What is happening in the market? Are we approaching a recession? Many experts seem to think so.

Follow along as David Reyes, The Retirement Architect discusses the current state of the market, and strategies to protect your assets during this unsteady time.

All of our Second Opinion Meetings are free and we are a fiduciary, which means we are not here to sell any products. Rather, we guide you through the process to creating a plan that will have you covered in and throughout retirement. Come to one of our workshops found on the Events page. Or call our office for more information (858) 597-1966

 

Well get ready for the ‘R’ word I call it. It’s a bad word. It is recession. And you’re probably not hearing many pundits, or many people, on your favorite stations like CNBC, or any type of business news, because most of the people on those shows are selling stock. The continuable market.

Thanks for being here. I want to talk to today again recessions. I want you to be ahead of the curve. I don’t want you behind curve because if you are, that can be disaster for your portfolio and for your retirement.

So recession. Why am I concerned about recessions? Well, a couple things. First off, we’re now 10 years into a bull market, which technically we’re not anymore. We’ve had a 20% correction from the highs in the NASDAQ and the S&P, which is officially was called a bear market.

People say, “What’s a bear market? What’s a bull market?” And a bull market is when the market is going up. And a bear market is when the market is going down. And, officially, a bear market is when the market has gone from a top to bottom a minimum of 20%. Now, that’s arbitrary. I have different ways I look at when we’re in a negative market and when the market has shifted. It’s not an absolute number because that would be ridiculous. That’s just kind a rule of thumb.

I think we’ve been in a bear market for about 3-6 months in a minimum now. October is when we had the high market going into December. It was down about 20%. And now we’ve recovered about half that loss. And the problem is when you have a market that shifted like it has right now, in my opinion and a lot of people a lot smarter than me opinion, is that these rally’s you have – they are called bear market rallies – they are vicious. And they fool people into thinking the market is okay. It’s okay to get back into the water.

So when you have like a 20% decline, you have a 10% move – 10-12% move – in six weeks – You have like Netflix fall 30% and be up 30% in a six-week period. I mean there has been a lot of stock that has done that. And if you own those stocks, you are still underwater. Significantly underwater. Because if you’re down 50%, let’s say in the stock some of you own, stocks that have done this, you have to get a 100% to get back to even. So if you get 50% gain in your – You say, “I lost 50% and now I made 50%. I’m back to even.” No. Half of 100 is 50 and 50% of 50 is $25, or now a total of $75. So you’re still 25% underwater.

Think about that for a minute. If you own a stock, it goes down 50%, you make 50% back, you’re 25% down. Really. So people don’t realize that the math. That’s why you want to avoid catastrophic losses. If you own securities, if your portfolio is predominantly stocks, or the volatility is too much for you, now is the perfect time to reallocate the portfolio. Because you’ve had a gift – what I call it – that the market has now recovered about 10-12% from the bottom. So it’s not a time to get all excited. It is time to take advantage of a reallocation, or re-balancing a portfolio.

So again why do I think we’re in a recession, or we’re going to be in a recession sooner than later? #1 is interest rates. The interest rates are the driver of economic growth and contraction of economies. So the Federal Reserve has raised rates several times going from July of 2016, where we had basically zero interest rate policy. Now, today, we have about 2-1/2% Federal Funds rates. So what that means in English is the fact that rates have risen and what happens is rate increases the price of mortgages, auto loans, consumer loans, corporate debt. All these things are head winds and the biggest headwinds for stocks and consumers. So that’s the biggest tell. So that’s a big issue.

Of course, you have China, which is a problem. The tariffs. More important, China has been slowing. China’s stock market is down over 30-35% from its highs. So that market has been crashing for almost a year now. Forget about tariffs. Then you have the German DAX was down 20-30%. Europe is slowing. I just read a report from the IMF, which is International Monetary Fund, and they’re basically saying that we are going to have slow growth across the world, which we are. And it’s something that I’ve been talking about for a while.

So interest rates is a big one. Corporate earnings are another one. The corporate earnings peaked at about 2018 in the second quarter. Now most prognosticators said for 4th quarter of 2018, you were talking about 6, 8% growth in earnings. And now, we are talking about 1-2% going into next year. Anytime you have earnings kind of roll over like they are, it’s another tell.

So all these things, I could go on and on and on. Goldman Sachs just came out with a report about a month ago, and they were saying it’s about a 50% probability of a recession in the next 6-12 months.

So if you want to learn how to avoid these types of these situations, and avoid these times that when we are in markets where it’s difficult to navigate, if you want to get a second opinion from me and review your portfolio, look at what you have, I look at ways to migate risk. I look at ways to make sure you’re paying the least amount of taxes possible, make sure you have an income plan. We do all this for our clients. We do it for prospective clients, as well.

So if you would like to sit down with me personally call my office at (858) 597-1966 and I would be more than happy to sit down with you.

So what happens typically is the markets will roll over, or fall, usually about 6-12 months they will peak before a recession. I think we have already hit that. Let’s say October was the month because that was the top of the market before it went down 20%. You’re looking at now March to let’s just say the end of the year. Sometime in 2019 there is a high probability of a recession. I know that doesn’t sound realistic because of what is happening with the economy, with unemployment, that is what I believe is going to happen, based upon experience and just people that I rely on, that I follow that are again a lot smarter than I am, but want to make sure that you are protected.

So how do we recession-proof our portfolio? How do we make sure that we’re not affected? I mean a lot of you I met with during the 4th quarter of 2018, I tell you, people’s portfolio got devastated. I met with clients I talked about in some other shows that were moving money from another firm to our firm. So that money in transit – I had a client that had about $2 million coming over and they lost about $300,000 just in the transfer. That is how fast this stuff happens.

There is an old saying in markets, “Markets go up like a stair step, and they fall down like an elevator.” So it’s hard. If you’re not prepared for this, you can get really beat up. In October, the 4th quarter was a perfect example. The market from top to bottom dropped 20% in basically less than three months.

So if you’re on the wrong side of that and you’re too aggressive with your portfolio, you’re really going to get hurt by that. And meeting with you, I will tell you most of you have way, way more risk than think than you do. Typically, when I do an analysis of your portfolio, I would say the average person out there, the average person listening to me right now, would lose about 30% in a 2008 type financial crisis, or recession. And you just have no idea.

There was a study that I read just the other day, which I think was generous, said 1 in 5 retirees have no idea what they own. I’ll tell you it’s probably 90% of you don’t really understand what you own, and don’t understand the risk that is associated with what you own.

So, again, part of what we do on our second opinion – First thing I do is look at your risk. And most of you, again, you’re talking about 30% max losses during severe bear markets, or severe recessions. And we’re quite due for one. Second thing we do is we’re going to do a fee analysis. Most of you are over paying in fees. Typically, including mutual funds cost and adviser fees and all that, you’re looking at an average cost of about 3-1/2%. Put that in perspective on a million dollar portfolio, that’s $35,000 a year. So we are going to do the fee analysis, we are also going to do a complimentary retirement income projections for you to help you make sure you never run out of money in retirement. We are also going to do a written plan. We will do all that complimentary for you as a second opinion. You don’t have to hire us. We will do that for you.

People say, “Why would you do that?” The time we spend is about 10 hours between planning appointments, but I found over time, if you’re willing to go through this process with me, there is a high probability you will hire us. And if you don’t, that’s okay.

So if you want to take advantage of our free complimentary second opinion, again no cost, very, very thorough, give me a call at (858) 597-1966

This segment I wanted to talk to you more about how to protect your portfolio, so what we’re going to do, hang on. I’m going to discuss with you how to recession-proof your portfolio to ensure this type of volatility enough to worry about. I don’t get one phone call. When the market dropped 20%, I got no phone calls. Zero, none. Because the fact if you have a proper plan and then you’re comfortable with what you have – you can see your statements, too, it’s pretty simple – you’re not going to freak out. So I don’t want you to panic.