is your retirement ready for a recession?€¦ · dalbar 2016 quantitative analysis of investor...

Is Your Retirement Ready for a Recession?

1) The Impact of Market Volatility When You Are At or Near Retirement

2) How to Avoid Common Mistakes & Prepare for a Recession

3) Looking At the Big Picture & Investing With Conviction

PRESENTATION AGENDA

Going Back in Time…

The Emotional Lifecycle of Investing

“Let me be clear on one point: I can’t predict the short-term movements of the stock market. I haven’t the faintest idea as to whether stocks will

be higher or lower a month – or a year – from now.

What is likely, however, is that the market will move higher, perhaps substantially so, well before either sentiment or the economy turns up. So

if you wait for the robins, spring will be over.”

Warren Buffett Quote from October 2008

A Sample of Recent (Economic & Market) Headlines…

The Market & the Economy are Two Different Things

CONSUMER CONFIDENCE VS. S&P 500 INDEX

https://www.businessinsider.com/consumer-confidence-versus-sp500-from-blackrock-larry-fink-2017-4

Securities and Advisory Services offered through LPL Financial, a Registered Investment Advisor. Member FINRA/SIPC.Financial Planning offered through Brown and Company, Inc., a Registered Investment Advisor and separate entity.

©2019 Brown and Company, Inc. All rights reserved.

THE INVESTOR BEHAVIOR PENALTY

“Individuals who cannot master their emotions are ill-suited to profit from the investment process.”

-Benjamin Graham, Father of Value Investing

Dalbar 2016 Quantitative Analysis of Investor Behavior Study, S&P 500, consumer price index, Citigroup BIG Treasury Bill. Average stock, bond and asset allocation investor performance results calculated by Investment Company Institute Data. Returns are represented by change in total fund assets after fees, redemptions and exchanges. Method calculates unrealized and realized capital gains, dividends, interest, trading costs, sales charges, fees, expenses and other costs. After calculating investor returns in dollar terms, two percentages are calculated for the period examined: total investor return rate and annualized investor return rate. Total return is determined by calculating investor return dollars as a percentage of the net of the sales, redemptions and exchanges for the period. Indices are unmanaged and cannot be invested into directly. Analysis period is from 12/31/97 to 12/31/16; results do not reflect recent volatile market activity. Past performance is not a guarantee of future results. Investing in mutual funds involves risk, including possible loss of principal. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. All indices are unmanaged and may not be invested into directly.

How Do You Prevent Emotions From Taking Over and Wreaking Havoc On Your Portfolio?

Option 1: Do the Opposite

THE IMPORTANCE OF PLANNING

How Do You Prevent Emotions From Taking Over and Wreaking Havoc On Your Portfolio?

Option 2: Have a Plan

Without a Financial Plan With a Financial Plan

-Passive -Active

-Spontaneous -Intentional

-Reactive -Proactive

-Out of Control -In Control

Modeling the Impact of a Market Downturn– Analyze your Retirement Shock Absorber

Understanding Portfolio Yield – Evaluate how a downturn would impact your interest rates & stock dividends

Creating ‘Dry Powder’– Be opportunistic in the event of a market downturn

Incorporating Alternatives – Consider incorporating hedged/non-correlated asset classes now

Reviewing Stock to Bond Exposure – Consider historically low rates for bonds

Cash Flow Planning – Know what you plan to spend

Evaluating the Comprehensive Balance Sheeto Recommend debt be paid off o Complete a liquidity studyo Turning on cash flow from annuities or

pensionso Evaluating “secret weapons” that can be

used in times of need

Recession Preparation

Total Control

• Asset Allocation

• Discretionary Expenses

Some Control

• Income Tax Burden

• Assets Available; Liquidity

No Control

• Market Returns

• Tax Policy; Legislation

Step 1: Make the most of the things you can control but also evaluate factors that are somewhat or completely out of our control

RETIREMENT

Step 2: Utilize our innovative tools to evaluate the effects of various strategies & contingencies on your situation

THE WITHDRAWAL STRESS TEST TM

o Construct a portfolio that is customized to meet your goals

o Create an allocation that corresponds to your anticipated withdrawal rate as a percentage of your portfolio

THE RETIREMENT BALANCING ACT TM

Collaboratively build a plan together by evaluating the affects of those factors over which we have total control – like discretionary spending or portfolio allocation – and those which we have some control – like income in retirement

THE RETIREMENT TAX FILTER ®o Understand how taxes will work as you

transition from earned income in your working years to passive income in retirement

o Proactive cash flow management strategies that seek to max out lower brackets w/o creeping into higher brackets

THE RETIREMENT SHOCK ABSORBER ®Model some hypothetical downturns to determine if your plan can withstand substantial market volatility

• Shift a portion of equities from large growth to large value Increase allocation to dividend-focused stocks

• Reduce exposure to high yield bonds and adding it to high quality bonds Increase credit quality of fixed income portfolio

• Consider 5-10% shift from stocks to bondsReduce downside risk

PORTFOLIO ADJUSTMENTS

HYPOTHETICAL SHIFT FROM 60/40 to 50/50

Current 60-40 Portfolio

Current Downside Risk: 30%

Current Upside Return: 42%

Proposed 50-50 Portfolio

Proposed Downside Risk: 24%

Proposed Upside Return: 36%

DISCLOSURE: The projections are generated by HiddenLevers & GXWorks LLC regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results. Assumptions on rates of return and standard deviation used in this analysis are based on historical return data for each security and asset class. Past performance is no guarantee of future results. Results may vary with each use and over time.



THE BIG PICTURE

S&P 500 IndexJune 1969: 98

S&P 500 IndexMay 2019: 2789



THE BIG PICTURE

Market Returns: Positive vs. Negative Years U.S. Stocks from 1926-2017

Source: Morningstar Direct For illustrative purposes only. The past performance shown does not guarantee future returns. It is not possible to invest in an actual index.https://www.icmarc.org/prebuilt/apps/downloadDoc.asp



INVESTING WITH CONVICTION MEANS BELIEVING IN THE ECONOMIC SYSTEM



BRINGING IT ALL TOGETHER

Our Investment Perspective:

It’s optimism that allows us to remain invested throughout economic cycles, but it’s the cautious skepticism that advises being

proactive in preparing for a market downturn.

QUESTIONS?

Disclaimer:

Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. Financial planning offered through Brown and Company, Inc. a registered investment advisor and separate entity. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. The Standard & Poor’s 500 Index is a capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

is your retirement ready for a recession?€¦ · dalbar 2016 quantitative analysis of investor...

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