Retirement Planning When the Market’s Down | The Retirement Income Show

Mark Elliott: Welcome back to the Retirement Income Show. I’m Mark Elliott alongside the CEO and founder of Oak Harvest Financial Group, Troy Sharpe. Office located I-10 and Bunker Hill at 920 Memorial City Way. You can always find out more on their website, Of course, you can always find out more if you have questions about certain areas of financial planning, retirement planning. Troy and the team at Oak Harvest have almost 300 videos out there now on YouTube. Just search for Troy Sharpe and Oak Harvest, and you will find all of those.

You subscribe, there’s no cost and you can watch them whenever you’d like to. A lot of great information on the YouTube channel. Now we know if you call today, nobody’s working. Troy likes his team to be at home with their family doing things that they want to be doing on the weekend, so leave a message and they’ll get back to you on Monday, but it’s (800) 822-6434. I kind of like talking with people, so there you go. (800) 822-6434. Troy, here’s a little soundbite. This comes from Greg McBride,, talking about what’s going on right now.

Greg McBride: In a year like this where interest rates are going up and at a pretty substantial clip, you can expect there are going to be a lot of ups and downs, but it’s really important for individual investors to maintain that long-term perspective, particularly in the face of sharp pullbacks in the market.
Mark: Your take.

Troy: First part, I want to break it down into two sections there. He talked about in this type of environment when interest rates are going up. I want to make sure you understand why does that impact the stock market, how does that impact your portfolio, and which sectors of the economy are most impacted and which ones tend to do a little bit better. Now, these are decisions or portfolio adjustments that should’ve been made in 2021 leading into 2022 because we knew interest rates were highly likely to rise.

During the past, let’s call it, gees, going back, again, coming out of the 2008 crisis, we had the TARP program which was a Troubled Asset Relief Program which funded the banks to help keep them solvent. Then we started on the quantitative easing programs, and then there was something called Operation Twist that they did, and all of these things were essentially the Federal Reserve printing money and buying bonds from the Treasury, and that money ended up making its way out into the marketplace, the economy.

We had a little pause there during the Trump administration, and the balance sheet came back meaning it contracted, they stopped printing and they actually started bringing it back in a little bit. Then COVID hit, and then everything just has been going crazy for the past few years as far as the amount of money that was printed. The quantitative, and no matter what the Fed calls it, it’s all essentially quantitative easing, it’s printing money, buying bonds which drives the price of bonds up and drives interest rates down.

When you have all this free money flowing around, asset prices go up, assets are stocks, are bonds, are cryptocurrency, for example. The thing that tends to not do real well is the commodities. If you look at commodities, oil and gas companies, for example, during that same timeframe really didn’t do too well. When you start to understand that all of that money that was printed which drove interest rates down which is why we had this kind of free-for-all, the market averaged–

We have a lot of people call in right now, or not call in but say, “Troy, I don’t like what the administration is doing, I think they’re going to propel us into recession, and I just don’t feel comfortable.” And that’s a very valid feeling. But we do also like to point out that during the Obama years, the market averaged 15% a year roughly. President Obama was not any better for the economy than Joe Biden, they’re really two peas in the same pot. The economy never really averaged over 2% growth during those Obama years.

Maybe once or twice it hit over 2%, but if memory serves, it was right around 2% for that entire timeframe, maybe slight under talking about GDP growth, but because the Fed was pumping so much money into the system, the markets performed really, really, really well. Now, the first part of the Biden years, the Fed was doing the same thing, pumping money in. Now they started to pull back. A couple of things here. hyper growth stocks performed very, very well in that timeframe. We call it revenue at all costs or any cost.

If your revenue is growing substantially, even if you don’t have profits because interest rates are so low, interest rates are what we use in finance to determine or to discount a stream of future cash flows. When it comes to the stock market, the stream of future cash flows we’re talking about are future corporate profits. You can pay what we call a higher multiple for high revenue growing companies even though if they have low or no profitability because you’re essentially betting on the come because interest rates, where else are you going to put your money?

You’re not going to put it in the bank, you’re not going to put it into some boring utility company, and you’re going to put it into things that are growing and that’s just how the finance models work, it’s math. Now, when interest rates start to rise, all of a sudden, that growth at any cost doesn’t seem so attractive because now you have other alternatives with the money that have less risk that makes those decisions a bit tougher to make. But traditionally, what we see is we see money flow out of these hypergrowth things, these technology names.

It’s one of the reasons why Amazon, Google, and these companies, Facebook, they’re down so much this year. That’s the first part, but we saw this coming, we knew this was coming. Here’s the second part. He said you have to stay disciplined, you have to have a diversified approach, and that is true to an extent. The reason I say to an extent– Real quick, for those just tuning in, Mark, could you play that sound bit back again.
Mark: Greg McBride of

Greg: In a year like this where interest rates are going up and at a pretty substantial clip, you can expect there are going to be a lot of ups and downs, but it’s really important for individual investors to maintain that long-term perspective, particularly in the face of sharp pullbacks in the market.

Troy: I say it depends when he talks about staying disciplined and having a diversified long-term approach, in this type of environment, you can’t simply own stocks and bonds, in my opinion. If you only own stocks and bonds, you’re probably going to be in big trouble. The reason is as interest rates rise, we’ve talked about this for years on this show, as interest rates rise, your bond values go down. We’re seeing that this year. Treasuries are down 5%, 10%, 12%. Your more aggressive bond ETFs or bond funds are down 10%, 15%, even 20%.

A lot of bond funds out there, LQD is one that comes to mind, they use leverage. They have a bunch of assets that they own, bonds, that lose value when the interest rate environment increases, but inside that fund, they’re borrowing money to buy more bonds using leverage, so it exacerbates the problem. We see those in portfolios all the time, especially among investors who manage their own portfolio because they simply do a search, they see it pays a decent interest rate when nothing else is paying good, and they don’t understand the mechanics of what’s going on inside that fund.

Getting back on track here, it’s a timeline of events that are going to take place, things we’re going to do, action items that need to occur. If you have a plan and you have a risk management discussion, an income planning discussion, a tax discussion, a healthcare discussion, and an estate plan discussion, those are the five components, then unless you do it wrong, you’re not going to have too much money in the market in an investment portfolio in stocks and bonds.

We’re going to have other tools in there that are designed to mitigate the bad performance of the portfolio in times like this. In addition, you should have tools in there that are designed to generate income that do not or that are not impacted by the market volatility, by market downturns. That’s step two, the income planning. In a time like this when interest rates are rising, bond values are going to continue to drop, your asset prices going to be volatile. we do expect a rally into the end of the year. It’s not guaranteed, but that is what we expect.

Long term, the next 2, 3, 4 years, it is going to be a challenging environment most likely because a lot of what the current administration is doing is not conducive to business. Now, President Obama was able to get away with it because the Federal Reserve was printing money propping up the markets artificially. Now that the printing of money has ceased, unless some other type of crisis happens, then of course we have to print until the printing machines run out, the next 2, 3, 4 years will most likely be challenging. Does that mean that you sell everything and go to cash?

No, that’s not an option. You just have to be more selective, you have to have a plan, you have to have a strategy, and now is the time to be making those decisions. The part I do agree with is once you have that plan in place and you know where your income’s coming from, you have a buffer where you don’t have to pull from the stocks in times like this, you have a tax plan, you have all these other action items in place, the money that you do put into the market, it needs to be in a well-diversified portfolio. What does that mean?

That means you’re not all in technology, you’re not all in oil and gas, you’re not all in one particular sector or two or three particular sectors, you are well diversified across the economy and some of those assets will perform well and some of those probably will struggle, but that’s part of the deal, that’s how you manage risk inside a portfolio. The returns that we’ve had over the past few years, those are not normal.

It’s easy to forget what normal is, so if you take anything away from this, please take away that the money that is appropriate for you to have in the market for long-term growth to keep up with inflation, to keep up with healthcare costs, whatever your individual goals are, the money that you have in the market, we need to stay disciplined, we need to stay diversified, and the absolute worst thing you can do is try to go to cash, time the market, and figure out when to get back in.

Reese’s study was done by Dalbar and they do this every year I want to say for 20 or 25 years, and in 2021, last year, the market returned somewhere I think around 29%. The average retail investor underperformed by 10 whole percentage points, so they averaged 19 instead of 29. Why did they do that? It’s because they were waiting for the economy to rebound for states to reopen for COVID mandates to lift before they felt comfortable enough to get back into the market because they went to cash in sometime in 2020.

The takeaway of this story is it’s not just getting out of the market, the bigger challenge is when do I get back in because the economy will not be better by the time the stock market begins its ascent. 1-800-822-6434. I covered a lot of information here but if you want to have a conversation, if you don’t have that plan, if you want us to take a look at your situation, whether we work together or not, we’ll figure that out through that process of you coming in to visit us. Can do it through Zoom, can do it here at HQ. We’re at 920 Memorial City Way, Bunker Hill and I-10.

Just give us a call, 1-800-822-6434. We have a lot of this stuff on the YouTube channel as well, so go to YouTube, search Oak Harvest Financial Group and become a more informed retirement investor today.
Mark: We’re headed to our final segment of The Retirement Income Show with Troy Sharpe, the CEO and founder of Oak Harvest Financial Group. We’ll wrap up this talk about volatility, recessions, planning, and all of that, and then we’ll touch on the new series coming that Troy has on YouTube coming your way. We’ll talk about all of that when we come back. This is The Retirement Income Show with Troy Sharpe.

Speaker 4: 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 principle.