Issue 47.13
If someone knows the answer, will you let me know? With the Federal Reserve keeping tabs on how fast our economy is growing and / or let’s say not growing, the Stock market or equities market has been the beneficiary of the environment. The old saying, “When interest rates are low, stocks will go – and when Interest rates are high, stocks will die – has been true for the past few years.
In my opinion, the number one single factor to a stronger economy is the housing market. And, if unemployment is still high, with incomes still fairly low and we are up against the toughest lending standards in mortgage lending history arguably does not help the housing market no matter what the fed does interest rate wise.
Most analysts predict that we will have a counter to the market and its run. Meaning that they expect a falloff in the equities market of 10% to 20% or perhaps even greater. So, it is a good thing if you’re young, and the market drops because you can continue to buy into the stock market when it is not so high. So, dollar cost averaging where you input funds on a monthly or quarterly basis for the long term is still the best strategy for that younger age group. If you’re investing for a 20 year horizon, a balanced equities portfolio with other investments still gives you the best chance of building a retirement savings that allows you to live the lifestyle you want to during your retirement age.
So, what can I do as a retiree with your investments when you’re not putting away savings anymore and we are living off of our funds at this stage of life?
First, if you think you will need your funds in the next five years, I am not a fan of being in the market at these high levels. Like many, it may be the perfect time to take the profits and position out of market exposure. If we need our funds to draw down on in the next five years, I simply don’t think we can have exposure to market risk. But with interest rates so low on savings, CD’s and bonds it is tough to earn an interest that can keep our investments stable while keeping up with inflation and other risks.
Here is the key, talk to your financial advisor about options that earn better interest rate returns but simply maintains the principal without market risk. If we are retired, the question is can we afford to have funds exposed? Do we have the time to make up the losses in the market or will we need to continue to draw down on the investments for income?
Most of our senior client’s will simply say it is not the return on my money but the return of my money that is most important. And, remember if the market drops 50% for example and your fund value drops from $100 to $50.00 and the next year you gain 50%, you’re still not back to square one. You’re only back to $75.00 and yet the average return over the two years is zero, but you are still down when it comes to the real return on your money over the two years. It’s very confusing when you look at average returns.
Talk to your financial advisor or contact our office and visit with them about options in an environment that has allowed us some nice gains over the last few years, but may also have a correction in our stock markets coming that we really don’t have the years to make up any significant losses.
Brandon Hansen is a Senior Mortgage Banker, Registered Investment Adviser Representative for Cherry Creek Mortgage / National Advisor’s Network. He can be contacted at 435 668 2840 / 435 525 2266.