Ep. 254 – Investing in Uncertain Times During Retirement – Election Edition

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In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the possible impact of the presidential election on your retirement investments. Political uncertainty causes increased volatility in the short term, and the idea here is to maintain security and peace of mind regarding your retirement plan.

Listen in to learn why combining the strategic core and tactical portfolio strategies works well in lowering risk. You will also learn how structured banknotes lower the risk for a client to have a fixed income in case of a volatile market in an election year.

In this episode, find out:

• Understand that political uncertainty causes increased volatility in the short term.
• How we divide the growth portfolio into the strategic core and tactical themes.
• The strategic core theme –aligning the portfolio to what we believe will happen based on the economic conditions.
• Tactical – a good and active risk management tool aligned to what’s working right now.
• The moderate growth portfolio – how structured banknotes lower the risk for a client to have a fixed income.

Tweetable Quotes:

• “There’s probably going to be a little bit of volatility in 2024, but not anything that’s going to be because of party changes or anything of the sort.”– Radon Stancil
• “We have two themes in our growth model, strategic core, which is fundamentally based and tactical, which is what’s working right this moment.”– 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 Secure Your Retirement podcast. Today, we’re going to be talking about a topic that everybody’s going to be talking about for the entire year. And the question is, does the presidential election affect the stock market? And a lot of people are concerned about that. And by the way, Murs and I in this podcast are agnostic. This has nothing to do about whether it be any particular party that gets elected. The question is, does a party, different party, whether it be a change of a party or whether it be a philosophy or a thought process, is how does it affect the market?
	And this concerns a lot of people because, right now, if you look around, obviously it’s not anything that we have to hide. The United States is basically split almost evenly down the middle in the context of like, “Well, if this happens, this is going to cause a problem, and if this happens or the opposite of what that is being said, is that going to cause a problem?” And so we want to talk about that to give perspective, but also how do we put together a plan that helps us have peace of mind because a real big focus of what we do here? So I’ll let you start off, Murs, and let’s talk about really the effects in the short term of what can happen when it comes to this idea of a presidential election.
Murs Tariq:	Yeah. I was at a wealth management conference, and we heard a bunch of economists speaking and some larger people with Charles Schwab speaking. And the question always comes up in an election year, what’s going to happen to the markets given being in an election year? And the answer was, in the short term, you are going to have volatility. You’re going to have it because there’s a lot of uncertainty. There’s a lot of speculation around, “Well, if this person gets in, what are their policies, and how is that going to impact? And let’s align the portfolios this way. And if this person gets in, vice versa.” There’s also headlines that are all over the place every single day that are going to impact the market to a degree.
	And so we always tell people to turn off the news to a degree because you are going to have things that come about. There’s going to be breaking news stories and everything like that, that’s going to make some investors react to that, and that’s where you have increased volatility. But if you look at it from a longer-term type of perspective, way back to the 1900s, overall, does the election have an impact on the stock market? Not necessarily. But in the short term, you will see some higher volatility, mainly because people are nervous. People are concerned about the outcome and where the world and the US is going to go forward. And so they are nervous about that election year, and that’s where you will see heightened volatility.
Radon Stancil:	All right? So that’s in the short term. Short term, going to have some volatility, probably no matter what, just because, especially, before the election is known. And then, if you go through a scenario where there’s a battle even after the election of who actually is the president, that’s going to cause some uncertainty. Obviously, the markets don’t like that in the short term. Long term. Long term, if we go all the way back to the year 1900, long term, a party change is not what’s going to affect the market. You can look at any kind of scenario you want to look at. We’ve had up markets and down markets across the board, regardless of who is in the office of the president. So that is not going to really be our concern. And so if we wanted to sum this up, yeah, there’s going to probably be a little bit of volatility in 2024, but not anything that’s going to be because of one thing or the other.
	So the question is, what can we do? How can we have a portfolio that’s really there, and it really is itself agnostic in the sense of what’s happening, who’s elected, what’s happening in the economy? And what I mean by that is it is able to be nimble, and it’s able to deal with different aspects of the market. Now, what I’m going to do is lay out to you the models that we use. And I want to say this, if you’re listening and you’re not a client of ours, that’s okay. We’re not trying to say that this is the perfect portfolio. We’re not trying to say it is the best way to go, no matter what. But if you think about the name of our firm is Peace of Mind Wealth Management, we do this podcast called Secure Your Retirement. Our philosophy, our mindset, is all about risk reduction.
	So we’re just going to describe to you a way to do something, and then you can do with that what you want. And we’ll even draw some comparisons. And again, this is not to beat down one and say that the other’s right. But if you were to go out and talk to 100 financial planners or financial advisors, you would find that there’s really two big camps when it comes to how to manage a portfolio. One is a passive buy-and-hold portfolio. What that is is that’s where I’m going to take my risk tolerance, and I’m going to build a portfolio. And I’m going to hold that portfolio with some rebalances occurring either monthly or quarterly. And that I’m just going to stay there until my risk tolerance changes. And it doesn’t matter what’s happening in the market, it’s not going to affect it.
	The other camp is what we call active management. An active manager is basically trying to say, “I want to adjust my portfolio regularly to deal with risk.” Now, there’s a couple of different ways to do that, but ultimately, it is making adjustments in the portfolio, either making a move as the markets change, basically trying to stay current with the markets. And you could have both of those camps argue against the other. And so our portfolio, if you take our growth portfolio, it really takes a little bit of both of those mindsets and put some together. So, Murs, if you can talk about… And we’ll talk about our growth portfolio because it’s the one that’s taking those two camps and saying, “Let’s not try to figure out which one’s going to do better. Let’s take those two camps and combine them and marry them together.”
Murs Tariq:	Yeah. So our growth portfolio, if you picture, say, you have an account and you split that account in half, that’s essentially what we’re doing. And those two halves have a theme to them. The first theme on the first half of the money is going to be what we call a strategic core. And then the second theme of how we’re going to invest that money is called our tactical. And Radon was saying, “Passive versus active, let’s marry these two together.” So our strategic core model within the growth model, you have to envision one account that’s got some themes within it. And the strategic core portion of the account, it is equity-based. So in our case, we’re buying exchange-traded funds, ETFs, but they’re pretty much operating like stocks do, a bucket of stocks in all essence. And so in our strategic core, the theme is that we are fundamentally approaching the stock market.
	Fundamentals mean where do we think the market is going based off of some relevant information, not for the super long-term, but the near to mid long-term, intermediate to couple of years out type of perspective. If you go back into, I don’t know, 2021, 2022, the big thing that was on the table was, “Hey, we’re going to go into a recession. A recession, it’s on its way. It’s on its way.” And we keep saying that. Now that talk has gone down quite a bit, as we are in now 2024. And now, the question is, are we going to hit this recession, or is there no landing whatsoever? But that’s what fundamental talk is. Let’s align the portfolio to what we think is going to happen based off of the economic conditions. And so that’s what we do for a portion of the money because we believe we’re not completely smarter than the stock market.
	So we should have a portion of the money that is forward-looking. It’s also always invested at all times. And so today, the way that portfolio sits from 2023 going into this year, it’s a little bit on the side of, well, if we do have the recession, these assets will do better than most. So a little bit more value-driven. I will tell you that sentiment is changing, and that’s part of being involved in somewhat of an active strategy overall is that we are going to make a shift in some time here when we get confirmation around this recession and where rates go and what the Fed does, all these different things that play into fundamental analysis. But for today, that side of the portfolio is rather geared towards what if we do have this recession that’s been talked about for so long now.
	The other side of the portfolio in that account is going to be our tactical side. Really, what I call this is our risk management tool. Our strategic core always invested forward-looking. Our tactical side is invested, but it is also saying, “Instead of being forward-looking, let’s say, ‘What’s working right this moment?'” If you go look at over the last 18 months, the things that have been working very, very well has been large-cap growth companies, technology, anything AI-driven, semiconductors, things like that. And so the portfolio on that part of that theme, if you will, has been aligned a little bit in that direction. That way, if the fundamentals are a little bit off, well, what’s working right now is going to be a good compliment to that, and vice versa. So that tactical side is a little bit more active, not day trading by any means. Maybe on this realm of maybe making a trade once a month or something like that.
	Every four to six weeks, we’re seeing trends change, and we’re going to adapt with the trends changing. So a little bit more active there. I’ll go back to what I said. We use the tactical piece as our risk manager. So when I asked the question of what’s working right this moment, the answer is technology in large cap. You go into 2022 and you ask that question, what’s working right this moment? A lot of assets were falling for the entire year of 2022. And so for that reason, there was periods of time in 2022 where our tactical was not invested in equities. It was actually invested in lower-risk assets like government treasuries, which were paying a decent yield there, not to make money, but they’re there to reduce volatility of the portfolio.
	So that’s why I can say it is a good risk management tool. So if the market’s working great, all lights are green, it’s invested wherever the best place to be is at the time. If the market’s not working so great or we’ve got a declining or deterioration in the market, then we can pull this back and put the brakes on this side of the portfolio. So those are the two themes in our growth model, equity-based, we’ve got core, which is fundamental-based, and then tactical, which is what’s working right this moment.
Radon Stancil:	Okay. So now, what we do is that… Okay, that’s one aspect, but then we’ll have some folks that’ll come in and they’ll go, “Okay. Well, I want to have a part of the portfolio that’s really stable.” And a lot of times, people start looking at what’s called fixed income type of things, and they’ll look at things like bonds and those kinds of instruments. What we did is we said, “Okay, if we got this growth portfolio and we just want to have a layer of something that goes into it that gives us some stability, that takes us to what we call our moderate growth portfolio.” And there, what we do is we introduced to it a piece of the pie that are what are called structured bank notes. So the way we do that is 24% of the portfolio is now going to move toward these structured bank notes.
	In the structured bank notes, we’re going out to the market. So we’re going to talk into large banks like Morgan Stanley, Citibank, Barclays, just to make a few, take about a few, and we are able to structure an instrument that’s going to give us a, in all essence, coupon rate based on an annual percentage. And those percentages of return, those interest coupons can be really attractive. As we are recording this particular podcast right now in March of 2024, those coupons are around 9% annualized. So what that does is that now takes a part of the portfolio that lowers the risk even more on that portfolio so that the client has some fixed income coming in on that. Now, you have your other parts, which are your core and your tactical as Murs talked about. Now, if a person’s even more conservative, we then can start adding to that portfolio some traditional fixed-income-type investments to take even the risk down further.
	So I just want you to understand that the idea here, imagine you’ve got a portfolio that one is saying, “Hey, we don’t know what’s going to happen in the market, so let’s be invested with some really smart fundamentals. Let’s take a part of the portfolio, and let’s be tactical and say, ‘What’s really happening? Boots on the ground right now,’ meaning something happens that’s bad, the risk could get high. We can lower that risk on a quick type timeframe.”
	And then you got this other part of the portfolio that says, “Hey, let’s just get some stability and have it in there. I am now way low on the totem pole worried about what’s going to happen in the world. I mean, I’m worried, right? I’m worried for other reasons than even money sometimes. But from when it comes to my retirement plan, I have that security, I have that peace of mind. I can go to sleep. I can wake up. And I’m not worried that if this thing happens today, that I don’t have already something already in place. And I’m not calling up my advisor and my advisor saying, ‘Don’t worry, hang in there.'” And a lot of people don’t like that approach. They want to know that there’s something that’s there, that’s predetermined, predefined, and ready to go. Anything else on that, Murs?
Murs Tariq:	No, I think that’s the gist of how we operate as far as managing money. A lot of times you hear the story or the phrase being said of “make sure you don’t put all your eggs in one basket,” or in our case, what we believe is “let’s not put all our eggs in one particular type of strategy.” Let’s not just be all fundamentally focused, buy and hold, and let it ride. Let’s not all be tactical either, and let’s just try to play the market and try to beat the market because we don’t believe that’s very doable. It can be done from time to time, but it’s difficult. So we say, “Let’s take a combination of tried and true strategies and put them together so that if one isn’t working all that great, the other ones are there to prop them up.” And so it works very well.
Radon Stancil:	All right. If you have any questions about anything you ever hear on the podcast, on the day’s topic, a previous topic, feel free to go to our website, top right-hand corner, click on Schedule Call. That will bring up the calendar of Murs and myself, and you can just schedule a visit with us. We’re glad to sit with you on the phone and talk this through, answer any questions that you have, whatsoever. And if you also want to read about it, you can go to our blog page. We have a whole blog article written on this very topic as well. We hope you have a great week. We’ll talk to you again next Monday.