Ep. 151 – Wine Down – 3 Questions on Investing In 2022

What are your burning questions about your retirement planning and the market volatility of 2022?

We’re experiencing a high inflation rate in 2022 as we try to recover from the 2020 pandemic damage and other factors. How does this situation affect your retirement portfolio? What should you do or not do?

In this episode of the Secure Your Retirement podcast, we answer 3 questions on investing in 2022. Listen in to learn why there’s a time to be invested and a time to be on the sidelines during market volatility periods like 2022.

In this episode, find out:

●     Why the current inflation rate shouldn’t affect your long-term retirement plan.

●     Why your retirement plan needs to be actively managed and run on average inflation rates.

●     A retirement plan shouldn’t change due to a good or bad inflation year.

●     Why market volatility shouldn’t be a reason to get your investment out of the market.

●     No demand and too much supply should encourage you to get your investment out of the market.

●     Get a professional to help you figure out when to get in or out of the market.

●     Why you have to be very careful when looking into bond investments right now.

●     How bond alternatives give your investment safety but limited liquidity.

Tweetable Quotes:

●     “We shouldn’t change the whole plan over a bad or good year when it comes to inflation.”– Radon Stancil

●     “As interest rates go up, it’s going to impact bonds negatively and we’re seeing that right now.”– Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the Full Transcript:

Radon Stancil:	Welcome to our March, 2022 Wine Down. That’s crazy. March 2022. We just went through time change. How’s time change affecting you, Morgan?
Morgan:	I love it.
Radon Stancil:	You love it? Seriously. Yeah. Somebody told me the other day that there’s actually a bill, and I thought they were lying, to actually invoke the time, what do we call it? Daylight Savings forever.
Murs Tariq:	Yeah. I saw that, too. I don’t know. I think it’s been going around for a while now and I don’t think it ever gets approved. The whole reason it’s been around is for farmers, but I don’t know if that even matters anymore or if the technology they have just says we don’t need to be moving the world around a couple times a year. I don’t know. We’ll see what happens.
Morgan:	Arizona doesn’t do it, right?
Radon Stancil:	Arizona and Hawaii both, but they’re on Standard Time. It’s against the law, against the whatever, constitution, whatever they’ve set up, you can’t stay on Daylight Savings. You have to stay on Standard. So they’re trying to say that everybody now would stay on Daylight Savings. So what we just sprung forward, we would never fall backwards.
Morgan:	I like that.
Radon Stancil:	Anyway. All right, guys, we’re going to talk today about some different topics, but before we do, it’s Wine Down. So Morgan is going to tell us what wine we’re drinking.
Morgan:	Today we are drinking another sampling from my trip to the Willamette Valley. This one is a Pinot Noir, which is one of Murs’ favorites.
Murs Tariq:	Yep.
Morgan:	And this was found from the Willamette Valley Vineyards. And that is in Salem, Oregon, which is nestled between Portland and Eugene. It was a really cool winery and some pretty fantastic views. And the wine is great.
Radon Stancil:	I think it’s great. So last Wine Down, we did five questions around retirement planning. So I really like that format. We thought it was great the way it came across. So today we’re going to do a little different topic. So Morgan, what’s our topic today?
Morgan:	Today we are going over three questions for investing in 2022 and-
Radon Stancil:	Oh yeah. Go ahead.
Morgan:	Sorry. They are how will inflation affect my retirement? Should I be invested when the market is uncertain? And three, are bonds a good investment right now? So who would like to start with number one?
Radon Stancil:	I think Murs is going to take number one. Repeat number one for us.
Murs Tariq:	Yeah, I can start off with number one for us.
Morgan:	Yes. How will inflation affect my retirement?
Murs Tariq:	This is a big question. And it’s a particularly heavy question right now because of what ’22 and 2021 has brought is some higher inflation years that we just haven’t seen in a very, very long time. We’re talking 7%, 8% inflation is what we’re running at right now and the whole reason is because of what we have done as a US economy to get out of the pandemic and support the economy. And a lot of money was printed and we knew that was going to result in inflation. And now we’re feeling that. So how is this going to affect your retirement? Well, when we’re doing retirement planning, we’re looking to plan out in the long term. So when you’re talking to someone that’s 60, they’re planning for the next 30 some odd years of their lives. And if we were to say that, well, inflation is running at almost 8% today, so we need to run at 8% for the next 30 years of my life, well, that would be a little bit of an overstatement or an over exaggeration as far as that number. Because if you take that 8% number and you compound that for the next 30 years on your expenses, all of a sudden there’s hardly any plan that can work when you’re running it at that high of an inflation rate.
	Quite honestly, inflation, where it is right now, although we’re feeling it in our pockets at the gas pump, at the grocery store, every single month the bills just feel like they’re going up, it doesn’t bother me so much right this moment. And the main reason is because in our world we get to go off of some historicals and look at averages and how things have played out over the last, call it at 100 years. And quite honestly, over the last 10 to 12 years, we’ve been a little bit spoiled in the sense that we have hardly had any inflation to deal with. Inflation’s been running at an average of around 1-1/2 to 1.7% over the last 10 years. So everything’s been pretty cheap. Rates have been very low. Now we have the threat of rates going up.
	And so when I say I’m not so worried about the sevens and eights in the short term, I say that because if you look at the last 100 year average, the average is actually 3.2%. But think about how averages work. Averages, you take a bunch of numbers, you add them all together and divide them. And so if we take some of these big numbers and small numbers and deflationary numbers, and it comes to this average of 3.2%, well, it’s something that hopefully will give someone relief that as you’re hearing this. But if we take some examples of 1979, inflation was 11.3%. 1980, inflation was 13-1/2. 1981, it was 10.3. ’74, it was 11%. So we have some very high, high numbers of inflation in those periods of time. And also in between those, it was running at 5, 6, 7, 8, 9. I’m just pointing out some of the higher numbers.
	We also had in 2009 a period of deflation. 2009 was not that far ago. And 2009, the year was a negative 0.4% of deflation. So when we’re talking about, again, planning out the next 30 some odd years of our lives, even though we’re living in it right this moment of higher inflation and we’re feeling it, it just doesn’t make sense to say that we need to run at 8% now for the next 30 years. Things are going to come back into the world of averages. That’s how averages work. We know right now that we could be seeing inflation for the next few years, a little bit higher than we’re used to, but it’s going to come back at some point and a retirement plan, if you’re running it at 3% or 3.2% is going to work out just fine.
	Now, if we run at the next 10, 15 years at 7% or 5% or 6%, well, then we would make adjustments. And that’s why we believe that a retirement financial plan is fully, actively managed. Every single year we want to make sure that we’re looking it and making sure that it’s still working. So that’s how we tackle inflation in retirement.
Radon Stancil:	Yeah. I had a client call the other day and they said, “Hey, I want to know, should I rerun my retirement plan because of higher inflation?” And she was worried. She said, “I’m about to pull the plug. I’m about to go into this idea of becoming retired and am I’m scared. Is this going to affect me?” And so we reasoned on it and I said, “Okay, do you think it would’ve been a good thing had we had, let’s say inflation this year at one, to say, hey, let’s only use 1% inflation.” She said, “No.” I said, “Well, that’s what we’ve had for the last while as we had years with only 1%. So what if we had negative inflation, would it safe to say that we’re going to run negative inflation for the next 20, 30 years?” She said, “No.” I said, “Okay. So we’ve got one year, really a half a year that we’ve had high inflation. Do you think now we should start running your inflation for the next 20, 30 years based on a half a year or even a year, maybe even two years?” And she said, “No.”
	So just that was that calming thing of we shouldn’t change the whole plan over a bad or good year when it comes to inflation. So I think what Murs was pointing out helps people calm down.
Morgan:	That is comforting information. Number two, should I be invested when the market is uncertain?
Radon Stancil:	Yeah, that’s a question we’re getting a lot right now is, is this the right time to be invested? Should we be invested? And the philosophy that we use when it comes to how we invest is there is a time to be invested and there’s a time not to be invested. No can you say that this right now is a time not to be invested? Well, it moves from one week, even sometimes one day to the other. I will tell you that 2022 has started off in a position where we came into the year volatile right from the very beginning. Then we had the Ukraine-Russia scenario. We had high inflation come about. All of those things have attributed to a higher market volatility.
	Now sometimes that market volatility is the reason to get back into the market, meaning if the market falls, it might be the perfect time to get back in at some point. So we’ve talked about it. If folks listen to Murs and I when we do our weekly updates, which we do every single week on our portfolio, when you get those, you’ll know if you’re listening to this at the beginning of March, we’re about 70% cash right now, even in our most aggressive portfolio. Why? Because the market had increased to a point of volatility that says we need to take a step out of the market. We did it back in March of 2020. In March of 2020, we went 100% cash as COVID was picking up. But now what we had to do is get back in, which we did in April of 2020, and ended up having a fantastic year.
	Think about it. The stock market in 2020 dropped 34%, but ended up almost 17%. We ended that year very, very positive, in fact, ahead of the market that year, 2020. And so you got to be able to deal with the ebbs and flows. So don’t look at market volatility and say that I should not be in the market, because that’s not the case. You should be out of the market though, if there is no demand or there’s too much supply, which is where we set at the beginning of March. But we have to be able to maneuver as things maneuver. So let’s say that things get under control and the market starts to go back up. Well, we have to get back in.
	And that’s what takes a lot of analysts to figure that out and be able to know how to at, so I would say this. If you believe like we believe, we think there’s a time to be invested. There’s a time to be on the sidelines. If you believe that, hey, I don’t care. I’m just going to stay invested no matter what, if my account drops 30%, 40%, I understand it. I’m okay with it. We just don’t attract people who say they’re okay with it. What we try to do is say, “Let’s get out if we need to get out to protect, but get back in when we need to get back in.” And yes, that takes a lot of work.
	So is it the right time to be invested in the markets? I’ll follow up with a certainty. Yes, you should be invested in market volatility as well as no, you should get out whenever it’s the right time to get out. You need a professional to figure that out.
Morgan:	All right. And then question number three. Are bonds a good investment right now?
Murs Tariq:	So bonds are very difficult right now. And I think every headline that you read about the bond market, we know that the bond market is in what we would call or classify as a bear market. It’s been struggling for not just this year, but it’s been struggling for a few years. And what do we? How do we handle this? Because in the simple way of portfolio construction, what you do is you buy stocks and you buy bonds. Why does anyone ever buy bonds? They buy bonds to reduce risk on the portfolio. Stocks are going to go all over the place. Bonds are supposed to be somewhat reliable to offset the stock risk, right? And so that’s where the concept of a 60/40 or an 80/20 or a 50/50 portfolio came about. And it was somewhat reliable.
	Now go to the world that we’re living in right now with inflation and the Fed raising interest rates. Well, as interest rates go up, it typically is going to impact bonds negatively. And we’re seeing that right now. So how do we do that? How do we manage the bond side of the world? And I can tell you, I looked at this number the other day. I was talking to a client and the snapshot was around from February to February. So this February of 2022 to February of 2021, just looking back. And we were having the same conversation. And I asked him, I was like, “Hey, do you have any idea as to what the AGG,” which is basically, we talk about the S&P on the stock equity side. We’re going to talk about the AGG on the bond side. That’s the big benchmark index for how bonds are performing. The AGG from February to February, 2021 to 2022, was down at that time, off the top of my head around 5%, 5-1/2%.
	So if I told you were in a very safe bond portfolio, and now how I also have to tell you’re down 5-1/2%, you would go crazy because that’s just not how they’re supposed to work, not how they’re supposed to operate. So are bonds a good investment right now? I think there’s a place for them, but we have to be very, very careful as to where we go, what type of duration we look at, and also have the ability to maneuver. So we don’t want to be locking into very long term positions as stuff like that on the bond market side.
	Now there are different things that we talk about as well, which is bond alternatives, which have been very, very favorable. And I’ll let Radon address that one.
Radon Stancil:	Yeah. The thing is, when you look at an investment, we always talk about there’s three elements of all investments. There’s risk, there’s liquidity, and then there’s safety. And what we tell folks is that you cannot have all three. So you cannot have an investment that is 100% safe and no risk. That’s just not going to happen. You’re going to have risk on some investments, as well as if I have it and I want to be liquid and I want to be safe, I’m going to be in something like a CD. I can’t do that. I don’t want to do that because I have no return. So what we’re trying to identify when we look at an investment is I want to get some return, I want to be liquid to some degree, and I want to be safe potentially in some areas. So what can we do that?
	So we do bonds. Typically that’s the mentality is to be a little bit safer. We want to be a little bit safer in our investments, but if our safe investment is losing even 1%, even a 1/2 a percent, it’s better to be in cash. So the bond alternatives that are out there give us the opportunity to be safe, meaning we’re going to have safety, a good rate of return, but we will not have a hundred percent liquidity.
	And so the idea though, is if you said, hey, half of my portfolio is invested in the stock market, let’s say, which means I’m going to get good return and I’ve got liquidity. That’s there. I’m going to get or at least I have potential of good return and I’ve got liquidity, if the other half of my portfolio, just for simple reasoning here, was going to get good return, decent return, and have no risk to it, to the downside, but I had limited liquidity, would that be interesting? And meaning, let’s say I could get 10%, 7% a year out of that investment for a period of time. It’s just for a period of time. And after a few years, it’s a hundred percent liquid, but I’m going to average 3% to 4%, maybe in that range, which is better than the bond world. And I equal that out. I use that in order to do the offset risk of my portfolio, does that make sense? 99% of our clients say absolutely.
	And so I’m just going to say it this way because Murs and I are going to do a whole entire podcast on bonds versus bond alternatives. And we’re going to go into a lot of detail. That’ll be out next month in April. But what I want you to know is that there are solutions. So if you’re listening to this and you’re thinking to yourself, man, I’d like to know how that works, we encourage you go to our website, which is pomwealth.net. Go to the top right hand corner. You’ll see a little bracket there that says 15 minute complementary phone conversation, bring your questions. Murs and I will be glad to hop on the phone with you and answer those questions. It is a no obligation. We’re not trying to sell anything. We’ll just here to educate you on how it works. If you like it, you like it. And if you don’t, you don’t.
	And so that’s what our objective is, is to make you understand exactly what’s out there. But I want to say, thank you, Murs, thank you, Morgan. It was a great Wine Down, great wine, great questions. We look forward to talking to you again at our next Wine Down for April.