Market volatility in normal but the key to mitigating that volatility is properly managing your portfolio and in this episode, host Jon Heischman, Senior discusses portfolio management in a volatile market environment.
Call Jon at (888) 426-0177 with questions, comments or to get a free copy of Top 10 IRA Mistakes and How to Avoid Tax Traps. Visit www.heischmanfs.com/ for additional information.
Episode Transcript
People really don't know what their expenses will because they
don't know how long that they're going to live. The
Americans are worried they won't have enough safe for retirement.
Speaker 2 (00:09):
Now more than ever, retirement's going to cost for many
folks over a million dollars.
Speaker 3 (00:14):
He is no short thing in investing, but a lot
of people think that annuities may come close to that.
Speaker 4 (00:19):
It's going to more safe, safe, safe, safe things that
they know.
Speaker 3 (00:22):
If they know they're going to need that money to
supplement the retirement, well then you can't play that rest.
Speaker 4 (00:27):
This is the Safe Money and Retirement Show. But John
Heischman Senior, Founder and partner of Heisman Financial Services serving
the Columbus and surrounding areas. John specializes in educating pre
retirees and retirees about safe money strategies and ideas. Now
it's the Safe Money and Retirement Show. Here's John Heischman, Senior.
Speaker 2 (00:48):
Welcome to the Safe Money and Retirement Show. I'm your host,
John Heischmann. Before I get started with my discussion of
investing in a volatile market, I want to give you
my contact information so you can request additional material that
(01:14):
I discuss questions and concerns about your retirement planning. My
direct office number is six one four eight six one
seven zero five to five and eight eight eight four
two six zero one seven seven and that number is
(01:38):
available twenty four seven where you can leave your message.
In past shows, you've heard me talk about guaranteed lifetime income,
which should be a part of your retirement plan. There
is a new video which you can watch at your
(02:01):
convenience by going to income dot Heishman f S dot com,
h E I S C h M A n f
S dot com. So again income dot Heishman f S
(02:24):
dot com. I always welcome your feedback, suggestions and if
there's a topic you would like for me to present
on my show, let me know because I do get
requests from my listeners requesting different topics. And as a
(02:48):
matter of fact, what I'm going to start the show
out with, investing in a volatile market was requested from
a listener several weeks ago. In a volatile market, it
requires careful strategy, discipline, and long term perspective. It's important
(03:12):
to understand the causes of volatility, using effective risk management
techniques and avoiding common pitfalls that you can navigate turbulent
markets and work towards achieving your financial goals. While volatility
(03:34):
presents challenges, it also offers opportunities for those prepared to
manage it wisely and of course, with the help of
a good money manager advisor that can make sure your
investments are positioned correctly based on your age, how close
(04:00):
you are to retirement or if you're in retirement very important,
So let's look at understanding market volatility. Volatility can stem
from various sources such as economic indicators, geopolitical tensions, changes
(04:24):
in interest rates which we've recently seen, and unexpected global events.
So recognizing these factors can help you anticipate potential market
movements instead of the crisis mode. That's not good for anyone,
(04:47):
but I think it's crucial to remember that periods of
volatility they often result in market inefficiencies, creating unique opportunity
unities for those willing to remain patient. Crafting a sound
(05:08):
strategy very important because investment tools that you and your
trusted advisor can use to develop a strategy for volatile
markets such as diversification. Here, investments are spread across different
(05:30):
asset classes such as equities, fixed income, real estate, and
alternative investments, you can mitigate the impact of market downturns
on your portfolio. Each asset class reacts differently to market shifts,
(05:52):
smoothing out returns over time. What about asset allocation here
alignment with long term strategies. Maintaining a disciplined asset allocation
has to be tailored to your risk tolerance, risk capacity,
(06:16):
and financial goals and objectives. It's so important to regularly
review possible rebalance your portfolio with your advisor.
Speaker 4 (06:29):
Now.
Speaker 2 (06:30):
This can ensure that you stay aligned with your investment
objectives while at the same time capitalizing on market fluctuations.
Another situation that we see is emotional resilience. Here, volatile
(06:51):
markets can evoke emotional responses and possibly leading to bad decisions.
We want to set pre determined guidelines for buying and
selling and this can help you stick to your strategy
during those turbulent times. And a good technique is effective
(07:17):
risk management, where your trusted advisor may recommend investing in
quality assets. So here we're going to focus on high
quality investments, solid fundamentals, consistent cash flow, and resilient business models.
(07:42):
This can offer stability during turbulent periods. These values are
less likely to be affected by market fluctuations, allowing them
to provide a reliable return even in challenging conditions. Another
(08:04):
idea would be options and hedging strategies. Here by employing options,
this may provide an effective means of hedging against market downturns.
Strategies such as protective puts can help shield your portfolio
(08:27):
during times of high volatility, while at the same time
preserving your investment in the long term. In volatile markets,
typically high net worth investors may be caught up in
common traps, such as overreaching to short term markets movements
(08:52):
or chasing fleeting trends. Commitment to a well defined investment
plan and focusing on long term objectives is paramount. Also,
seeking guidance from financial professionals that have the expertise in
(09:15):
navigating volatility can provide strategic insights and mitigate risk. So remember,
diversification cannot eliminate the risk of investment losses. Past performance
(09:35):
won't guarantee future results, and investing in stocks or mutual
funds could result in loss of principle. So I thought
it would be important to touch on some of these
fundamentals in investing, and I can't stress enough the importance
(09:58):
of having your portfolio reviewed as often as you feel
that it's necessary, so you have peace of mind and
don't have to worry about market volatility. And many older
investors will get to a point where they want to
(10:23):
eliminate or reduce risk, and I refer that to the
preservation mode. You've built your wealth, and then preservation of
that wealth becomes a priority. If you're one of those
investors who don't have an advisor and you have to
(10:46):
call a one eight hundred number to talk to somebody
in corporate or a home office, you should seek help
from an advisor, or maybe you want a second opinion.
So Heischman Financial welcomes the opportunity to review your portfolio
(11:08):
and help you determine where you're at as far as
risk A day eight four two six zero one seven
seven again triple eight four two six zero one seventy seven.
Right now, I'm going to take a short break, so
(11:31):
if you could stay tuned, I'll be right back for
the second part of the Safe Money in Retirement Show.
Speaker 3 (11:41):
Thanks for listening to The Safe Money and Retirement Show
with John Heisman. For more information, call one eight eight
eight four two six zero one seventy seven. That's one
eight eight eight four two six zero one seven seven
or visit their website at HEISCHMANFS dot com. More of
the Safe Money and Retirement Show in a moment. Thanks
(12:08):
for listening to The Safe Money and Retirement Show with
John Heisman at Heisman Financial Services. No one is excluded
from receiving the help they need. Here's John Heischman.
Speaker 1 (12:19):
We don't care if you have fifty thousand, say for retirement,
or five million. We have no cutoff. As a matter
of fact, personally, I feel those that have let's say
under two hundred and fifty thousand, or even under one
hundred and fifty thousand in many ways need more planning
(12:42):
advice than somebody that has considerable assets available to them
at retirement. So whatever the case may be, we're willing
to work with you and give your accounts the exact
same attention as if you had five million.
Speaker 3 (13:04):
Call John Heischman at Heischman Financial Services one eight eight
eight or two six zero one seven seven that's one
triple eight four two six zero one seven seven, or
visit their website at HEISCHMANFS dot com. Welcome back to
the Safe Money and Retirement Show. With John Heischman. To
(13:27):
contact John, the number to call is one eight eight
eight or two six zero one seven seven. That's one
eight eight eight or two six zero one seven seven.
Once again, here's John Heischman.
Speaker 2 (13:39):
Welcome back to the Safe Money and Retirement Show. As
a follow up to my discussion prior to the break,
I want to turn to the principles of portfolio management,
in particular diversification and risk management. So we find there
(14:04):
are basically two forms of risk. One can be diversified away,
the other cannot. And the first kind of systematic risk
the risk within the system in which a particular asset
(14:25):
is associated and over which it has no control and
therefore cannot be diversified away. Examples of systematic risk would
be purchasing power risk, reinvestment risk, interest rate risk, market risk,
(14:49):
exchange rate risk. I don't expect you to remember these risks.
I merely pointing out the exposure, and so many are
not aware of all these different things that go into investing.
(15:12):
So what about purchasing power risk. Well, very simply, it's
also known as inflation. This is going to eat away
at an individual's ability to purchase goods and services. An
investment earning five percent during a time when inflation is
(15:36):
let's say four percent, offers a real pre tax return
of only one percent. The reinvestment risk it's also called
reinvestment rate risk, and this is the market interest rates
(16:02):
may have been decreased at the time payments from an
investment are received. So when that occurs, an investor is
forced to reinvest his or her payment amount at a
time when rates are lower than they may have been previously,
(16:27):
and we need to pay attention to this. When income
is needed in retirement, it could fluctuate their income, and
those who need a fixed amount of income should pay
special attention to this risk. Let's say an investor is
(16:49):
getting five percent on their bonds or CDs and now
must reinvest that money at three per the interest, income
is going to be less than before the reinvestment. And
again keep in mind, the bottom line concern in retirement
(17:15):
planning is to do everything possible to prevent fluctuating income. Now,
if your income goes up, that's a good thing, but
these risks that I'm referring to could cause the income
to decrease. We do not want that in retirement. So
(17:37):
very simply we establish your income from those sources that
are going to provide a retiree with guaranteed income. Then
we come back and invest generate income from those investments,
and if they fluctuate, it's not going to have the
(18:00):
effect if your guaranteed income sources are established compared to
those that don't, and they're going to rely one hundred
percent on an investment portfolio. And you can say, John,
I've heard you talk about that on previous shows many times,
and you will on future shows, because it's that important
(18:25):
to establish those guaranteed sources of income. And I'd like
for you to contact me about those guaranteed sources of
income and maybe and hopefully you've already looked into them,
and if so, you're to be commended, but if not,
(18:45):
you need to be educated about that. Eight eight eight
four two six zero one seven seven. That number again
is triple eight four to two six zero one seventy seven.
Going back to the risk, how about interest rate risk
(19:08):
caused by fluctuations in the general level of interest rates.
As interest rates rise, the prices of outstanding bonds fall,
and often stocks fall as well. If interest rates would
(19:28):
rise considerably, and of course lately there's been a lot
of talk about real estate, and real estate values also
can suffer as rising interest rates increase the cost of
borrowing fixed interest securities. Bonds preferred stocks are especially sensitive
(19:53):
to changes in interest rates because their prices fluctuate with
interest rate changes. Therefore, when interest rates go up, the
prices of bonds and preferred stocks go down. Another risk
that needs to be addressed is market risk, and this
(20:17):
risk is probably the most apparent, which is systematic risks
and stems from factors independent of any particular security. Investment
markets fluctuate, All markets go through cycles, and market risk
(20:38):
involves being on the downside of the cycle. And there
are other risk involved, but I just wanted to touch
on several to give you an idea. There's more to
an investment portfolio than just having stocks and bonds. Earlier,
(21:00):
I talked about diversification, and I think it's important to
understand that every individual investor has some type of risk,
and due to their unique characteristics, different investments respond in
a different way to fundamental factors. And I think we
(21:24):
all know in any given year, stocks may be up
while bonds may be down, or vice versa. Companies can
succeed or fail on the basis of their products, competitiveness
(21:44):
and management, and unfortunately the outcomes that I described are
difficult impossible to predict. Risk can be mitigated through diversification.
I can't stress how important that is. So if we
(22:07):
define diversification, it is the act of acquiring assets that
have different risk return characteristics, so the returns of these
assets do not march in lockstep with each other. Interesting definition,
(22:28):
isn't it so As a cardinal rule of diversification, never
put so much money in one specific investment. If the
investment implodes, the investors lifestyle will change. And of course
(22:48):
many will take on this risk because their risk money
is not dependent for their future retirement income. There is
the potential for risk or losing money in the market,
but there's also a big potential to make the big returns,
(23:14):
as many people have done. But again I can't stress enough.
Typically these people are in situations where their income is
already established. And I like that philosophy, and we practice
that philosophy I've seen at work. One very important point
(23:38):
in diversification is the importance of what we call time
horizons in asset allocation. And I'll give you a short example.
If an investor is in retirement and needs to fund
their retirement for let's say the first three to five years.
(24:03):
That goal would require an asset that will fluctuate little,
if at all, in price to ensure meeting that goal. Now,
on the other hand, let's take a twenty five year
old who is investing for retirement, could invest in both
(24:26):
because as we know, there is a lot of time
before that individual's retirement. Each person is different and they're
in different stages of retirement as far as investing, so
it's critical to take risk tolerance and risk capacity into consideration. Again,
(24:54):
I want to stress that the investor doesn't need to
be really concerned about this if they're diversified and their
investment manager is taking care of them from a diversification standpoint.
(25:14):
Over the last year, we have reviewed many investment plans,
mostly to update and educate for those getting ready to
retire or in retirement, and we'd be happy to take
a look at your plan. The second opinion, or, as
(25:35):
I mentioned earlier, maybe your investment portfolio is not tied
to an advisor. That is a great time to have
it reviewed. Here's the number again, eight eight eight four
to two six zero one seven seven, triple eight four
to six zero one seventy seven, or you can call
(26:00):
my office direct six one four eight six one seven
zero five to five. I hope you enjoyed today's show.
Continued to tune in next week at the same time
and same station. This is your host, John Heischmann.
Speaker 4 (26:21):
The Safe Money and Retirement Joe John Heisman Senior. To
get in touch with John, call one AA eight four
two six zero one seven seven. That's one triple eight
four two six zero one seven seven. For more information
about Heischman Financial Services, visit their website Heisman FS dot com.
(26:42):
That's h E I S C h M A n
f S dot com. Join us again next time for
the Safe Money and Retirement Joe with John Heisman Senior
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