Choppy Volatility of the Market is Why You Need A Retirement Plan

Mark Elliot: Welcome to The Retirement Income Show. I’m Mark Elliot alongside Troy Sharpe, the founding partner, the CEO. Troy and Jessica started the company and they’re here to help you come up with a plan and a strategy for retirement. There’s income, investment taxes, healthcare, legacy estate, social security, Medicare. There’s a lot of moving parts you’ve never retired before.

Do you know if you’re on the right track? Of course, you can always call Troy and the team it’s 800-822-6434. There’s no cost to chat with the team. They’re here to help. Just don’t know if they can, until they hear from you. 808-226-434. Great website OakHarvestFG.com. Of course, you can always go search Troy in his over 200 videos on YouTube, just search for Troy Sharpe.

We’re going to talk a little bit about those videos today on the program today, but you think about it, there’s so many moving parts going on right now. Troy, inflation, interest rates, market volatility, wars. This is a time that people tend to panic. 2008, great recession let’s go to cash well, that’s really going to be losing with inflation rising.

Troy Sharpe: Yes. I think shockingly, most people probably won’t believe me when I say this, but it’s actually a pretty normal market cycle for where we expect to be in the second year of a new presidential cycle. The market really is right where it should be based on at least historical patents and historical trends. Now, obviously, we’re combating inflation, we’re combating higher oil prices. We’re combating the war in Russia and Ukraine. No matter what the cause is where the market is right now is actually right where it’s supposed to be.

If you go back and you listen to any of the YouTube videos, go to our website, read any of the November, December stock market updates that we put out there talking about the first quarter and the choppiness and the volatility. This is right where we expected to be. Now as a long-term investor, as someone who looks at investment tools as only playing a role inside a broader financial plan, it doesn’t mean that we panic.

It doesn’t mean that you should get out of the market and you should go all to cash or all the bonds, bonds are going down as well. It just means that this is normal. This is actually healthy for the market. It’s a washout period where those people that are either highly leveraged or have too much risk or people who– What we’re seeing a lot, I believe is a lot of people who, first-time investors, or really beginning investors who got involved with the stock market and crypto and other risky asset classes in the pandemic.

We’re starting to see a lot of that fallout and a lot of that coming back to normal, I’d say expectations. It’s not that what’s going on is bad. It’s just, it’s healthy. It is part of the normal market cycle, but you have to have a plan. You have to look at stocks, you have to look at bonds. You have to look at real estate. You have to look at all these different financial tools is nothing more than tools. That’s all they are. They play a role and that role is to help provide you growth, income, security and make sure that you don’t have to go back to work in retirement.

Lots of scary things going on, but I do want everyone to take a deep breath and understand that whether it was Ukraine or the FED raising rates or some other event that didn’t happen or could happen, the market really is right where it’s supposed to be in the second year of a presidential cycle. Coming off the quantitative easing that the FED’s been doing for many years. When you look at some of these historical patterns, there’s nothing really out of the ordinary with where we’re at and what’s going on in the market today.

Mark: Typically, a pullback on the market is 5% to 9% downturn. Those usually happen about three times a year. The corrections are 10% to 19% down. Those usually happen every year or two, at least. Then the bear markets that crashes the 20% or more, those are probably every four to six years at this point. It’s been since 2008 since we’ve had that. You could call the pandemic, but that was outside influences for a five-week period.

I do think people get really nervous. Troy, you think about it. ’08 is the great recession. People are like, “Their 401(k)s become 201(k)s I’m never going to be able to retire.” You go to 2020, pandemic people are passing away and they’re like, “I’m going to retire right now, because I don’t know how much time I have left.” People are emotional. These kinds of things affect them emotionally and sometimes emotional decisions may not be the route to go when you make these big financial decisions.

Troy: It’s why part of our financial planning process when someone reaches out to us and Troy, we want to have a conversation. The first appointment it’s really just getting to know who you are in your situation. The finances, the income, the spending, the dreams, the vision where you’re at in regard to working retirement, et cetera. Then on that second visit after our analysts go through and crunch the numbers and look at income taxes and we go through this analysis with people. Part of what we do is what we call a what-if scenario or a what-if analysis. We’re doing this internally all the time financial advisors are here for their clients as well as the investment team they’re looking at, “Okay, if the market does this or this, where are we at with the investment portfolio? How does that impact the plan?” One of the things that we stress test, of course, is a market correction. Now, I don’t know who comes up with these definitions 5% to 9% does a pull back a 10% to whatever 19% is a what would you say they’re a–

Mark: 10% to 19% is a correction.

Troy: A correction.

Mark: Seems like it would be an incorrection but you are saying this is normal though, so that’s why maybe it is called a correction.
Troy: Well, it is normal because markets are supposed to pull back. [laughs] It’s not a linear move upwards with risk assets. It’s just not and it’s that the sooner you accept that the better off you will be. The problem is once the paycheck stop and you get to retirement, the emotional impact that these pullbacks have on you is oftentimes much greater. Then the older you get and the longer you get into retirement, it does get worse regarding the emotional toll that it takes when markets do pull back.

Especially when we have this hysteria in headline risk out there and if you tune on any news site if you tune on any news channel, their job is to scare the you know what out of you because that means you are going to turn back in the next day. They are pushing that fear button. They are pushing that panic button and the more they do, the more you tune in the more ad revenue they create.

Getting back to what we do on this financial planning process. One of the things that we do is a stress test. What happens to your financial plan if the stock portion goes down 10%, 20%, 30%, 40%? We do that along with having a conversation about what is your portfolio’s risk capacity. Also, what is your emotional willingness to take risk? Personally, I don’t want this to sound wrong but I do appreciate when the markets pull back, because that is gut-check time.

Someone who came in and we went through this in analysis, and we did what if, and we stress tested the retirement portfolio based on, let’s say spending $80,000 a year. Taking social security at $67,000, converting $75,000 $100,000 a year from the IRA. That tax-infested account over to the Roth, so we have our investment plan, we have our tax plan, we have our income strategy, the first three parts of planning process here. Then the market pulls back and we’ve done these stress tests. We’ve done this what-if analysis. You’ve told me, “Troy, I’m fine if the market goes down 15%, 20%.”

Well, now it’s gut-check time. The market, the NASDAQ’s down 20% S&P, Dow they’re down somewhere between 10% to 15%. Where are you at emotionally? The plan that we have, it’s still good. The numbers are still telling us that you’re not going to run out of money. Your family’s going to be okay. We know where your income’s coming from. We have a strategy with taxes but where are you at emotionally now that we’re in the midst of this pullback?

Mark: I think that’s really the challenge. Isn’t it Troy? I’m 62, so I’ve got my 401(k) work and I’ve got the Roth 401(k) and then the company puts in the traditional, I do the Roth so I’m not retiring anytime soon. Actually, because I’m not retiring soon, I don’t mind the market downturns because I’m like, “Okay, well that means myself going to be able to buy more, and then when it comes back, maybe I’ll be ahead of the game but if I’m already retired, I’m living on the fixed income now is when I get a little nervous, I would think.

Troy: Yes, it does take a greater emotional toll on people. Once those paychecks stop and you enter retirement. A recent report I just saw 3% of retirees went back to work since the beginning of the year. The primary causes of that are probably inflation and market volatility. I would add a third reason to that is most people simply don’t have a retirement plan. Wall Street, mainstream retirement planning advice is put 60% in stocks, 40% in bonds and take three to 4% out a year.

Let me be very, very clear here if you’re doing that is not a retirement plan. You do not have a retirement plan. You have the first part of a retirement plan which is an investment allocation and I would even argue that investment allocation, 60% 40% is quite antiquated. One, stocks and bonds have been positively correlated over the past few years. Two bonds don’t necessarily go up when stocks go down. That’s what positive correlation means. We’ve seen the past few years stocks go up, bonds go up. This year stocks are down, bonds are down.

The whole idea of portfolio diversification and asset allocation, in general, is to have some counterbalance inside that portfolio. You want a portion of the portfolio that’s not going to go down when markets decrease that has a potential to increase in value. We’ve been sold this bill of good that bonds always go up when stocks go down. Sometimes they do, absolutely but a lot of times they don’t. A lot of times they move in tandem.

It’s all part of looking at stocks, bonds, mutual funds, real estate. If you’re into annuities or CDs, whatever your low-risk assets are, you look at them as nothing more than financial tools, but that is just part one. Then we have to decide, okay, based on that risk allocation what type of income can we expect? We want what we call a go-go income plan that we’ll build for a lot of clients. Where we’re spending more in the first 5 to 10 years of retirement, but monitoring it. It’s a dynamic spending plan and years where the market does really, really well. Okay, I feel comfortable having clients spend a little bit more money.

We’re going to lock those gains in by spending those dollars as opposed to leaving them at risk for the next recession. Then in years where the market’s down and things aren’t going quite so well. Hey, let’s have a discussion about pulling it in. Let’s tighten the belt a little bit and underst that we don’t have a crystal ball. We can’t necessarily see two, three years into the future. If there is some emotional capitulation here where I don’t know if I have the right amount of money in stocks, maybe it’s too much.

Okay. Let’s pull it back. Okay. Let’s look at some of the options that we have and one of those is to reduce spending in those years. If you don’t have a retirement plan, if you just have a 60% 40% stock-bond allocation, you need to have a strategy that looks at not just your risk component and your investments, but which accounts are you taking income from? How much income are you taking? What is the plan with, for inflation? What about the tax side of things? You need a tax plan. Most of you have your money inside these tax-infested IRAs, these tax-infested 401(k)s and it’s what you’ve been told to do, but that that’s a ticking tax time bomb.

If you don’t look at the numbers, if you don’t do this analysis, many of you are going to end up paying $400,000 $500,000 $600,000 $700,000 throughout course of your retirement in taxes, then you otherwise have to. Investments is step one, but that’s only step one, an income plan, a tax plan. Then of course, we need to look at healthcare. We need to look at estate planning and that’s all part of our process here. That’s what we do for clients. If you want to have an analysis done if you want to have about your retirement, just pick up the phone, give us a call. It’s 1-800-822-6434.

I do also want to give you the opportunity to go to the YouTube channel. We’re going to talk about some of the YouTube videos that we’ve been doing lately. One of them is on IBOs we’re going to release, a lot of stuff out there about where you can make 7.12%, a government-guaranteed rate. We’re going to talk about the pros and cons of that, what’s true, what’s not true.

We’re releasing that on YouTube. A lot of financial planning cases, these tax case studies, where people are saving potentially hundreds of thousands of dollars to doing it one way versus the conventional wisdom way. We’re going to talk about that, but you can go to the YouTube channel right now. Go to YouTube search Oak Harvest Financial Group and watch some of the videos that we have out there. We’re talking millions and millions of combined views. People are learning, some of them are reaching out to us and working with us. Some of them are doing it on their own.

Either way, whatever you choose to do, I want you to be more empowered and get outside the mainstream box, get outside the 60% 40%, take 4% out world. That’s not a retirement plan. I want you to learn. I want you to become empowered. I want you to– whether you work with us or not, I want you to employ some of the strategies that we talk about on the YouTube channel, and you can watch it on your own time. Go to YouTube search Oak Harvest Financial. If you want to give us a call if you want our help, great we’re here.

We’re one of the fastest-growing firms in the country 2020, 2021 named the fastest growing registered investment advisor in Texas Inc 5,000, one of the fastest-growing companies in the country. We’re not going anywhere. We’re going to be here when you want our help. If you want to go at it yourself, please use the videos to learn. I implore you. You’ll be a much better, a more sophisticated, not just investor, but retirement planner. You’ll have an understanding of taxes, income estate. Go to the YouTube search Oak Harvest Financial and get to know us, get to know the strategies and get to know how we help people plan for retirement.

Mark: Of course, as Troy said, you can always give them a call as well, 800-822-6434. There’s no cost. There’s no obligation, 800-822-6434. We’re going to come back. We’re going to talk about some of the YouTube and herd events and how they tie in and how the YouTube channel’s always staying up and giving you new ideas. We’re going next. This is the Retirement Income Show with Troy Sharpe, the CEO, and founder of Oak Harvest Financial Group,
Automated: Oak Harvest Investment Services is a registered investment advisory firm. Troy Sharpe is an investment advisor representative and insurance professional. Investing involves risk, including the potential loss of principal.