Financial advisors routinely need to address the concerns of their clients as they try to make sense of the latest economic news. Some of the news is important. However, much of what we hear about the markets through the media is speculation fueled by financial punditry. Are we headed for a recession? Will the Federal Reserve cut (or raise) interest rates? Is Social Security in jeopardy?
Filtering out the noise, the bottom-line question I hear most among retirees and pre-retirees is “Am I at risk of outliving my money?” This is a concern that is certainly valid: Nobody wants to face a cataclysmic wipeout similar to 2008 or 2000 as they transition into retirement. Vigilance is warranted. Panic due to short-term gyrations of the market usually isn’t.
When volatility spikes, the trade war escalates and domestic politics is at a fever pitch, I like to go to a calm place and review what’s important, namely the core planning principles to which we are adhering. With an advisor, clients don’t face their finances and fears alone.
When clients are concerned about outliving their money, I conduct a behavioral exercise. We discuss:
It was widely covered in financial news recently when the 2- and 10-year yield curve inverted. A few clients called asking if this was time to worry. I reminded them that this inversion was temporary thus far and shared that the U.S. economy has historically had a lag time between a sustained yield curve inversion and a recession. I further noted that the U.S. stock market indexes are up roughly 18.5% on the year. We were experiencing a normal pullback in equities and revisited their current portfolio allocation to confirm appropriate positioning.
If volatile market conditions are causing clients concern about outliving their money, I have them complete a risk tolerance questionnaire between annual reviews. For married couples, I have them complete it independently of one another and tell them “no cheating!” as I want each person’s genuine answers without spousal influence. If the questionnaire unearths a material change in their risk tolerance, we discuss portfolio reallocation, but I make sure to differentiate between short-term market jitters and true changes in investment objectives.