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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0:00 | 14:53

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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Jonathan

Introduction and YouTube Option

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 .

Client Question: Am I Going to Be OK?

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

Understanding Broad-Based Market Investments

Speaker 1

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

The Value of Fixed Income Ladders

Speaker 1

. 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 ,

Dealing with Market Uncertainty

Speaker 1

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

The Importance of Zooming Out

Speaker 1

. 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

Take a Break and Closing Thoughts

Speaker 1

, 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 .