As we turn the corner to 2017, we’d like to share the LPL Research Outlook 2017 with our valued investors. Here you’ll find insights and guidelines to establish important portfolio strategies for the coming year. Outlook_2017_Executive Summary
Recently in USA Today, Peter Dunn, noted author, speaker and radio host wrote an article where he explains that it takes courage to make important financial decisions and running from the wrong type of risk can make for an awful retirement. Read on – he makes some very strong points to consider.
As you age, your fear of running out of money will grow. It should. Because as you approach retirement, you’ll have fewer opportunities to out-earn your spending. Fear rightly keeps you in check. It can be the difference between running out of resources and a sustainable retirement income strategy.
Too much fear, though, can be a disaster. Some retirement savers losing sleep over their portfolios decide to stuff their cash under their mattresses instead. It’s a lumpy solution that only causes more tossing and turning. The problem is, when you attempt to avoid one set of risks, you almost always expose yourself to another.
Safe, but very sorry
Let’s say you absolutely fear the stock and bond markets and want nothing to do with them. Your primary retirement investment strategy involves CDs, money market accounts and boring old savings accounts. The bottom line is unless you plan on dying young, you’re likely to run out of money. Inflation can turn your savings into an ever-diminishing pile of paper. And when you factor in withdrawals, a cash-only investment strategy is terrifying and unsustainable
Savers refuse to become investors because they’re terrified of the unknown. In their minds, it makes more sense to avoid the known risks. But if they did the math, they might think otherwise.
Based on research I did for my book Mock Retirement, you have a staggering 81% chance of running out of money when taking 4% withdrawals from a portfolio made up of cash holdings during a 30-year retirement. With a portfolio of 60% stocks and 40% bonds, you’d have just an 8% chance of running out.
Don’t gloss over that last conclusion: Safety seekers are 10 times more likely to run out of money by refusing to invest.
Good, bad or otherwise, disappointment in interest rates and a refusal to take a stake in stock and bond markets have spurred the popularity of insurance-based products, such as annuities. According to the Insured Retirement Institute, roughly $230 billion of annuities will be sold in 2016. The idea behind them is to pass some of your market risk onto the insurance companies. Depending on the type of annuity, you either get a portion of the market upside — net fees — or you simply receive a fixed rate of return.
As with any product, it behooves you to understand all sides of the coin. Familiarizing yourself with jargon, such as surrender period, M&E charges, participation rates, cap rate and annuitization, is a great place to start.
If getting decent returns is having cake, and avoiding risk while not compromising other areas of your financial life is like eating it too, then no one is having their cake and eating it too. The second you avoid the risks of equity and bond markets, you are instantly subjected to liquidity risks, inflation risks and insurance-failure risks. You cannot avoid risk, despite what advertisements might tell you.
I’m not creating this debate out of thin air. The financial services industry has been arguing with itself for decades over which is the best way to invest retirement savings. Just turn on a talk radio station and wait for the ads. “You’ve worked too hard to have your retirement nest egg go up in smoke because your broker guessed wrong,” one commercial will assert, while another will tell you not to “fall prey to commission-based financial salespeople.” These two advertisers are trying to beat each other up.
It reminds me of Shakespearean insults. “A most notable coward, an infinite and endless liar, an hourly promise breaker, the owner of no one good quality,” vs. “Methink’st thou art a general offence and every man should beat thee.”
Take a stand
You need to make a decision. What risks are you willing to dance with?
My father taught me to make tough decisions the way Ben Franklin did: Create a pro and con chart. Grab two pieces of paper. On the first, write “Be in the market” on top. Draw a line down the middle, and list the pros on the left, and the cons on the right. Do the same thing with the second sheet titled “Avoid Market risks.” If you want, ask the two firms in the radio commercials to help you complete the charts. Take your time. A huge part of the Ben Franklin process involves mulling over the impact of your decisions. Hopefully, the impact will result in more Benjamin Franklins in your wallet.
It takes courage to make such important financial decisions. Running from the wrong type of risk can make for an awful retirement. Be brave, be steadfast and make a pro-con chart. And consider Shakespeare’s words of wisdom:
“Cowards die many times before their deaths; the valiant never taste of death but once.”
Summit Financial recently attended LPL Financial’s Focus 2016, one of the financial industry’s premier events and the largest annual conference hosted by LPL, the nation’s largest independent broker-dealer.*
Hosted in San Diego, more than 5,000 industry professionals from around the country gathered at Focus to learn new strategies and skills, expand knowledge in numerous product areas, network with peers and industry experts and discuss the most relevant opportunities and challenges facing the financial services industry.
Attendees also heard from influential and motivational speakers who addressed current events, financial industry trends and leadership topics. Keynote speakers included: Tucker Carlson, anchor of Fox and Friends Weekend and editor in chief of The Daily Caller; Paul Begala, CNN commentator and former aide to President Bill Clinton; Will Smith, actor, producer, rapper and songwriter who has been nominated for five Golden Globe Awards and two Academy Awards and has won four Grammy Awards; and Randi Zuckerberg, founder & CEO of Zuckerberg Media, author, TV host and producer.
Summit Financial of Hunt Valley again sponsored The Arc Baltimore’s 15th Annual Art in the Round Exhibit and Auction held at the Grand Lodge of Maryland. The Art in the Round exhibit and auction showcases the talent and artistry of individuals with developmental disabilities.
“We were very proud to participate in the outstanding accomplishments of these amazing, talented artists. This wonderful, sold-out event showcased over 200 submitted pieces. It was very gratifying to see the excitement and pride of these exceptional artists” said Summit Financial Founder and President, Thomas Graham.
“Art in the Round is one of The Arc’s premier annual events, with proceeds supporting future art activities for people with intellectual and developmental disabilities including classes, workshops, and training programs,” explains The Arc Baltimore Executive Director Stephen H. Morgan. “Sixty percent of the proceeds from the silent auction go to the exhibiting artists.”
Art in the Round spotlights individuals with challenges by showcasing their art and their talent. Winning bids ranged from $50-$900 and buyers were excited to take home a coveted piece of art. A jury selected 80 paintings, drawings, watercolors, sculptures and ceramics from more than 200 submissions. Many of the artists and their families are in attendance.
The following is a letter from Tom Graham, AIF, ChFC, President of Summit Financial regarding economic and market fundamentals in this election year. We thought you might want to take a look. Please let us know if you have questions.