What The Wealth Retirement Podcast

Beyond Market Dips: Why Your Long-Term Portfolio Might Be Stronger Than You Think (110)

• Jonathan Bednar II, CFP • Episode 110

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Market downturns naturally trigger anxiety for investors, but having a better understanding of your investment strategy can provide peace of mind during market turbulence.

• Broad-based market ETFs diversification vs individual stocks
• Creating the fixed income "war chest"
• Laddered bond strategies—what are they?
• Applying at least a 5-year perspective
• "Anchor bias"
• Taking breaks from the news

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Thanks for Listening!

Jonathan

Speaker 1:

In this episode we're going to talk quite a bit about numbers and there's going to be some visual concepts on the screen that, if you're following along on YouTube, it might make it a little easier to follow versus listening here on the podcast. But I want to encourage you that listening still may be a good medium of choice, and so I just want to say if you're having trouble following or you want to see the visuals that we're illustrating here with these examples, you can go to the Paradigm Wealth Partners YouTube channel and watch these episodes there, and if not, if you want to just listen here on the audio version on the podcast, you can continue to do so. But I did want to make sure that you have that arrow in your quiver and you have that ability to take advantage of that if you wanted to. As always, thank you for listening and I hope you enjoy this podcast.

Speaker 1:

As I woke up this morning, it's around I don't know, six o'clock or 630, and I had an email from a current client around 5.30, so 30 minutes, maybe an hour before I got up, but I remember seeing this timestamp around 5.30 in the morning that I received from them and they had a question regarding their account, and so I want to take a few minutes to discuss this question and, although this is specific to her, a lot of these questions we're getting from clients are around the same idea and the question is am I going to be okay? So one just kind of take a few minutes, give our thoughts, address this question and speak to our broader clientele and those of you that are either listening to the podcast, the what the Wealth Retirement podcast, or are watching on the Paradigm Wealth Partners YouTube channel. So I'm your host, jonathan Bednar, certified Financial Planner, and let's look at this question. So this question comes in and says hey, jonathan, just checking in to see if I'm in the best investments Seems like I'm losing some each statement. I know things are unstable right now, but it makes me nervous, so I would like to check in with you. Thank you, hope all's well with you and your family. So this question is something that is still coming up, and rightfully so.

Speaker 1:

We've got a lot of chaos in the markets. We're not sure what's going to happen day to day, and that causes some anxiety. We saw the market, you know, drop pretty drastically over the last couple of weeks. We saw a huge rebound back up and there's still just a lot of kind of pent up uncertainty around what's going to happen, and people have this feeling of you know, I guess uncertainty. They're waiting for the next shoe to drop, and it's really preventing them from having confidence in their investments and in their portfolio. So first I want to tackle the first part of this question Am I in the best investments?

Speaker 1:

Best investments is an ambiguous term, so it depends on what you want to be invested in, what you think are the best investments, and those are subject to interpretation depending on the client, the advisor, the professional CPA, on the client, the advisor, the professional CPA. There's a lot of things that go into determining what is the best investment. Now, in this case, we are using broad-based market ETFs, so we own baskets of the market as a whole and you can't directly invest into the index, but there are tools or investments that are designed to mirror the index really closely, and so that's what we're doing here. We are using these tools that give us broad exposure, broad diversification, not trying to pick one or two individual stocks. And so if we want to say, are we diversified, then yes, I think we're diversified. That gives us some comfort in knowing that we're not betting the farm on one or two names, but everyone kind of works together, and so that means if someone's not doing well, hopefully someone else is, and those kind of balance each other out. I also think these broad-based market type investments prevent us from having to try to guess where we should be and how we should be, and where's the top and where's the bottom. It gives us the assurance that we're just going to, we're going to own everything and we're going to own best quality, if you will. We're not trying to go pick penny stocks or really undervalued stocks. We're going to own best quality, if you will. We're not trying to go pick penny stocks or really undervalued stocks. We're just trying to own everything and have that diversification.

Speaker 1:

Now we also, in this situation, have a set of ETFs that are fixed income, and these fixed income is set up in this portfolio to be a laddered bond situation. So what that means is, when you create a bond ladder or a fixed income ladder, what you do is you stagger maturity. So in this case, let's say we've got I'm not going to speak in this case specifically, we're going to use an example. Let's say we've got $50,000 and we're going to invest $10,000 into five different fixed income instruments and each one of those instruments will mature at a different year. So let's say, 10,000 matures in 2025, 10,000 in 2026, 10,000 in 2027, 10,000 in 2028, 10,000 in 2029. So every year we've got $10,000 coming to, which gives us flexibility. It gives us income if we need to continue.

Speaker 1:

Using that for income, so we don't have to sell equities. It may be down. Using that for income, so we don't have to sell equities, it may be down. It gives us the ability to not be locked into one rate but as we have money come due, we can reevaluate where rates are. So we have we reduce some of our interest rate risk. We also have liquidity. By having money that comes to every year, we reduce some of our liquidity risk.

Speaker 1:

In this situation, this client can get everything with a push of a couple of buttons. We can have everything liquid. But it's nice to know that some of these mature, which means they pay off and they give her money back, plus she earns interest along the way back, plus she earns interest along the way. So that gives her a lot of flexibility. So in this situation, with 60% of her money in equities and 40% of her money in fixed income. We're broadly diversified. We're not trying to pick and choose one sector or one individual stock over the other. We own everything and we've got 40% of the money in bonds, which provides, or fixed income, which provides us some of that buoyancy to help as this market is turbulent. We've got a little bit of a war chest, as I like to call it, in our firm, knowing that I can say hey, mr and Ms Client, we have X amount of dollars set aside. If you need that, it's available, and so that usually ends up being reassuring.

Speaker 1:

The next comment is seems like I'm losing some each statement yeah, the market has had a significant drop over the last two or three weeks, actually from the February 19th high to where we are today, and you know, we see this market continuing to fluctuate up and down. Again, we don't know if another shoe is going to drop. It seems like we've had some back off on these tariffs, we've had a 90-day extension announced, we've had a few other exemptions like phones, computers, some of that stuff, and so I think we're starting to see some of the wading through the muck, if you will. There's some movement, there's some activity to show. Okay, we can weather this. It's just going to take a little time, but the market and portfolio balancers are still trying to recover back from that low. So it's not uncommon, maybe for the next couple of statements to see the account values be down, but I think we're starting to get some traction to show that maybe the worst is behind us. Obviously, things can change and things can change fast, but as of right now, it looks like things are starting to gain momentum and steam, to start to have a turnaround and navigate some of this.

Speaker 1:

So I know it can be unnerving and cause some anxiety to see these accounts fluctuate, but again I go back to having 40% of the money in fixed income gives us that war chest, gives us that confidence to kind of weather these storms. And then, if you need money, we don't have to sell equities that are down in value. Things are unstable. I do think things will settle out and it's common to be nervous. It's common to have these anxieties. It's common to, you know, be uncertain of the uncertainties, and that's normal. That's something we all experience as humans. We're emotional and it's easy to make emotional decisions, especially when it becomes monetary. Our money is tied into this and when things are going up, month after month after month. Things look good, but as things come down, people start to get that anxious feeling, that pit in their stomach, that unnerving feeling that's really hard to overcome until we can get some certainty.

Speaker 1:

You know, as these markets pull back, for a lot of you these markets have been up for five years, for 10 years, and so many of you have portfolios that have grown and they're much higher than they were, you know, five years ago, years ago. And so even if we, if we zoom out, you know, if we, if we stay zoomed in, then we know over the last two or three or four weeks or two months that we're down from where the highs were. But if we zoom out and if we look at a larger and a bigger picture of where we were five years ago, even with this most recent downturn, most clients, most of you, are still up from where you were five years ago, and I think that's important to think about. You know, as you look at your portfolios and say I'm down, you're anchoring. We call it anchor bias. We're anchoring to the most recent highs. You know where our portfolio was 30, 60, 90 days ago and we don't take into account where we've come from where the journey started. You know the ups and the downs along the way and the markets up from where we were, you know, five and 10 years ago, and so that's something else. I want to kind of remind you that you know it might look down now. It might be down from the high. Zoom out, look, look a bigger picture. So we've got a war chest. We've got a larger view, a peripheral view to show. Okay, when I zoom out, I am actually still up.

Speaker 1:

Most importantly, I want to say if you've got questions, if you've got comments, absolutely reach out to us. We're going through our normal progression calling clients, reviewing clients accounts, doing annual reviews, doing our check-in calls, talking with clients. We want to make sure that you know we are here Anytime you've got a question or comment or concern. We are here to talk with you and navigate this with you. Concern, we are here to talk with you and navigate this with you. And I think, as we have these conversations many times, people just want to know that. Okay, you've looked at my stuff. You know you've actually laid eyes on this. We look at these accounts for clients all day long, all year long.

Speaker 1:

Whether we tell you or not, we are analyzing and looking at what do we do, how do we do it? What strategy should we implement? How can we refine this? And sometimes the best thing to do is to, you know, go outside, go for a walk, plant some strawberries. You know, do a painting, read a book, try to get your mind off of you know what's going on in the market, because we don't control that and, as kind of cliche as that sounds, it really is the best. I'm a real big advocate of take a break, turn off the TV, close your statement, go outside for a walk, get some sunshine on your skin and just kind of breathe some fresh air and take a deep breath. So I know that's easier said than done, but I do want to reiterate we are here for you. If you've got questions or concerns or want to talk, please reach out.

Speaker 1:

Thank you for listening to the what the Wealth Retirement Podcast and YouTube channel. If you haven't already subscribed or like it, please do so. That helps me more than you know. Be confident in your retirement. Have a wonderful day. Thanks for joining me on another episode of what the Wealth. If you enjoyed the episode today, smash that subscribe button. It helps me more than you think. Also, if you found this episode insightful and a light bulb went off, share it your friend, aunt Judy, the random guy in the office who's always talking about investments.

Speaker 1:

Wealth isn't about just the chain. It's about our choices, chances and changing our financial futures. The information in this podcast is informational in general in nature and does not take into consideration the listener's personal circumstances. This podcast does not intend to be a substitute for specific and financial, legal or tax advice. You should consult the approved qualified professional prior to making a final decision. Securities offered through LPL Financial member FINRA SIPC. Paradigm Wealth Partners is the other business name for Independent Advisor Alliance. Investment advice offered through Independent Advisor Alliance, a registered investment advisor. Independent Advisor Alliance and Paradigm Wealth Partners are separate entities from LPL Financial.