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6 Ways to Help You Weather Market Volatility
June 23, 2020 at 7:00 AM
6 Ways to Help You Weather Market Volatility

1. Check up on your portfolio and if appropriate, consider your allocation.

Many advisors have espoused a 60/40 mix of stocks and bonds in your retirement portfolio. But this ratio of stocks to bonds may not be the best thing for you in this market environment.

The prices of bonds typically drop when interest rates rise. In a zero-interest-rate environment, rates can't go anywhere but up.

Stocks, on the other hand, have clearly fallen from their peaks at the beginning of the year. They have recovered to some extent.

However, a large percentage of investors here in San Diego are still waiting for their stock portfolios to reach their previous levels. But they may be waiting a long time.

2. Avoid rush decisions to move too much money into lower-risk assets.

Snap decisions to make a major 'flight to safety' can also be self-deating. After all, you are liquidating the losses and will be left holding the bag.

The markets have had their ups-and-downs for decades. They are going to weather this storm, too.

But it could take some time for the markets to reach their previous highs again. Even then, moving a large portion of your retirement assets into low-paying guaranteed instruments probably isn't a good idea.

Here at Wealth Preservation in Del Mar, we can help you work through this and other crucial questions.

3. If appropriate, think about having some money in asset-protecting instruments.

On the other hand, this doesn't mean a complete "no" to such choices. By holding a portion of your money in fixed annuities or other instruments, you can set yourself up to retire comfortably later.

Fixed index annuities may be another option. After all, they can earn more interest than plain-vanilla fixed annuities, bonds, and CDs.

There is also the guaranteed income to consider. Nowadays, you can opt for annuities that pay guaranteed lifetime income, regardless of what the markets do.

We are here in San Diego County and we can go over the competitive products available today. Annuities have a key advantage over stocks and bonds because they have a life expectancy factor built into them.

Life insurance carriers can usually pay more income from an annuity than you can get from bonds. Why?

Because they can spread out their risk over thousands of policy owners. They can also pay you a higher rate of growth for a longer period of time.

How much more money might you spend in a portfolio with no annuity -- versus a portfolio with one? In many cases, you may need at least 20% more money in a portfolio with a 60/40 mix of stocks and bonds than you would need in an annuity.

That would give you a comparable level of income to the lifetime annuity payments.

4. If the future tax savings make sense, look at a Roth IRA conversion.

This might be an option for those with a traditional IRA or an employer retirement plan account. It can provide a couple of key benefits.

If you aren't working now, then a Roth IRA conversion could be a good idea. Advisors might look at this especially if the value of your traditional retirement accounts has dropped considerably.

Here is another benefit that a Roth conversion could have. The taxable income that comes from the conversion transaction could be netted against tax credits that you may be eligible for, such as the Child Tax Credit or educational tax credits.

Of course, you may have to pay some of the tax of your retirement account balance. However, it still beats paying taxes on a higher account balance and not being able to net any of the taxation against your tax credits.

Not only that, it can also help lower your future tax burden on your Social Security benefits and other retirement income.

5. If already retired, think about having a certain amount of income already in cash.

That way your income won't be affected by the volatility. For example, some advisors recommend keeping a year or two's worth of income in cash holdings in your account.

Several types of cash instruments are low risk and offer liquidity. Those options include money market mutual funds and bank savings accounts.

Just be sure not to put too much of your assets into cash. Cash instruments are paying very little right now. A short-term bond or CD ladder can at least provide you with a modicum of interest while systematically moving back into cash.

We can help you navigate your options.

6. Take advantage of unique times to let your money recover.

As a retiree, you have one opportunity now with the "pause" on RMDs due to the pandemic. If you absolutely need that income, consider alternative sources such as a reverse mortgage.

This type of mortgage pays you a regular stream of payments drawn from the equity in your home. It can help you to stay afloat for the time being and replenish your retirement portfolio in the future.

Another option? You may consider a longevity retirement policy, or a QLAC annuity. This type of policy offers a high payout once you reach old age, such as age 85.

Once you begin taking RMDs again, you can use the income from your reverse mortgage to contribute to your retirement savings and take advantage of lower stock prices. 

Contact Wealth Preservation now to learn more!