December 6, 2024 • 35 mins
Bulls, Bears, and Pigs – After two years of strong market gains, many investors are
wondering if a decline in stock prices is on the horizon. Chris Boyd, Jeff Perry and Russ
Ball discuss market history and what constitutes normal market behavior. Jeff shares a
personal financial move he recently made and reminds listeners of the old saying that
“Bulls make money, Bears can make money, and Pigs get slaughtered.” Chris shares his
guidance on having the proper allocations considering your risk tolerance. The trio also
discusses a pension question and how other issues like health insurance and legacy
planning play into the decision-making process for your pension options.
The AMR Team is seeking your opinions on the Something More podcast. To participate
in our survey, please click the link below: https://lnkd.in/ekcsvPaM
For more information or to reach Chris Boyd, Russ Ball or Jeff Perry, click the following
link: https://www.wealthenhancement.com/s/advisor-teams/amr
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
(00:00):
Welcome to something more with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president, financial advisor at Wealth
Enhancement Group, one of the nation's largest registered
investment advisors.
We call it something more because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome to the show, everyone.
Thanks for being with us.
I'm Chris Boyd, a certified financial planner, practitioner
here with Jeff Perry and Russ Ball, both
(00:43):
of whom are with me on the AMR
team at Wealth Enhancement Group, and we're going
to talk a little bit about markets and
pensions today, so to start things off, great
headline I saw yesterday across my phone, markets
hit new high, and we keep hitting new
(01:04):
highs.
What was it, Jeff?
You said it was both the S&P
and the NASDAQ?
That's correct.
Yeah.
And I think on the one hand that
gets people excited, hey, all right, new highs,
and then at the other hand, it gets
people nervous, like, oh my gosh.
It's been quite a couple of years here.
Yeah.
We've had some really good run just in
(01:27):
the neighborhood of up 25% last year
and this year, thus far, so the year's
not over, but about a month to go,
and we'll see where we land when all
is said and done, but it does cause
you to think about, on the one hand,
(01:49):
am I getting enough of that, and then
on the other hand, should I be worried
about the other shoe going to drop, that
kind of thing, so you get these different
kinds of anxieties that bubble up.
You know, my little favorite saying here, bulls
(02:10):
make money, bears make money, and pigs get
slaughtered.
So where are you in that perspective today?
When you think about the market, is someone
being a pig?
Are they staying too long?
(02:31):
Maybe.
It's a coincidence that you wanted to talk
about this today because I recently saw, I
think it was this morning or yesterday afternoon,
commentary on CNBC that there has not been
a correction 10% decline in the market
this year, which, you know, corrections are normal,
(02:53):
you say this all the time, Chris, corrections
are normal parts of the market cycles, even
in a bull market, a 10% pullback
is normal, we shouldn't- That inhale, exhale
kind of thing, right?
It's just a normal course of activity.
It is surprising we haven't had a full
10% drawdown this year.
(03:14):
I was looking at a JP Morgan slide,
it showed that there was about an 8
% decline thus far this year.
So I'm going to answer your question.
I don't want to evade it by referring
to CNBC.
I'm a bull, I'm a long-term bull,
but I think it's prudent when you have
(03:34):
a nice run, staying away from the pig
thing, is to take some profits, put them
in either a holding area to reinvest in
maybe a money market account, or if your
risk tolerance has shifted because of gain, if
your risk tolerance is what it is and
your allocations have shifted, and now you have
(03:55):
all this much greater exposure to stocks, it
might be a time to rebalance and say,
okay, I have too much stock for my
comfort level, let me put some off to
the side into a different type of investment
that's not correlated with the stock market.
But I am a long-term bull.
I believe in the country.
I believe in free enterprise.
(04:16):
I believe in the history of the stock
market.
So for my long-term money, and for
our clients who have long-term horizons, I
think the stock market has a place in
their investment portfolio for sure, but make sure
that your allocation isn't out of whack and
that your risk tolerance is able to handle
(04:36):
your current allocation.
Really well said.
Russ?
Yeah, one thing, it's kind of been coming
up again and again in client conversations we've
been having, and we're just looking at the
outperformance of the last year or two, I
guess, and asking, are you comfortable with this
amount of risk, like the fact that the
market has gone up as much as it
(04:56):
has, it could be a good time to
rebalance even if, obviously we do our rebalancing
quarterly, but I think just having a conversation,
are you too risked in your portfolio?
Yeah, having that open conversation.
Are you comfortable with where you're at?
Yeah, and because the market's done so well,
(05:17):
it could be a good time to take
some of that risk off the table.
If a change is pending, rather than after.
Right, right.
Chris, you do something with our clients that
I've learned many things from you, but this
one really is key.
So when you say to a client, they
may have a million dollar portfolio, for example,
and you say, can you sustain a 10
(05:40):
or maybe even a 20% reduction in
the market?
Those are normal things that happen in the
market.
And you might get a quick yes, but
then you frame it in the context of
that would mean between 100 and $200,000.
And that their face just changes from 10
% when you say yes, it's a different
thing to say $200,000, you know, wait
(06:03):
a minute, wait a second.
That's a lot of money, right?
It is 20%, but it puts it into
a little bit different.
Yeah, it's exactly true.
You got to make that material and if
whatever someone's level of wealth happens to be
right, the same principle applies.
If you have $10,000 and people who
(06:24):
have $10,000 say, well, if I had
a lot of money, meaning a million dollars
in that scenario, you know, they'd be like,
oh, that'd be, I could live with that,
but I can't afford to lose, you know,
20% in that scenario, right?
And if you have a million dollars, you
think, well, 200,000, that's a lot of
money.
And so it really depends on the person,
right, on what's going on in the rest
(06:45):
of their context and what they're really willing
to tolerate.
I think it's worth pointing out that historically,
we talk about it for a very long
time, period of time, you know, 100 years,
markets tend to go up two out of
three years, but it doesn't happen that they
necessarily go up every two years, you know,
(07:07):
and then there's a third year and it
doesn't, you know, it doesn't always happen sequentially
that way.
There can be periods of time where we
have, think of the year 2000, where we
have three years back to back with declines.
It's hard to tolerate.
We've had the good fortune lately when markets
go down, they come back very quickly.
(07:29):
In 2000, rather 2020, we had a 20
% decline or whatever it was during the
year, but it didn't end that far down.
And it came back very quickly within a
year, we were back in business, let's say,
into the positives.
When it came to 2022, you know, very
(07:51):
quickly, we're back in the positives.
So it's tough when you see markets drop,
but we've had the good fortune that they've
come back very rapidly in recent years.
And that's not always the case.
Investors should be prepared for the way they
(08:13):
think about their investments, as you described it,
Jeff, long term in nature, and therefore you
might be tolerant of a couple of bad
years back to back, whatever it might be,
so that it might take, what if it
takes five years to recover?
And what if it takes longer?
You know, the 1970s, a prolonged period of
(08:34):
time.
You could even look at the 1990s, where,
you know, you started at this peak at
the end of the 1990s.
And then in 2000s, rather, we have this
peak, it declines, it comes back in 2007,
peaks again, and then declines.
(08:54):
We end the decade not really much different
from where we started the decade, probably even
a little lower.
And so there you look at that and
say, well, you know, this can happen from
time to time.
It's not to say that it's always the
case or that it's going to necessarily be
the case.
But when you look at year to year,
markets move in different directions every year.
(09:16):
Given time, you'd expect better performance.
I'm looking at a slide from JP Morgan,
going back to 1980 through the end of
the month, November 30th, a couple of days
ago.
And it's suggesting that the average annualized returns
(09:41):
over that period of time was around 14%.
That's good.
Yeah, isn't that awesome, right?
Very good, yeah.
And yet 33 of the 44 years involved
were positive and 11 were negative.
That's still pretty good odds for, you know,
(10:03):
better than the two out of three kind
of...
It's like three out of four, that one.
It's more like three out of four, right?
So, you know, something to be mindful of,
but it is very common, even in years
when markets end higher, that they've had a
correction or a more substantial decline.
We talk about this with clients that it's
(10:25):
normal for markets to decline 10%, 15%, even
20%, in some cases more, right?
But, you know, we've been through in the
2000s and, you know, 2020, we've seen these
more substantial declines.
So, it's not unheard of for markets to
(10:48):
get cut in half in our recent investment
lifetime, not just looking back at, like, long
history of things, you know.
Just as if you've been an investor since
2000, you've incurred two periods of time where
the markets essentially went from down about 50
(11:11):
% cumulatively in the case of 2000, 2001,
2002, and then again in 2020, where the
market dropped...
No, sorry, 2008, right?
The financial crisis, and then those were significant
drops.
(11:31):
And then I think in 2022, it was
down about 34% in a year, and
then it came back very quickly.
But my point is, these are things that
we don't think of as normal, but we've
seen it.
And as much as...
And we're going to see it again.
We're going to see it.
And so, as much as things are really
good right now, and I'm glad, and we're
(11:53):
not trying to scare anyone to say that
they're necessarily going to be terrible or anything,
it's just you have to be mindful of
the fact that markets move.
And we get more return from taking more
risk because there is risk, and there will
be declines.
We just don't know when and how much
(12:13):
at a given moment in time.
But knowing that, we want to prepare.
And we talk about this a lot, Jeff
and Russ, when we talk with clients about
buckets and the idea that we want to
have low-risk money, a place for security
and safety, some comfort-type money, and then
something that's maybe a little less risk, but
(12:34):
somewhere we could get at stuff we needed.
And then we think longer term, more in
line with our risk tolerance, whatever that is.
Maybe you're a moderate investor.
Okay, whatever that looks like in aggregate.
But we don't want to be too short
-sighted, and we don't want to be ignoring
risk.
It's this trying to find this sweet spot
(12:55):
for everyone's own circumstances and what's palatable for
them.
Right, and think about how long your time
horizon is.
I'll share a personal story that I've already
shared on the radio, so I'll kind of
give an update on it.
I have a granddaughter who's going to college.
She's a senior in high school, and we've
had her 529 invested in an S&P
(13:17):
fund forever.
It's done very well.
And on the show before, Chris, we talked
about, so what are you going to leave
it invested?
So just last week, because of the market
gains, I took the first year of what
we expect our contribution to put it in
a money market.
Yeah.
And I left the rest in there for
(13:39):
the other years because I feel like we're
getting, another word I like to use, frothy.
Markets are getting extended, and maybe they'll keep
going.
And if they do, that's great because 75
% of the money is still invested.
Yeah.
But I have that peace of mind that
I know that- You're ready for whatever
(13:59):
direction it's moving the short term.
Right.
You've got it prepared.
And you can't feel bad.
Like, what if the markets go higher, Jeff?
You'll have missed out on that extra percentage
of returns.
Just for the first year.
I didn't get nervous or make some emotional
decision and say, it's all coming out and
miss the next four years, if you will,
(14:23):
of opportunity.
I just made a strategic, I guess, decision.
And I think some of that is also
your tolerance and temperament for risk.
Someone else might say, well, maybe I don't
want to risk it for the next two
years, you know what I mean?
Very personal, right?
Yeah, it could be somewhat of a personal
evaluation, right?
But yeah, I think that's a good example,
(14:45):
a good illustration of that notion.
And you can't live in the past, too.
If you make that call, make that judgment,
you're doing something that gives you comfort because
of its absolute.
And then you can't live in the, oh,
if only I had, what if I had
done?
It's one of these things where there's no
way to know in the short term what's
(15:06):
going to move good or bad, better off
to just say, this gives me peace of
mind, whatever direction, that is staying invested or
and living with the risk or pulling the
money off and living with the diminished return
potentially, you know, that kind of thing, the
absolute of having it on hand, you know.
We do hear a lot of clients or
people that we engage with saying, I'm going
(15:28):
to stay invested until I see something that
I'm concerned about or, you know, I'm going
to stay on the sidelines until something happens.
Yeah, yeah.
These, these corrections or bear markets happen quick
when they happen.
So I know I can't time the market
successfully.
And I don't think there's anyone who really
(15:48):
can over the long term.
People get famous for doing it once.
Yeah.
Yeah.
Right.
Right.
But where they go after that, you know,
that kind of gets.
Oh, I guess my point for listeners on
this topic is we've had a great year.
We've had a great two years.
Um, after some, you know, a rough year,
but the prior, you know, three years before
(16:09):
that, again, really fabulous double digit returns.
So, uh, what's my message.
Markets are volatile.
We've had a good run.
Um, it's, it's okay to, to stay the
course or all that.
And you should have a plan that works,
but expect volatility.
And as much as, um, we, we may
(16:30):
benefit from, uh, just a consistently rising market,
but that's not normal, you know, so expect
bumps in the road.
And if you don't want to tolerate those
bumps in the road, reassess your level of
risk and what you're willing to tolerate.
Um, and maybe, uh, as you talked about
earlier, one of you guys, the idea of
rebalancing, you know, this is probably a reasonable
(16:53):
time as we look to, uh, moving toward
year end, start a new year.
Um, it's probably a good time to reassess
what's the right level of risk.
And do I have the right allocation?
If you do rebalance, cause you've had this
disrupt, you know, this, this.
Disproportionate return in the last couple of years
that it, if you haven't rebalanced it's time,
(17:15):
you know, and that forces you to do
the discipline of selling high and buying low.
And that's a good thing over time.
You know what I mean?
So it's a good thing.
Yeah.
So in any case, um, something just food
for thought as we, you know, look ahead.
Um, I wanted to also talk about a
couple of other things.
If we can switch gears, um, we probably
(17:38):
could end the show there and be like,
okay, that was one episode, but I got
some more to talk about.
Um, I had a conversation last night and
Jeff, uh, you came to mind.
I thought, oh, this would be a good
one to, uh, clarify for people.
Um, have clients who are, um, planning for
their retirement and they're, um, in their fifties,
(18:00):
but getting closer to, um, you know, thinking
about retirement at either 60 or 65, right?
So it's, it's a few years off, but
they're getting close.
Great time to have this discussion.
And so, you know, we had the good,
um, financial planning, you know, kind of modeling.
But when push came to shove, they were
(18:23):
like, well, I'd really rather retire at this
age and that age.
So one, you know, one for him and
one for her.
So she has a, um, public, uh, pension.
Um, so it's the, um, the teacher's retirement
system in Massachusetts, Massachusetts.
Yep.
(18:44):
So she had been looking at things and
saying, well, if I work till age 65,
she had calculated the numbers for years of
service and, um, the amount of, uh, the
age she would be at the time.
Three fact, three factors, right.
And her income.
(19:05):
So she was kind of looking at it
saying, all right, this is what I think
my pension number would be.
And then we talked about the possibility of
retiring sooner.
And the question that she's like, oh, it'll
change my numbers completely.
I was like, yes, it would, but you
know, you don't necessarily have to turn it
on right away.
True.
And that was what created the, oh, well,
(19:27):
how would that work?
You know that?
So I just thought maybe you'd want to
elaborate on, um, does the number change, uh,
if, if the years of service doesn't change,
you know, or is it like these two
distinct factors?
So like every financial planning question, it depends.
So in Massachusetts, there are three factors.
(19:50):
And when you reach the maximum factor of
any maximum level of any one factor, it
does not go up.
So the maximum factor for the number of
years of service is 32.
And she does not have that, right?
So she works more, say she had 25,
for example, right now, if she 20 right
(20:11):
now.
So if she has 20, you need 10,
by the way, to even have that.
And have this discussion, but so she has
20.
So for the next 12 years, she'll get
an increase in her ultimate pension.
If she adds a year's year service, the
match max factor for most public pensions in
Massachusetts, 65.
So if you're below 65, you to get
(20:33):
a small reduction for each year you're below.
And then depending on when you started your
state service for her 20 years ago, it's
the highest of the average of the it's
the average of the highest three years of
salary.
And so if you work longer and your
pay is going up, you know, like most
public employees, they get two or 3%
(20:55):
raise every year, that factor of the average
of the highest three would also be going
up.
So for someone who's going to have a
higher salary, only has 20 years and is
below 65 each year, all three of her
factors are going to be going up.
Now, whether that's enough of a change over
(21:18):
the next 12 years or 10 years is
kind of a personal decision.
Doesn't mean she has to stop working.
Also.
She could, as you alluded to, she could
stop her public service and not take her
pension.
Yeah, obviously her years of service wouldn't be
gaining and her highest three years wouldn't change,
(21:38):
but her age factor would, she could wait
until 65.
I was going with it that, you know,
say she wanted to, that's a good analogy,
you know, example or illustration.
It was 65, 70, whatever the number is.
Right.
Let's say 65, she delayed.
Right.
And no reason to, no reason to delay
past 65 for this situation.
(21:58):
Right.
You're right.
So, um, so let's say for example, you
know, she says, I want to stop working
in three years or whatever it is, instead
of waiting until 65 or, you know, that
kind of a number.
Well, okay.
Then you could stop working.
Whatever your years of services would be locked.
That number of years of service, say 23,
(22:21):
23.
And then she, she doesn't have to turn
it on at that age.
She couldn't wait.
And I think that was where she was
like, Oh, how does that factor in?
You know, that there's a different calculus at
that point.
It's a math, it's a math question.
Yeah.
So it's a, that becomes a, maybe you
wait a couple of years and when you,
when you're ready to turn on the income,
(22:41):
if you want it to, if they wanted
to start it right away, they can do
that, but they'd have their choice of those
aren't necessarily the same decision when you retire
and when you start the pension, aren't the
same, it don't have to be.
And the same is true with social security.
When you, when you, when you retire and
when you turn on social security, doesn't have
to be the same time.
(23:02):
That's right.
You know, the public pension, there is a
secondary level of question is where are you
getting your health insurance?
Because if she stops working, she'll lose her
employee benefit.
If she retires, you know, she, and she
was, well, if she gets a 60 retirement
is turning on the pension in that case.
Right, right.
(23:22):
But she could retire now or in three
years and still have the health benefit, even
though she's not 65, her health benefit would
change from the state when she is 65,
but you can't pause your retirement and could
get the health benefit is what I'm saying.
That's a great point.
That's a great, uh, that's additional consideration.
(23:44):
So in their case, uh, this family's case,
if they do it before 65, that might
be a relevant consideration to where they want
to draw their benefits from.
Yeah.
And the other question that's always in this
subject is survivor benefit.
In Massachusetts.
If you collect your full pension, it's on
(24:04):
your life only the employee's life.
If you leave your survivor, typically a spouse,
you'd lose, lose roughly a third round number
of your monthly benefit, but the pension would
survive you and go to a second life.
In other words, the death of the second
life, your spouse, and that's just a personal
(24:25):
decision based upon a lot of factors, age,
health, other pensions, other assets.
Well, that's the other topic I wanted to
bring up when coming into the topic of
pensions.
I had another scenario where we got, uh,
an inquiry from a client saying, you know,
we have this pension option.
It includes the possibility of a lump sum
(24:47):
as one possibility for private pension.
It is a private pension in this case.
Um, they also have, um, you know, this
decision of, well, what should we do when
it comes to the, the, the monthly income,
if they opt for that.
So they have, you know, this range of
(25:07):
possibilities to evaluate.
And, you know, I think this is a
tough one sometimes because, um, you know, on
the one hand there's an impulse to say,
well, I want that cash, you know, let's,
let's control this whole thing.
Uh, and then on the other hand, some
people say, I want to guarantee, you know,
(25:28):
I like the absolute.
I don't have to worry about it.
I know what I'm in for as long
as I live, both of us live, whatever
the way they choose it.
Right.
Right.
So, um, it becomes sort of, uh, a
challenge to say, well, how should we think
about this?
And life expectancy does certainly factor into how
(25:48):
you think about this.
Um, if you envision of a prolonged life
expectancy, that there really does help make the
case to, to suggest that maybe the absolutes,
the guarantees of, uh, the pension options might,
and maybe the, some, some manner of survivor
(26:09):
benefit, you know, would have virtue.
Um, another possibility would be, um, to think
in terms of, um, you know, if, if
you don't think there's a long life expectancy
involved, well, the idea of a larger lump
(26:31):
sum that you might have assets to retain,
to pass on as wealth, uh, that you
aren't worried about the risk of running out
of.
I think in this case, it also comes
down to what are the other assets involved?
Uh, how, how much do you spend?
Where's that money coming from?
Right.
If there's demand for resources, more resources, then,
(26:56):
you know, then the pension might be the
right way to go.
If, if you've got maybe more coming in
than you need, well, then a lump sum
sounds pretty appealing, you know, you can control
that a little bit more.
I don't know.
Anyway, I just thought that was another variable
talking about pension discussion.
I think that's the whole episode that, that
(27:18):
question of a private pension, lump sum on
your social security, all of these factors is
probably a whole episode.
Well, recent, uh, conversation we had, Chris was,
um, you were kind of comparing what is
(27:38):
the return you can get based on that
lump sum per year.
And it's like, can we beat that number
by having invested?
And if not, yeah, there, there used to
be circumstances, um, you know, 20, 25 years
ago, we'd, we'd sit down with people who
had a pension and, uh, the formula for
(27:59):
how they calculated the lump sum had to
do with interest rates and, you know, 25
years ago, interest rates had dropped from being,
you know, historically more normal to that zero
or very low interest rate environment.
And, um, suddenly these lump sums were fabulous,
(28:19):
you know, and you'd say, well, we can
make 4%, you know, whatever, you know, uh,
let's just take some risk, you know, that
kind of thing.
Uh, when I was doing this recently, what
was it like more like 8% that,
uh, they, you know, they'd have to be
able to consistently earn.
Well, if you're going to expect 8%, some
(28:41):
of that's coming off a principle in all
likelihood over a retirement, right.
The level of risk you'd be willing to
tolerate volatility that you'd expect, you know, there's
going to be down years and some of
that comes out of capital.
Right.
So, um, you know, it's less of an
absolute, you know, so that kind of thing.
So it becomes a question of, well, let's
(29:02):
take a look at what's that rate of
return.
Uh, how, how much can, how long could
we expect that to last?
Um, even, you know, with some market disruptions
and things like that, the way you'd be
invested, that sort of thing, what's the rate
of return we might anticipate from something like
that.
And then again, it's not an absolute.
(29:23):
It's, it's a, a calculated risk.
Right.
Um, so again, all these variables of how's
it fit into the whole becomes part of
that equation.
Uh, but yeah, Jeff, it probably should be
its own conversation.
And so there's a lot to evaluate.
There's the whole idea of, do I, um,
(29:46):
take the lump sum?
Do I take a pension with a single
life and buy some life insurance?
And that's, that's where I was going.
Yeah.
Yeah.
So replicate that, uh, potential for keeping.
Welcome to something more with Chris Boyd.
Chris Boyd is a certified financial planner, practitioner,
and senior vice president, financial advisor at Wealth
Enhancement Group, one of the nation's largest registered
investment advisors.
We call it something more because we'd like
to talk not only about those important dollar
and cents issues, but also the quality of
life issues that make the money matters matter.
(00:22):
Here he is, your fulfillment facilitator, your partner
in prosperity, advising clients on Cape Cod and
across the country.
Here's your host, Jay Christopher Boyd.
Welcome to the show, everyone.
Thanks for being with us.
I'm Chris Boyd, a certified financial planner, practitioner
here with Jeff Perry and Russ Ball, both
(00:43):
of whom are with me on the AMR
team at Wealth Enhancement Group, and we're going
to talk a little bit about markets and
pensions today, so to start things off, great
headline I saw yesterday across my phone, markets
hit new high, and we keep hitting new
(01:04):
highs.
What was it, Jeff?
You said it was both the S&P
and the NASDAQ?
That's correct.
Yeah.
And I think on the one hand that
gets people excited, hey, all right, new highs,
and then at the other hand, it gets
people nervous, like, oh my gosh.
It's been quite a couple of years here.
Yeah.
We've had some really good run just in
(01:27):
the neighborhood of up 25% last year
and this year, thus far, so the year's
not over, but about a month to go,
and we'll see where we land when all
is said and done, but it does cause
you to think about, on the one hand,
(01:49):
am I getting enough of that, and then
on the other hand, should I be worried
about the other shoe going to drop, that
kind of thing, so you get these different
kinds of anxieties that bubble up.
You know, my little favorite saying here, bulls
(02:10):
make money, bears make money, and pigs get
slaughtered.
So where are you in that perspective today?
When you think about the market, is someone
being a pig?
Are they staying too long?
(02:31):
Maybe.
It's a coincidence that you wanted to talk
about this today because I recently saw, I
think it was this morning or yesterday afternoon,
commentary on CNBC that there has not been
a correction 10% decline in the market
this year, which, you know, corrections are normal,
(02:53):
you say this all the time, Chris, corrections
are normal parts of the market cycles, even
in a bull market, a 10% pullback
is normal, we shouldn't- That inhale, exhale
kind of thing, right?
It's just a normal course of activity.
It is surprising we haven't had a full
10% drawdown this year.
(03:14):
I was looking at a JP Morgan slide,
it showed that there was about an 8
% decline thus far this year.
So I'm going to answer your question.
I don't want to evade it by referring
to CNBC.
I'm a bull, I'm a long-term bull,
but I think it's prudent when you have
(03:34):
a nice run, staying away from the pig
thing, is to take some profits, put them
in either a holding area to reinvest in
maybe a money market account, or if your
risk tolerance has shifted because of gain, if
your risk tolerance is what it is and
your allocations have shifted, and now you have
(03:55):
all this much greater exposure to stocks, it
might be a time to rebalance and say,
okay, I have too much stock for my
comfort level, let me put some off to
the side into a different type of investment
that's not correlated with the stock market.
But I am a long-term bull.
I believe in the country.
I believe in free enterprise.
(04:16):
I believe in the history of the stock
market.
So for my long-term money, and for
our clients who have long-term horizons, I
think the stock market has a place in
their investment portfolio for sure, but make sure
that your allocation isn't out of whack and
that your risk tolerance is able to handle
(04:36):
your current allocation.
Really well said.
Russ?
Yeah, one thing, it's kind of been coming
up again and again in client conversations we've
been having, and we're just looking at the
outperformance of the last year or two, I
guess, and asking, are you comfortable with this
amount of risk, like the fact that the
market has gone up as much as it
(04:56):
has, it could be a good time to
rebalance even if, obviously we do our rebalancing
quarterly, but I think just having a conversation,
are you too risked in your portfolio?
Yeah, having that open conversation.
Are you comfortable with where you're at?
Yeah, and because the market's done so well,
(05:17):
it could be a good time to take
some of that risk off the table.
If a change is pending, rather than after.
Right, right.
Chris, you do something with our clients that
I've learned many things from you, but this
one really is key.
So when you say to a client, they
may have a million dollar portfolio, for example,
and you say, can you sustain a 10
(05:40):
or maybe even a 20% reduction in
the market?
Those are normal things that happen in the
market.
And you might get a quick yes, but
then you frame it in the context of
that would mean between 100 and $200,000.
And that their face just changes from 10
% when you say yes, it's a different
thing to say $200,000, you know, wait
(06:03):
a minute, wait a second.
That's a lot of money, right?
It is 20%, but it puts it into
a little bit different.
Yeah, it's exactly true.
You got to make that material and if
whatever someone's level of wealth happens to be
right, the same principle applies.
If you have $10,000 and people who
(06:24):
have $10,000 say, well, if I had
a lot of money, meaning a million dollars
in that scenario, you know, they'd be like,
oh, that'd be, I could live with that,
but I can't afford to lose, you know,
20% in that scenario, right?
And if you have a million dollars, you
think, well, 200,000, that's a lot of
money.
And so it really depends on the person,
right, on what's going on in the rest
(06:45):
of their context and what they're really willing
to tolerate.
I think it's worth pointing out that historically,
we talk about it for a very long
time, period of time, you know, 100 years,
markets tend to go up two out of
three years, but it doesn't happen that they
necessarily go up every two years, you know,
(07:07):
and then there's a third year and it
doesn't, you know, it doesn't always happen sequentially
that way.
There can be periods of time where we
have, think of the year 2000, where we
have three years back to back with declines.
It's hard to tolerate.
We've had the good fortune lately when markets
go down, they come back very quickly.
(07:29):
In 2000, rather 2020, we had a 20
% decline or whatever it was during the
year, but it didn't end that far down.
And it came back very quickly within a
year, we were back in business, let's say,
into the positives.
When it came to 2022, you know, very
(07:51):
quickly, we're back in the positives.
So it's tough when you see markets drop,
but we've had the good fortune that they've
come back very rapidly in recent years.
And that's not always the case.
Investors should be prepared for the way they
(08:13):
think about their investments, as you described it,
Jeff, long term in nature, and therefore you
might be tolerant of a couple of bad
years back to back, whatever it might be,
so that it might take, what if it
takes five years to recover?
And what if it takes longer?
You know, the 1970s, a prolonged period of
(08:34):
time.
You could even look at the 1990s, where,
you know, you started at this peak at
the end of the 1990s.
And then in 2000s, rather, we have this
peak, it declines, it comes back in 2007,
peaks again, and then declines.
(08:54):
We end the decade not really much different
from where we started the decade, probably even
a little lower.
And so there you look at that and
say, well, you know, this can happen from
time to time.
It's not to say that it's always the
case or that it's going to necessarily be
the case.
But when you look at year to year,
markets move in different directions every year.
(09:16):
Given time, you'd expect better performance.
I'm looking at a slide from JP Morgan,
going back to 1980 through the end of
the month, November 30th, a couple of days
ago.
And it's suggesting that the average annualized returns
(09:41):
over that period of time was around 14%.
That's good.
Yeah, isn't that awesome, right?
Very good, yeah.
And yet 33 of the 44 years involved
were positive and 11 were negative.
That's still pretty good odds for, you know,
(10:03):
better than the two out of three kind
of...
It's like three out of four, that one.
It's more like three out of four, right?
So, you know, something to be mindful of,
but it is very common, even in years
when markets end higher, that they've had a
correction or a more substantial decline.
We talk about this with clients that it's
(10:25):
normal for markets to decline 10%, 15%, even
20%, in some cases more, right?
But, you know, we've been through in the
2000s and, you know, 2020, we've seen these
more substantial declines.
So, it's not unheard of for markets to
(10:48):
get cut in half in our recent investment
lifetime, not just looking back at, like, long
history of things, you know.
Just as if you've been an investor since
2000, you've incurred two periods of time where
the markets essentially went from down about 50
(11:11):
% cumulatively in the case of 2000, 2001,
2002, and then again in 2020, where the
market dropped...
No, sorry, 2008, right?
The financial crisis, and then those were significant
drops.
(11:31):
And then I think in 2022, it was
down about 34% in a year, and
then it came back very quickly.
But my point is, these are things that
we don't think of as normal, but we've
seen it.
And as much as...
And we're going to see it again.
We're going to see it.
And so, as much as things are really
good right now, and I'm glad, and we're
(11:53):
not trying to scare anyone to say that
they're necessarily going to be terrible or anything,
it's just you have to be mindful of
the fact that markets move.
And we get more return from taking more
risk because there is risk, and there will
be declines.
We just don't know when and how much
(12:13):
at a given moment in time.
But knowing that, we want to prepare.
And we talk about this a lot, Jeff
and Russ, when we talk with clients about
buckets and the idea that we want to
have low-risk money, a place for security
and safety, some comfort-type money, and then
something that's maybe a little less risk, but
(12:34):
somewhere we could get at stuff we needed.
And then we think longer term, more in
line with our risk tolerance, whatever that is.
Maybe you're a moderate investor.
Okay, whatever that looks like in aggregate.
But we don't want to be too short
-sighted, and we don't want to be ignoring
risk.
It's this trying to find this sweet spot
(12:55):
for everyone's own circumstances and what's palatable for
them.
Right, and think about how long your time
horizon is.
I'll share a personal story that I've already
shared on the radio, so I'll kind of
give an update on it.
I have a granddaughter who's going to college.
She's a senior in high school, and we've
had her 529 invested in an S&P
(13:17):
fund forever.
It's done very well.
And on the show before, Chris, we talked
about, so what are you going to leave
it invested?
So just last week, because of the market
gains, I took the first year of what
we expect our contribution to put it in
a money market.
Yeah.
And I left the rest in there for
(13:39):
the other years because I feel like we're
getting, another word I like to use, frothy.
Markets are getting extended, and maybe they'll keep
going.
And if they do, that's great because 75
% of the money is still invested.
Yeah.
But I have that peace of mind that
I know that- You're ready for whatever
(13:59):
direction it's moving the short term.
Right.
You've got it prepared.
And you can't feel bad.
Like, what if the markets go higher, Jeff?
You'll have missed out on that extra percentage
of returns.
Just for the first year.
I didn't get nervous or make some emotional
decision and say, it's all coming out and
miss the next four years, if you will,
(14:23):
of opportunity.
I just made a strategic, I guess, decision.
And I think some of that is also
your tolerance and temperament for risk.
Someone else might say, well, maybe I don't
want to risk it for the next two
years, you know what I mean?
Very personal, right?
Yeah, it could be somewhat of a personal
evaluation, right?
But yeah, I think that's a good example,
(14:45):
a good illustration of that notion.
And you can't live in the past, too.
If you make that call, make that judgment,
you're doing something that gives you comfort because
of its absolute.
And then you can't live in the, oh,
if only I had, what if I had
done?
It's one of these things where there's no
way to know in the short term what's
(15:06):
going to move good or bad, better off
to just say, this gives me peace of
mind, whatever direction, that is staying invested or
and living with the risk or pulling the
money off and living with the diminished return
potentially, you know, that kind of thing, the
absolute of having it on hand, you know.
We do hear a lot of clients or
people that we engage with saying, I'm going
(15:28):
to stay invested until I see something that
I'm concerned about or, you know, I'm going
to stay on the sidelines until something happens.
Yeah, yeah.
These, these corrections or bear markets happen quick
when they happen.
So I know I can't time the market
successfully.
And I don't think there's anyone who really
(15:48):
can over the long term.
People get famous for doing it once.
Yeah.
Yeah.
Right.
Right.
But where they go after that, you know,
that kind of gets.
Oh, I guess my point for listeners on
this topic is we've had a great year.
We've had a great two years.
Um, after some, you know, a rough year,
but the prior, you know, three years before
(16:09):
that, again, really fabulous double digit returns.
So, uh, what's my message.
Markets are volatile.
We've had a good run.
Um, it's, it's okay to, to stay the
course or all that.
And you should have a plan that works,
but expect volatility.
And as much as, um, we, we may
(16:30):
benefit from, uh, just a consistently rising market,
but that's not normal, you know, so expect
bumps in the road.
And if you don't want to tolerate those
bumps in the road, reassess your level of
risk and what you're willing to tolerate.
Um, and maybe, uh, as you talked about
earlier, one of you guys, the idea of
rebalancing, you know, this is probably a reasonable
(16:53):
time as we look to, uh, moving toward
year end, start a new year.
Um, it's probably a good time to reassess
what's the right level of risk.
And do I have the right allocation?
If you do rebalance, cause you've had this
disrupt, you know, this, this.
Disproportionate return in the last couple of years
that it, if you haven't rebalanced it's time,
(17:15):
you know, and that forces you to do
the discipline of selling high and buying low.
And that's a good thing over time.
You know what I mean?
So it's a good thing.
Yeah.
So in any case, um, something just food
for thought as we, you know, look ahead.
Um, I wanted to also talk about a
couple of other things.
If we can switch gears, um, we probably
(17:38):
could end the show there and be like,
okay, that was one episode, but I got
some more to talk about.
Um, I had a conversation last night and
Jeff, uh, you came to mind.
I thought, oh, this would be a good
one to, uh, clarify for people.
Um, have clients who are, um, planning for
their retirement and they're, um, in their fifties,
(18:00):
but getting closer to, um, you know, thinking
about retirement at either 60 or 65, right?
So it's, it's a few years off, but
they're getting close.
Great time to have this discussion.
And so, you know, we had the good,
um, financial planning, you know, kind of modeling.
But when push came to shove, they were
(18:23):
like, well, I'd really rather retire at this
age and that age.
So one, you know, one for him and
one for her.
So she has a, um, public, uh, pension.
Um, so it's the, um, the teacher's retirement
system in Massachusetts, Massachusetts.
Yep.
(18:44):
So she had been looking at things and
saying, well, if I work till age 65,
she had calculated the numbers for years of
service and, um, the amount of, uh, the
age she would be at the time.
Three fact, three factors, right.
And her income.
(19:05):
So she was kind of looking at it
saying, all right, this is what I think
my pension number would be.
And then we talked about the possibility of
retiring sooner.
And the question that she's like, oh, it'll
change my numbers completely.
I was like, yes, it would, but you
know, you don't necessarily have to turn it
on right away.
True.
And that was what created the, oh, well,
(19:27):
how would that work?
You know that?
So I just thought maybe you'd want to
elaborate on, um, does the number change, uh,
if, if the years of service doesn't change,
you know, or is it like these two
distinct factors?
So like every financial planning question, it depends.
So in Massachusetts, there are three factors.
(19:50):
And when you reach the maximum factor of
any maximum level of any one factor, it
does not go up.
So the maximum factor for the number of
years of service is 32.
And she does not have that, right?
So she works more, say she had 25,
for example, right now, if she 20 right
(20:11):
now.
So if she has 20, you need 10,
by the way, to even have that.
And have this discussion, but so she has
20.
So for the next 12 years, she'll get
an increase in her ultimate pension.
If she adds a year's year service, the
match max factor for most public pensions in
Massachusetts, 65.
So if you're below 65, you to get
(20:33):
a small reduction for each year you're below.
And then depending on when you started your
state service for her 20 years ago, it's
the highest of the average of the it's
the average of the highest three years of
salary.
And so if you work longer and your
pay is going up, you know, like most
public employees, they get two or 3%
(20:55):
raise every year, that factor of the average
of the highest three would also be going
up.
So for someone who's going to have a
higher salary, only has 20 years and is
below 65 each year, all three of her
factors are going to be going up.
Now, whether that's enough of a change over
(21:18):
the next 12 years or 10 years is
kind of a personal decision.
Doesn't mean she has to stop working.
Also.
She could, as you alluded to, she could
stop her public service and not take her
pension.
Yeah, obviously her years of service wouldn't be
gaining and her highest three years wouldn't change,
(21:38):
but her age factor would, she could wait
until 65.
I was going with it that, you know,
say she wanted to, that's a good analogy,
you know, example or illustration.
It was 65, 70, whatever the number is.
Right.
Let's say 65, she delayed.
Right.
And no reason to, no reason to delay
past 65 for this situation.
(21:58):
Right.
You're right.
So, um, so let's say for example, you
know, she says, I want to stop working
in three years or whatever it is, instead
of waiting until 65 or, you know, that
kind of a number.
Well, okay.
Then you could stop working.
Whatever your years of services would be locked.
That number of years of service, say 23,
(22:21):
23.
And then she, she doesn't have to turn
it on at that age.
She couldn't wait.
And I think that was where she was
like, Oh, how does that factor in?
You know, that there's a different calculus at
that point.
It's a math, it's a math question.
Yeah.
So it's a, that becomes a, maybe you
wait a couple of years and when you,
when you're ready to turn on the income,
(22:41):
if you want it to, if they wanted
to start it right away, they can do
that, but they'd have their choice of those
aren't necessarily the same decision when you retire
and when you start the pension, aren't the
same, it don't have to be.
And the same is true with social security.
When you, when you, when you retire and
when you turn on social security, doesn't have
to be the same time.
(23:02):
That's right.
You know, the public pension, there is a
secondary level of question is where are you
getting your health insurance?
Because if she stops working, she'll lose her
employee benefit.
If she retires, you know, she, and she
was, well, if she gets a 60 retirement
is turning on the pension in that case.
Right, right.
(23:22):
But she could retire now or in three
years and still have the health benefit, even
though she's not 65, her health benefit would
change from the state when she is 65,
but you can't pause your retirement and could
get the health benefit is what I'm saying.
That's a great point.
That's a great, uh, that's additional consideration.
(23:44):
So in their case, uh, this family's case,
if they do it before 65, that might
be a relevant consideration to where they want
to draw their benefits from.
Yeah.
And the other question that's always in this
subject is survivor benefit.
In Massachusetts.
If you collect your full pension, it's on
(24:04):
your life only the employee's life.
If you leave your survivor, typically a spouse,
you'd lose, lose roughly a third round number
of your monthly benefit, but the pension would
survive you and go to a second life.
In other words, the death of the second
life, your spouse, and that's just a personal
(24:25):
decision based upon a lot of factors, age,
health, other pensions, other assets.
Well, that's the other topic I wanted to
bring up when coming into the topic of
pensions.
I had another scenario where we got, uh,
an inquiry from a client saying, you know,
we have this pension option.
It includes the possibility of a lump sum
(24:47):
as one possibility for private pension.
It is a private pension in this case.
Um, they also have, um, you know, this
decision of, well, what should we do when
it comes to the, the, the monthly income,
if they opt for that.
So they have, you know, this range of
(25:07):
possibilities to evaluate.
And, you know, I think this is a
tough one sometimes because, um, you know, on
the one hand there's an impulse to say,
well, I want that cash, you know, let's,
let's control this whole thing.
Uh, and then on the other hand, some
people say, I want to guarantee, you know,
(25:28):
I like the absolute.
I don't have to worry about it.
I know what I'm in for as long
as I live, both of us live, whatever
the way they choose it.
Right.
Right.
So, um, it becomes sort of, uh, a
challenge to say, well, how should we think
about this?
And life expectancy does certainly factor into how
(25:48):
you think about this.
Um, if you envision of a prolonged life
expectancy, that there really does help make the
case to, to suggest that maybe the absolutes,
the guarantees of, uh, the pension options might,
and maybe the, some, some manner of survivor
(26:09):
benefit, you know, would have virtue.
Um, another possibility would be, um, to think
in terms of, um, you know, if, if
you don't think there's a long life expectancy
involved, well, the idea of a larger lump
(26:31):
sum that you might have assets to retain,
to pass on as wealth, uh, that you
aren't worried about the risk of running out
of.
I think in this case, it also comes
down to what are the other assets involved?
Uh, how, how much do you spend?
Where's that money coming from?
Right.
If there's demand for resources, more resources, then,
(26:56):
you know, then the pension might be the
right way to go.
If, if you've got maybe more coming in
than you need, well, then a lump sum
sounds pretty appealing, you know, you can control
that a little bit more.
I don't know.
Anyway, I just thought that was another variable
talking about pension discussion.
I think that's the whole episode that, that
(27:18):
question of a private pension, lump sum on
your social security, all of these factors is
probably a whole episode.
Well, recent, uh, conversation we had, Chris was,
um, you were kind of comparing what is
(27:38):
the return you can get based on that
lump sum per year.
And it's like, can we beat that number
by having invested?
And if not, yeah, there, there used to
be circumstances, um, you know, 20, 25 years
ago, we'd, we'd sit down with people who
had a pension and, uh, the formula for
(27:59):
how they calculated the lump sum had to
do with interest rates and, you know, 25
years ago, interest rates had dropped from being,
you know, historically more normal to that zero
or very low interest rate environment.
And, um, suddenly these lump sums were fabulous,
(28:19):
you know, and you'd say, well, we can
make 4%, you know, whatever, you know, uh,
let's just take some risk, you know, that
kind of thing.
Uh, when I was doing this recently, what
was it like more like 8% that,
uh, they, you know, they'd have to be
able to consistently earn.
Well, if you're going to expect 8%, some
(28:41):
of that's coming off a principle in all
likelihood over a retirement, right.
The level of risk you'd be willing to
tolerate volatility that you'd expect, you know, there's
going to be down years and some of
that comes out of capital.
Right.
So, um, you know, it's less of an
absolute, you know, so that kind of thing.
So it becomes a question of, well, let's
(29:02):
take a look at what's that rate of
return.
Uh, how, how much can, how long could
we expect that to last?
Um, even, you know, with some market disruptions
and things like that, the way you'd be
invested, that sort of thing, what's the rate
of return we might anticipate from something like
that.
And then again, it's not an absolute.
(29:23):
It's, it's a, a calculated risk.
Right.
Um, so again, all these variables of how's
it fit into the whole becomes part of
that equation.
Uh, but yeah, Jeff, it probably should be
its own conversation.
And so there's a lot to evaluate.
There's the whole idea of, do I, um,
(29:46):
take the lump sum?
Do I take a pension with a single
life and buy some life insurance?
And that's, that's where I was going.
Yeah.
Yeah.
So replicate that, uh, potential for keeping.
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