If you are at or near retirement, the recent trend of stock market volatility could be a bit unnerving. We all remember the financial crisis of 2008, and the devastating effect it had on workers who were approaching retirement.
Have you thought about how you are going to protect your assets in the event of another financial crisis? If not, you need to develop a plan on how to stay invested while managing the amount of losses you could sustain. Fleeing to cash is not an option because to do that effectively, you need to be perfect twice; choosing the right time to get out and choosing the right time to get back in.
At Montini & Co Tax Advisory Group, we have a philosophy of adding layers of protection to your portfolio. This includes adding diversification amongst assets as well as diversification of portfolio management. Single manager risk is a real thing because frankly, not all of these portfolio managers knock it out the park all the time.
Here’s how our layering approach can help protect your retirement nest egg in the event of a sudden downturn in the stock market.
Like any construction project, we need to establish a rock solid foundation. That foundation begins with the use of an annuity. Annuities today can offer 100% guarantees against stock market losses. In exchange for those guarantees, we are going to be sacrificing some amount of liquidity, as most annuities will only allow 10% of the account to be withdrawn without a penalty. That’s why we always ensure there are plenty of other liquid assets remaining should an emergency arise. Annuities are always the first place we turn to when we need supplemental income. Taking income from the market while it is in decline can be a recipe for disaster. Since the annuity will not decrease do to stock market losses, it is the ideal place to draw income from during any condition.
The next layer of safety will come from a 100% liquid managed portfolio. We use a portfolio manager who is proactive in their approach to strip away risk as volatility builds. You¹ll see the addition of more conservative holdings such as real-estate ETFs, commodity ETF, Gold ETFs, and possibly a higher cash position in extreme circumstances. The important thing here is that they are always adjusting the holdings based on the current economic cycle. The holdings in the portfolio will be very different when the stock market has more stability. This portfolio will manage your losses to be no greater than 10%.
If there are enough funds, we will further diversify to another portfolio manager who has a strong dividend based portfolio. The yield on that portfolio is currently 5.52%. If the markets were to drop, the positive yield would soften the blow. Once again, if there are enough funds available I will further diversify to another portfolio manager, who specializes in finding undervalued stock by sector and who also maintain long-term competitive advantages. These value stocks tend to be the last domino to fall in the event of a market correction.
So what is your plan? You are welcome to schedule a no-cost consultation to see how we can build a plan for you with layers of safety. Call (480) 428-8005 or Click this link.
