Ep. 181 – How to Invest in a Volatile Market in Retirement

What do you do in an extended market downside as opposed to a short one? How do you invest in a downturn market? The closer we are to retirement, the more nervous a downside market affects us.

All year 2022, the market has been volatile, and the recovery is not as quick as we experienced during the 2020 pandemic. What we’re looking for now are investments that are low risks, not correlated to the stock market, and do well in rising interest rate markets.

In this episode of the Secure Your Retirement podcast, we talk about the current market volatility and how to invest. Listen in to learn about the fund designed to protect your investment and the other one that does better in a high-interest rate market.

In this episode, find out:

●     Why a downside market creates a lot of anxiety the closer you get to retirement.

●     The difference between a quick market downturn and an extended market downturn.

●     The factors contributing to the high inflation rate and the market downturn in 2022.

●     Comparing the 2022 inflationary crisis to the financial crisis of 2008.

●     The mutual fund is designed to protect your principal and provide interest payments.

●     Why we might utilize a fund that does better in high-interest rate and volatile markets.

Tweetable Quotes:

●     “The closer we are to retirement, the more nervous a downside market affects us.”– Radon Stancil

●     “The idea of using bonds to de-risk your portfolio and reduce volatility to hedge yourself has not worked at all in 2022.”– Murs Tariq


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 everyone to our Secure Your Retirement podcast. We are going to be talking to you today about something that has been on your radar, your mind, your thought process all year long. And that is volatile markets, in particularly a market that’s going down or sideways. And that’s what we’ve had going on this entire year. And it really comes down to this particular scenario.  
 Murs and I, we work with individuals that are close to or already in retirement. So the closer you are to retirement, the more nervous a downside market affects us. When the market’s going down, it creates more anxiety than if I were still working and funding my retirement plan. Or if I’m really close, even though I’m still funding, I go, “Man, I got to make it there.” So these down markets can make it very, very, very difficult. It can create a lot of anxiety, it can keep a lot of us up all night.  
 So how do we deal with it? What do we do with it? Well, Murs, and that’s what we talk about all the time. We talk about how to have what in all essence is called a sell side discipline. And we’re going to go into a little bit of that. But then what do you do if you’re in an extended downside? You’re in an extended downturn in the markets.  
 One thing, and we’ll recap this for you, for markets that are down for just a little bit, and then they go back up really fast. We’ve had that happen a few times in the last decade. And then we’ve had these extended downturns, kind of like you might think of a 2000, 2001, 2002 or a 2008, which was an 18 month downturn from a top to a bottom. And here we set in one now, and we’ll recap that for you.  
 What do you do in those compared to when you have the short downturn? So I thought what would be nice, we’re going to talk about, by the way, how do we invest in a downturn market? We’re going to go through that. We’re going to give you some things of what we’re doing. We’re going to just open up and say, “Hey, here’s what we’re doing. Here’s how we’re doing this for our clients.”  
 But then I also want to give you some perspective. So I think what we’ll do is I’ll give you the real quick glimpse of a quick downturn, and it was one of the most recent, which is March, 2020. March, 2020, the market fell 34% from top to bottom for the year, but it then came roaring back, and by the end of the year it was up 17% positive.  
 So that was a very quick, fast falling market and a very fast recovery. So fast that many people said, “Eh, the pandemic downturn wasn’t even that bad.” The pandemic was bad. Sitting at home for two years was bad, but the downturn in the market really wasn’t that bad. It actually created a lot of opportunity. That’s the way it felt. We almost forgot about the 34% drop. This is different. And it’s not even a 34% drop. So Murs, can you kind of take us through 2022 as a comparative to a quick downturn, quick recovery?  
Murs Tariq:Yeah. And that 2020 story, that was a, what is this thing called the pandemic? What’s Coronavirus? So it was a fire sale in the stock markets, that’s how it dropped so quickly. And then the government had to step in and print some money and keep people on their feet. And that’s where the recovery came back so quickly. Now, here in 2022, we’re dealing with some of the repercussions of that, which has been very focused around inflation and what the Fed is doing.  
 This whole year has really been full of volatility, and it’s been negative the entire year. I think the first day, the first trading day of 2022 was the only day that the markets went positive for this year and then it’s just been falling since. And somewhere in the middle of the year, around June, the indexes hit their lows. S&P 500 was down around 23, 23 and a half percent at its low.  
 And then they rallied and recovered and got to a point where they were down 10% and everyone thought that the bottom was in. And now here we sit as of this recording, the markets have retested those lows and also passed those lows sitting at the S&P, as of this recording is down a little bit over 24%. The NASDAQ’s down around 30%, 31%.  
 And also, it’s not just equity markets that have been affected. We’ve been saying this all year. The bond market has been in relatively, in a worse scenario. The bond market has just been getting crumbled because of this rising interest rate environment that we’re in the ag, the aggregate bond index. So kind of like the S&P 500 of the bond world as of this recording is down somewhere around 16%.  
 And so the idea of using bonds to de-risk your portfolio and reduce volatility to hedge yourself with bonds has not worked at all this year in 2022. It’s been a very choppy market, very volatile. And a lot of it, again, is because around the idea of combating inflation and the Fed saying that they’re going to be very strong and that idea of we got to raise interest rates and people are going to suffer, but we got to get this under control sooner rather than later.  
 And then on top of that, there’s a war overseas in Ukraine that’s been going a lot longer than I think people expected. And that’s had issues on a very massive scale with oil and gas prices and everything like that. So the markets in general, from a US perspective but also just a global economic, has been really rattled this year.  
 And so the question becomes, how do we do this? We’re sitting 10 months into the year and there hasn’t been a positive piece of anything to work with. How do we navigate prolonged down market or even a market that a lot of, the term that’s being phrased is that we’re in a trading ban or we’re going sideways for a period of time until there’s resolution. How do we navigate those types of markets?  
Radon Stancil:Yeah, but from our perspective, just to let you know as from our perspective as individuals that are out looking for investments, we’ve not really had to deal with this market since 2008, this type of market. The other markets, if you take a 2015, a 2011 that had significant selloffs in the August timeframe of the year, those two years. And then a March, 2020 significant selloff, very quick selloff, you just move to the sidelines. You sit in a money market, you wait for a few couple weeks at the most, and then you get right back in the markets or you shift to bonds.  
 Relatively easy type navigations. 2008, difficult period but we had had time there. We had an 18 month time horizon, and once it was kind of like, “Oh, this is going to be a longer term thing,” we were able to figure out how to navigate that. What’s different in this particular market that we didn’t have in an ’08 scenario is we are in an rising interest rate, inflationary period. And in 2008, it was the exact opposite.  
 Rates were being dropped and we had the deflation going on, because the markets and the economy and it was all crashing. It was the financial crisis. Right now we’re not in a financial crisis, we’re just in an inflationary crisis. And so we’re seeing pricing run up. Completely different markets. And so we have to look for ways to be able to deal with that.  
 So right now, we are in our essence, not just saying, “Let’s just sit in a money market account that just cash is better than being invested.” We’ve had to look for other ways to handle it. So I think what we could do at this point is we’re just going to give you some examples.  
 We’re not going to give you ticker symbols and those kind of things for this type from an atmosphere, but we’re going to give you high level. So there are two funds that right now we’re sitting in that’s earning right around that 2% mark. So Murs can you just first of all, let’s just talk about those two funds and give again, a very high level of what they look like.  
Murs Tariq:Yeah, those are very secure funds that we are in. And basically they’re government obligations and treasury obligations that are going to pay rates of return. So it’s very similar to sitting in say, a money market, but they’re funds. They are actual mutual funds that we are in, and they’re going to be, they pay a floating rate of return. Some based on where the short term treasuries are, because part of this is treasury obligations and that floating rate is going to adjust every seven days.  
 Well, what we know right now is that interest rates are going up and that is going to be reflected in that floating rate. So right now, the seven day yield has been a little bit better than 2%. And the way that works is every say 15th of the month or every 10th of the month, depending on when they pay, based on how much you have in those funds, you’re going to get that monthly dividend or that monthly interest payment that comes into the account, gets reinvested into that fund.  
 And we’re not subject to the volatility of the market. It’s not correlated to the market at all. In fact, the fund doesn’t even move. It’s a dollar. $1 is worth is one quantity basically. So the fund is not designed to have growth in, it’s just designed to protect your principle and then also provide some interest payments while you’re in there.  
Radon Stancil:So now that’s where the vast majority of the money has sat. But now again, as things are evolving, we’re seeing a market that is prolonging in its volatility. We’re seeing interest rates that are rising and we’re seeing inflation that is rising. So we’ve had to even expand further. And so we have in addition, basically started to put a part of the portfolio into, in all essence, what would in the industry be called structured products. But they are backed by large banks, like a JP Morgan for example.  
 And the purpose of these is really to kind of say, “Hey, we are going to put together a fund that in that fund is going to pay a coupon or an interest, if you want to think about it.” I’m just trying to use terms that you could visualize, based on an annualized rate. And we basically are able to go out, the more volatile the market is, the better these things are going to pay because that’s driving it.  
 The interest rates going up, that’s going to drive it. So again, think about an investment that’s not correlated to the stock market, does well in rising interest rates, does well in high volatility. When we get into that environment, we can put together this particular offering and we ban all assets, partner with those major banks. We can go with Citibank, JP Morgan. What was the another one?  
Murs Tariq:Barclay is out there, Morgan Stanley there. All the major banks are out there that are available. So we get to go shopping basically.  
Radon Stancil:So basically we’ll go out there, we put together these offerings. The one that we did in the last offering was paying a 9% coupon. In all essence, think 9% a year in its offering. The one that we have just bought that’s going to go into the portfolios here in a week or so is 11%, right?  
Murs Tariq:Yep. A little bit better than 11.  
Radon Stancil:11%. Now, you hear that and you’re going to go, “Why don’t you put everything in that type of a place?” Well, because again, we don’t want to go down that. We are risk managers. So we say, “Look, we don’t want to do that. We’re buying about 2% a year in the portfolio to a max of 24% in a year.” Now, let me give you another caveat. This coupon rate is only guaranteed for us for three months. At the end of three months, it could go away.  
 If the bank decides that, hey, they want to close it down, they can close it down, and now we’ve got to go out and put together another one and it might not pay as good. But for those three months, we got an annualized monthly distribution of that of nine or 11%, whatever it is that we are getting for those particular deals.  
 So it’s a lot of work for us, but at the same token, it’s what we need to do in this type of environment. So it works. It is something that is if we get the markets balance out, start growing again and get out of this volatility, those are very likely not going to be that as attractive as they are today. So it’s not something that we would go out and work to do in a rising market that’s got low risk, low interest rates or falling interest rates.  
 We may not be able to get anywhere close to those rates, but it is something that we can utilize now at least to get some return in the portfolio. Anything else on that, Murs, at all that I might have overlooked on those?  
Murs Tariq:No, I think that’s good.  
Radon Stancil:Yeah, so I think high level is what we’re looking for right now are things that are low risk, not correlated to the stock market, that do well in rising interest rate environments. That that’s really what we’re looking for. All of those attributes. That is not something you go out and just do and buy one thing. This is something that you want do in a diversified way. Now, I know we’ve talked about things that you may or may not have heard, but if you think, “Hey, I’d like to have a conversation around this, we’d be glad to hop on a phone call with you.”  
 You can just simply go to our website, go to the top right hand corner, click on the schedule call button, you’ll see our calendar come up. You can hop on a phone call, we’ll talk to you. But that’s for 15 minutes, no obligation, complimentary. We’re glad to talk to you about it.  
 We are not telling you we have perfect systems. We’re telling you we have really good approaches to how to deal with markets that give us problems, whether that be a sell side discipline or looking for alternatives to the current situation. I certainly do appreciate you spending a few minutes with us today to talk about what is a pretty good risk type year with the type of markets we’re in. We will talk to you again next Monday.