between short-term, mid-term, and long-term positions in a mix of safe, low-risk investments.
“Because of how we laddered money, most of our clients are doing well. They may be up or down a little bit, but nothing like they’re seeing on TV.”
According to Boike, to weather sustained economic downturns and two-sided markets, investors must focus on accumulating assets that preserve and grow wealth consistently.
Management Of Portfolio Allocation
“When the market is going up, everybody thinks it’s a good time to jump on the train and enjoy the ride.”
During the 2019 stock market rise, many investors broke their risk parameters.
“When the market goes up, portfolio allocation percentages are thrown out of whack,” Boike said. “When the market is going up, stocks become a bigger percentage of your portfolio.”
Many pre-COVID contributions into aggressive, high-growth stocks heightened investor risk tolerances, subjecting portfolios to increased drawdowns during the crash.
“All of a sudden, a black swan hit that has nothing to do with financials -- it wasn’t like 2008 where the banking, mortgage derivatives, and all the other stuff was going on -- this was strictly a health-care pandemic.”
“Obviously, the value of stocks fell like a rock as investors pulled back, and so people that were not invested with the proper allocation lost money.”
Social Security And Pensions
The Social Security Administration references lifetime earnings in calculating retirement benefits. In the face of the pandemic, however, it’s possible that lost earnings and cost-of-living adjustments may negatively impact benefits.
One Forbes article suggests that a 15% reduction in the national average earnings from 2019 to 2020 will reduce retirement benefits for someone born in 1960 by 13.6% per month.
“It’s a different world nowadays. Social Security hasn’t kept up, … and we need to solve that immediate need and the income.”
According to Boike, new portfolios must position assets towards low-risk, growth, and consistency.
“We need to separate income money from growth money because if you’ve got all on the growth bucket and you lose 30%, it’s going to be extremely difficult to generate the income you need for the long-term.”
“We need an emergency, short-term fund that’s going to take care of things for the next few months, and we need to get some cash in that bucket, and we need to have that income fund. The rest of the stuff we can position and allow the market to rebound.”
“Will the recovery be 6 months or will it take 4 to 5 years? We don’t know that yet.”
Going forward, it’s important investors keep an open mind, not marrying to the idea that the stock market and economy perform in tandem. Though the market may rise to all-time highs, it’s important to de-risk and position portfolios for preservation and long-term growth.
To get more in touch with your financial future, visit theretirementsource.org for the ultimate interactive retirement planning guides and advice.
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