Retirement Planning - Redefined

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Ep 18: Investing In Down Markets

April 16, 2020

It can be tough to see the silver lining in times of volatility, but when the market is down oftentimes there are some great investing opportunities. John and Nick give us some key tips on how to take advantage of a down market.

Helpful Information:

PFG Website: https://www.pfgprivatewealth.com/

Contact: 813-286-7776

Email: info@pfgprivatewealth.com

For a transcript of today's show, visit the blog related to this episode at https://www.pfgprivatewealth.com/podcast/

Transcript of Today's Show:

Mark:
Hey, everybody. Welcome in to this week's podcast. Thanks so much for tuning in to Retirement Planning Redefined with John and Nick from PFG Private Wealth Financial Advisors. Going to talk with me again about investing finance and retirement. Hopefully you've been listening to our series we've been doing the last couple of weeks on, well, really just what's going on in the world in general. And we're going to continue on with that theme by talking about investing in down markets this go around. First off, let me say welcome in guys. Nick, how you doing, bud?

Nick McDevitt:
Doing well, doing well. How about yourself?

Mark:
All right. Hanging in there considering all things. Hopefully everybody's safe and staying home and staying with the shelter-in-place and all that good stuff and not going too stir crazy. John, how you doing, buddy?

John Teixeira:
I'm good. I'm good. It's funny, as I'm quarantined here I'm taking a lot of walks so I'm actually meeting more of my neighbors now that I'm supposed to be stuck at home.

Mark:
Isn't that interesting? All the different things ... So many conversations had about how our life is so different. If you want to look silver lining, there's a lot of silver linings we can find in this. I know it's tough when people are getting sick and passing away and all, but there's so many things that we're slowing down and maybe realizing stuff that we didn't need or we didn't have to use or we didn't rely on.

Mark:
I was talking to somebody yesterday and they were ... This sounds like I'm joking, but they're like, "My Starbucks budget. I didn't realize how out of control it was." I know that's a minor thing but coming out of this, I want to think about how to be better about not drinking so much coffee, or at least drinking so much overpriced coffee.

John Teixeira:
You can ask Nick how he's doing with that. His Starbucks budget's pretty high.

Mark:
Was it? How you doing, bud?

Nick McDevitt:
It used to be until I bought myself an espresso machine ...

Mark:
Okay.

Nick McDevitt:
... About a year and a half ago.

Mark:
Yeah?

Nick McDevitt:
Yeah. I took care of that expense issue a little while back.

Mark:
But you can relate, then, to what they were saying, right? They were like, "It was out of control!"

Nick McDevitt:
Oh, for sure. Yeah. Especially because I typically drink lattes instead of just regular coffee.

Mark:
Right.

Nick McDevitt:
Those are a little bit harder to make at home.

Mark:
Six bucks a pop. Seven bucks a pop. Whatever it might be.

Nick McDevitt:
Yeah. Yeah. So, I brought that cost in-house and good machine pays for itself pretty quickly.

Mark:
Yeah. There you go. See, look, there's an investing tip right away!

Nick McDevitt:
There you go.

Mark:
Right off the bat. Boom! A bonus thing you didn't know. All right. Let's talk about investing in down markets, guys. John, talk to me about proper asset allocation. Let's just jump in and spend some time on some of these pieces, okay?

John Teixeira:
Yeah, yeah. I think we want to recap from our session the last time where we really talked about planning. We go from the standpoint of the plan really dictates your investment strategy. Once you have your plan in place, it tells you, "Hey, this is how you should be invested, whether it's conservative, moderate, aggressive growth for income." But once you determine that, you really need to develop the right allocation of investments within your portfolio. And once you determine that, hey, I'm going to be ... I'm just throwing this out there ... 60% equities and 40% bonds, you really want to stick to that strategy. And when you're building that portfolio you want to put into things like diversification as far as not having all your eggs in one basket and really develop a zig and a zag in your portfolio.

John Teixeira:
In reality ... It sounds kind of weird to say, but you always want something going down while the market's going up, per se, because what will happen is when the market's going down hopefully that asset class with be going up. And that's one that we do in our portfolios. We're really trying to make everything work together as a unit. And part of that is ... I'm going to throw out a term people probably haven't heard ... Is correlation of assets. And that's how we can determine exactly how are these assets correlated so when one goes up, is one going down? If one goes up, is the other one not doing anything at all? And when you structure and put that all together you can really build a good portfolio for someone to weather the storm a little bit in this type of volatile market.

Nick McDevitt:
Yeah. And zig and zag also happens to be John's favorite dance move as well. He really tries to tie into that as much as he can.

Mark:
Do the zig, do the zag. All right. There you go. I can see you.

John Teixeira:
Nick's just a little jealous. He has no zig and zag.

Mark:
Ah.

Nick McDevitt:
Yep. It's true.

Mark:
I would have pegged you as a stanky leg kind of guy, myself.

John Teixeira:
You got me right.

Mark:
All right. Nick, what's your thoughts here?

Nick McDevitt:
Really, from the asset allocation standpoint, really what you need to take into consideration to determine that the plan helps create the parameters and what makes sense from a planning standpoint. But then there's also the emotional aspect of it and people's previous and historical experiences with the market can play in. Any client that we bring in, we go through a risk tolerance process where essentially they're answering questions that have to do with risk. Typically, it's probably the process that people like the least ...

Mark:
Right.

Nick McDevitt:
... Because often times, they want us to tell them. "Hey, this is what you guys are here for, right? Is to help guide us through this." And they answer to that and the feedback on that is, yeah, we're going to tell you if you're not necessarily taking enough risk for the plan or if the answers you're providing are outside what your plan is telling us makes sense. But at the same time we want to make sure that the amount of risk that they are going to take is something that's comfortable to them, even during uncomfortable times, which, obviously we're in right now.

Nick McDevitt:
That work up front. One of the things that we really do emphasize with people that we work with is we do a significant amount of work up front. Our process is probably a little bit more in depth and tedious than a lot of other advisors out there that tend to focus on, "Hey, let's get the money in and then we'll dial in after that." Where we say, "Let's get the plan done. Let's do the work up front to make sure that we don't have to overreact or make emotional decisions at the time where we are the most emotional." We can kind of revert back and say, "Hey, remember, this is why we did what we did. Here's the process that we went through. We spent a lot of time doing this. This is why it makes sense."

Nick McDevitt:
Making sure that as we approach retirement we have a plan for adjusting the risk and early into retirement. But also, making sure that we're not getting out of all market risk. Not being in the market has a cost, an opportunity cost, and that's its own risk. That work that we do up front in determining that asset allocation and the risk really helps us weather through the tough times.

Mark:
That's really great points, here, as we're talking about investing in down markets. Again, proper asset allocation, risk ... Obviously, those are all key factors in there. What about just the value that an advisor brings? I've been saying for ... I do tons of shows and podcasts all across the country and I've been saying for a while now that as we're moving through this Coronavirus epidemic, never been a better time to have an advisor and, really, in so many ways you should have one anyway. But going through this, people aren't sure where they stand or they aren't sure how things are going to look on the other side. And I just think that the value of an advisor is immeasurable right now.

Nick McDevitt:
Yeah. We obviously have a little bit of built-in bias that we do feel that we add value and we are important, but the reality is that there's been studies that have been done and Vanguard has done a pretty good study and we'll talk about that a little bit, but the reality is that during times like this having someone to share concerns with, to be able to talk to ... One of the things that we really emphasize early on and when we work with people is the importance of communication, where we want to be heavy on technology, heavy on communication. We want to make sure that people are comfortable having difficult discussions and conversations with us because that allows us to really do our job.

Nick McDevitt:
We're really hamstrung when we don't have the information that we need. So, when we can be a sounding board for clients ... Even though I know all of these things, I will say I was still a little bit surprised how far a five or 10 minute conversation with clients over the last month went where, really, they just needed some affirmation, a reminder of what's going on, a reminder of what we're going through, and that although it's looked different we've been here before. And the feedback that we've gotten from people has been very positive and that's where some of these studies ... And John can talk about it a little bit more in detail, the Vanguard study, where the studies have shown that the performance that people who work with an advisor have versus people that don't work with an advisor ... There's a pretty drastic difference. And part of that is because of the work that goes up front. It's not just, "Hey, somebody picked better investments at different points of time." Really, it has to do with the plan and the overall strategy and having a game plan and implementing those sorts of things.

John Teixeira:
Yeah. And that study, Vanguard did it. It's called Advisors Alpha. And basically, the study came out to showing that having an advisor brings about an average of three percent increase in the portfolio over the years. And really, that's in a segmented time period where the market's doing really well or the market's doing really bad; where advisors help clients take emotion out of it. And if you here a dog barking, that's my dog. We really help take emotions out of it. And one of the things that I'd say ... When things are going really good, I'd say we have some people that ... "Hey, maybe I should get more aggressive." And one of our jobs is to make sure that they stay the course in what we initially set up out front.

John Teixeira:
And the same thing when the market's been volatile as last month, it's, "Hey, let me sell out. Let me get more conservative." And it's like, "No, let's go back to our initial plan, our initial strategy. Let's stay the course." And I think that's one of the biggest values that ... One of the values that we bring to our clients is really just helping them take emotion out and realize it's never as good as it seems, it's never as bad as it seems. And let's just stick to the plan and the strategy.

Nick McDevitt:
Yeah, and part of that, too, is depending upon how closely they follow things like the news or what's going on, the market tends to be a leading indicator in things. And so, this last month and a half has been a good example of ... Before people were seeing the negative impact in their communities of the virus and the things that were happening and as they were still going to work and, really, their day-to-day life hadn't started to change yet, the market was racing down. Now, we're pretty much 20% off of the bottom and from a societal standpoint and from a lifestyle standpoint, people's biggest impact is currently happening. They're currently living that. And yet, they're seeing that this market bounces back and that's really a good example of what happens. And when you let the emotions or even sometimes ... It sounds weird to say it, but sometimes logic, get in the way you can really have a negative impact on your overall investment strategy.

Mark:
No, and I get what you're saying about the logic portion of it as well because we ... If anything, logic seems to be going out the window anyway, right now, for a lot of things. All this new paradigm that we find ourselves in, it's very difficult sometimes to figure out which way is up and which way is down. And you're talking about the markets and, obviously, we've seen huge, massive swings. At the time we're taping this particular podcast, we've had a couple of decent days in the room. But that, John, does create buying opportunities or at least the conversation to have with your advisor. "Hey, is this a good time to buy? Is it a good time to look into this, that or the other as part of the overall strategy?"

John Teixeira:
Yeah. And one thing we like to look at, before we jump into that, is really, what's your time horizon with the money? Is this money that you're going to need within the next year? You may want to not consider buying in in a volatile market. But if you're looking at a five plus year time horizon, I would say this is an excellent time to really consider buying some equities. Looking back at 2008, and I'll preface it by saying past performance is not indicative of future performance, but there were a lot of stocks that, I'm sure, if you look back and said, "Oh, man, I wish I'd bought it at that price," just what they've recovered over two or three years after the 2008 recession.

John Teixeira:
We have had some people calling in saying, "Hey, this is a great time to buy. What do you think? I'd like to put some money to work for me and take advantage of some of these stocks that are on sale." And when you say it that way, it makes a little bit more sense because if you go to the store and it's like, would you rather buy stuff at full price or when they're on sale? That just brings it full circle to help people understand that a little bit more.

Nick McDevitt:
Yeah. I would just say that there's always a silver lining to any sort of situation and what John emphasized about the buying opportunities and that although things are going to continue to be difficult in the "real world", at least we've got a little bit of stability and a reminder for people of how these sorts of things play out in the marketplace; how they happen quickly. And really, the importance of having an advisor that can help guide you through it so that you don't make decisions that you're really going to regret in the long-term.

Mark:
And as we're finishing up with the podcast this week, guys, that's the message I've been trying to convey over the last couple ones. I think we're going to continue to push that message, as well, is that while so many things are out of our control when it comes to the virus and when we're off of lockdown or whatever the case might be and we feel like we're sitting on our hands, there's still a lot of things we can be proactive about. And thinking about our financial future, our retirement future on the other side of this is one of those things we can certainly do. We've got more time on our hands, so put some thought into this. Have some conversations. Talk with your advisor. Work with an advisor. Find an advisor.

Mark:
Whatever the case might be, there's a lot that can be done virtually in this time frame. And people will be saying, "Well, I can't go drive around and see people." No, you can't. But you can listen to podcasts like this one. You can listen to John and Nick, things that we're talking about. You can reach out to them and let them know you want to talk. They can set you up with a virtual Zoom Meeting like the whole world's doing. We're doing one right now. We're doing the podcast through Zoom Meeting.

Mark:
Reach out and let them know that you want to have a conversation about some of the things we've discussed here today on the show when it comes to investing in down markets. And give them a call at 813-286-7776. Again, 813-286-7776. That's the number you call. Let them know that you'd like to chat and they'll get you set up and taken care of for a time that works well for everybody. You can also go to their website PFGPrivateWealth.com. That's the name of the company. PFGPrivateWealth.com. You can subscribe to the podcast while you're there on Apple or Google or Spotify. Share it with those who might benefit from the message. And also, of course, check out and learn more about the team; about John and Nick, at PFG Private Wealth.

Mark:
Guys, thanks so much for your time. I appreciate you, as always. Hope you're staying safe and sane and not too stir crazy.

Nick McDevitt:
Thanks, Mark.

John Teixeira:
Thanks, you, too.

Mark:
All right, guys. Take care and I'm going to need to see some dance moves on the next episode. Just saying. I've heard about it.

Nick McDevitt:
We'll take that under consideration.

Mark:
We'll go video next time and we'll see some dance moves. All right, folks. Take care of yourself. Have a great week. Have a safe week, and we'll talk to you soon here on Retirement Planning Redefined with John and Nick, financial advisors at PFG Private Wealth.